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SECURITY
FUNDS
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SEMI-ANNUAL
REPORT
MARCH 31, 2000
- SECURITY CAPITAL
PRESERVATION FUND
[LOGO] SECURITY DISTRIBUTORS, INC.
A Member of The Security Benefit
Group of Companies
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MANAGER'S COMMENTARY
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MAY 15, 2000
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SECURITY
FUNDS
-----------------
TO OUR SHAREHOLDERS:
In the six month period ended March 31, 2000 Security Capital Preservation Fund
returned +3.18%.1 The benchmark Lehman Brothers 1-3 Year Government Bond Index
gained 1.82% over the same time period. Money Market funds returned 2.50%
average, according to Lipper, over the same period. The Fund seeks to deliver
returns above short-to-intermediate bond funds while maintaining a constant
share price like a money market fund. It is offered to tax sheltered annuity
custodial accounts, traditional Individual Retirement Accounts (IRAs), Roth
IRAs, education IRAs, simplified employee pension IRAs (SEP IRAs), savings
incentive match plans for employees (SIMPLE IRAs), Keogh plans, and other
qualified retirement plans. Security Capital Preservation may be a good addition
to or replacement of bond funds in an asset allocation program.
FIXED INCOME MARKETS AND THE ECONOMY
Overall, the U.S. bond market was dominated by three interest rate hikes by the
Federal Reserve's policy-making Open Market Committee during the six months
ended March 31, 2000. The economy remained vibrant with Gross Domestic Product
(GDP) growth in excess of 7% in the fourth quarter of 1999, its fastest pace in
almost sixteen years. Early estimates for growth in the first quarter of 2000
are in excess of 5%. The GDP deflator, the inflation-measuring component of GDP,
gained less than 2%, suggesting inflation overall remained benign. Still, the
FOMC argued that the pace of the economy could not be indefinitely supported by
labor force growth and productivity and thus inflation may yet be rekindled.
Despite these rate increases the bond markets rallied in the first quarter of
this year after yields had risen substantially in the last three months of 1999.
The yield on the five-year U.S. Treasury note began the six month period at
5.75% and rose to to a high of 6.77% before declining to 6.31% on March 31. In
spite of this market volatility, the Fund met its objective of maintaining a
stable net asset value of $10 per share while providing an attractive level of
current income.
INVESTMENT INSTRUMENTS USED IN THE PORTFOLIO
Security Capital Preservation Fund invests across major sectors of the
investment grade fixed income market.3 At March 31, 2000 the portfolio was
allocated approximately 37% to corporate bonds, 33% to mortgage-backed
securities, 7% to asset backed securities, 4% to U.S. Treasury issues, and 19%
to cash equivalents. This allocation of fixed income securities is intentionally
weighted toward the corporate and mortgage sectors, as these sectors have
historically offered higher yields than U.S. government issues. The average
credit quality of the holdings at March 31 was AA+ as measured by Standard &
Poor's rating agency; the duration of the holdings on that date was 3.50 years.
The Fund has also entered into wrapper agreements that are intended to provide a
stabilizing effect on the Fund's net asset value. This portfolio is one of the
first SEC-registered mutual funds for tax sheltered annuity investors and IRA
investors that enables them to make use of wrapper agreements to seek to
maintain principal stability in the face of fluctuations in values due to
changes in yields. To date we have negotiated three wrapper agreements, each of
which covers approximately one-third of the portfolio holdings. Wrapper
agreements are typically issued by highly rated insurance companies, banks, and
other financial institutions. The wrapper agreements held by the portfolio as of
March 31, 2000 were issued by Bank of America NT&SA, Transamerica Life Insurance
and Annuity Company, and Cassie des Depots et Consignations.
PORTFOLIO MANAGERS' OUTLOOK
We believe that the growth of U.S. demand must eventually stop outstripping the
growth of what the economy's available workers can supply. Even with fantastic
gains in productivity, the U.S. economy's supply side has been unable to keep up
with the breakneck pace of domestic demand, so it has to stretch its labor
resources and rely increasingly on foreign production. We suspect that a
combination of higher interest rates and less frothy equity markets will be
necessary to realign domestic demand with supply.
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1
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MANAGER'S COMMENTARY
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MAY 15, 2000
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SECURITY
FUNDS
-----------------
Given this outlook, we believe the recent fixed income rally
may slow. We anticipate that yields may drift a bit higher
in the shorter maturities and yield spreads may widen over
the near term. These conditions should present us with
attractive, but limited, opportunities to invest new cash
flows at higher yields. Over the longer term, we maintain a
generally positive but cautious outlook for the U.S. fixed
income markets. Sincerely,
Eric Kirsch, John Axtell and Louis R. D'Arienzo Portfolio
Managers
(1) Performance figures for the Capital Preservation Fund and its
benchmark comparisons are based on Class A shares and do not
reflect deduction of the sales charge.
(2) The Fund is not a money market fund and there can be no
assurance that it will maintain a stable NAV.
(3) The information about the investments held by the Fund pertains
to the BT Preservation Plus Income Portfolio, the underlying
investment of the Security Capital Preservation Fund.
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2
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SECURITY CAPITAL PRESERVATION FUND
STATEMENT OF ASSETS AND LIABILITIES
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MARCH 31, 2000
(UNAUDITED)
ASSETS
Investments in PreservationPlus Income Portfolio,
at value........................................ $128,392,785
Fund Shares Sold.................................. 2,215,724
------------
Total assets.................................... 130,608,509
------------
LIABILITIES
Dividends payable................................. 497,426
Accrued expenses and other liabilities............ 60,727
------------
Total liabilities............................... 558,153
------------
Net assets........................................ $130,050,356
============
NET ASSETS CONSIST OF:
Paid-in Capital................................... $130,050,356
Accumulated net realized gain from Investments,
Futures Contracts, Foreign Currency
and Forward Foreign Currency Transactions....... 689,010
Net unrealized depreciation on Investments,
Futures Contracts, Foreign Currency
and Forward Foreign Currency Contracts.......... (1,056,360)
Unrealized appreciation on Wrapper
Agreements...................................... 367,350
------------
Total net assets.............................. $130,050,356
============
CLASS "A" SHARES
Capital shares outstanding........................ 12,906,852
Net assets........................................ $129,068,523
Net asset value per share......................... $ 10.00
============
Offering price per share (net asset value
divided by 96.5%)............................... $ 10.36
============
CLASS "B" SHARES
Capital shares outstanding........................ 48,327
Net assets........................................ $ 483,271
Net asset value per share......................... $ 10.00
============
CLASS "C" SHARES
Capital shares outstanding........................ 49,856
Net assets........................................ $ 498,562
Net asset value per share......................... $ 10.00
============
See accompanying notes.
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3
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SECURITY CAPITAL PRESERVATION FUND
STATEMENT OF OPERATIONS
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FOR THE SIX MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
INVESTMENT INCOME:
Income net of expenses allocated
from PreservationPlus Income Portfolio $ 1,315,295
EXPENSES:
Administration and management services fees....... 54,005
12b-1 distribution fees........................... 47,829
Registration fees................................. 18,049
Reports to shareholders .......................... 554
Trustee fees...................................... 752
Professional fees................................. 2,642
Other fees........................................ 1,704
------------
Total expenses.................................. 125,535
------------
Net investment income......................... 1,189,760
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND WRAPPER AGREEMENT:
Net realized gain/(loss) from:
Investment Transactions......................... --
Foreign Currency Transactions................... 20,580
Forward Foreign Currency Transactions........... (18,480)
Foreign and Domestic Futures Transactions....... 719,560
------------
Net realized gain............................... 721,660
Net change in Unrealized appreciation/depreciation on:
Investments, Foreign Currency, Forward
Foreign Currency Contracts and
Futures Contracts............................... (725,133)
Wrapper Agreements.............................. 3,473
------------
Net Realized and Unrealized Gain (Loss) on
Investments, Futures, Foreign Currencies,
Forward Foreign Currency Contracts and
Wrapper Agreements.............................. 0
------------
Net increase in net assets from operations........ $ 1,189,760
============
See accompanying notes.
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4
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SECURITY CAPITAL PRESERVATION FUND
STATEMENT OF CHANGES IN NET ASSETS
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FOR THE SIX MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income............................. $ 1,189,760
Net realized gain from investments,
futures, foreign currency and
forward foreign currency transactions........... 721,660
Net unrealized depreciation on investments,
futures contracts, foreign currencies and
forward foreign currency contracts.............. (726,451)
Net unrealized appreciation on Wrapper
Agreements...................................... 4,791
------------
Net increase in net assets resulting
from operations............................. 1,189,760
------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A......................................... (1,171,093)
Class B......................................... (11,173)
Class C......................................... (7,494)
------------
Total distributions to shareholders........... (1,189,760)
------------
CAPITAL TRANSACTIONS IN SHARES
OF BENEFICIAL INTEREST
Proceeds from sale of shares:
Class A......................................... 109,463,974
Class B......................................... 166,170
Class C......................................... 305,899
Dividends reinvested
Class A......................................... 1,342,889
Class B......................................... 13,690
Class C......................................... 7,995
Cost of shares redeemed
Class A......................................... (6,999,050)
Class B......................................... (20,399)
Class C......................................... (9,362)
------------
Net increase in net assets from capital
transactions in shares of beneficial interest... 104,271,806
------------
Net increase in net assets ....................... 104,271,806
NET ASSETS:
Beginning of period............................... 25,778,550
------------
End of period..................................... $130,050,356
============
See accompanying notes.
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5
<PAGE> 7
SECURITY CAPITAL PRESERVATION FUND
STATEMENT OF CHANGES IN NET ASSETS
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FOR THE PERIOD MAY 3, 1999(1)
THROUGH SEPTEMBER 30, 1999
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income............................. $ 425,376
Net realized loss from investments,
futures, foreign currency and
forward foreign currency transactions (32,650)
Net unrealized depreciation on investments,
futures contracts, foreign currencies and
forward foreign currency contracts.............. (329,909)
Net unrealized appreciation on Wrapper
Agreements...................................... 362,559
------------
Net increase in net assets resulting
from operations................................. 425,376
------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A......................................... (291,497)
Class B......................................... (65,870)
Class C......................................... (68,009)
------------
Total distributions to shareholders........... (425,376)
------------
CAPITAL TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from sale of shares:
Class A......................................... 25,126,081
Class B......................................... 8,399,792
Class C......................................... 8,333,343
Dividends reinvested
Class A......................................... 154,171
Class B......................................... 63,246
Class C......................................... 65,690
Cost of shares redeemed
Class A......................................... (19,545)
Class B......................................... (8,139,228)
Class C......................................... (8,205,000)
------------
Net increase in net assets from capital
transactions in shares of beneficial interest... 25,778,550
------------
Net increase in net assets ....................... 25,778,550
NET ASSETS:
Beginning of period............................... --
------------
End of period..................................... $ 25,778,550
============
(1) Inception of Fund
See accompanying notes.
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FINANCIAL HIGHLIGHTS
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SELECTED DATA FOR EACH SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH
PERIOD
SECURITY CAPITAL PRESERVATION FUND (CLASS A SHARES)
SIX MONTHS ENDING
3-31-00(D)(E) 9-30-99 (A)(D)
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PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD............ $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ......................... 0.31 0.22
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income ......................... (0.31) (0.22)
-------- --------
NET ASSET VALUE END OF PERIOD.................. $ 10.00 $ 10.00
======== ========
TOTAL INVESTMENT RETURN (B).................... 3.18% 2.24%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)........... $129,068 $ 25,261
Ratio of Net Investment Income
to Average Net Assets........................ 6.33% 6.16%
Ratio of Expenses to Average Net Assets (c).... 1.01% 1.26%
Decrease Reflected in the Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust................................ .78% .92%
SECURITY CAPITAL PRESERVATION FUND (CLASS B SHARES)
SIX MONTHS ENDING
3-31-00(D)(E) 9-30-99 (A)(D)
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PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD............ $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ......................... 0.29 0.20
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income ......................... (0.29) (0.20)
-------- --------
NET ASSET VALUE END OF PERIOD.................. $ 10.00 $ 10.00
======== ========
TOTAL INVESTMENT RETURN (B).................... 2.92% 2.03%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)........... $ 483 $ 324
Ratio of Net Investment Income
to Average Net Assets........................ 5.79% 5.27%
Ratio of Expenses to Average Net Assets (c).... 1.53% 1.89%
Decrease Reflected in the Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust................................ .78% .92%
SECURITY CAPITAL PRESERVATION FUND (CLASS C SHARES)
SIX MONTHS ENDING
3-31-00(D)(E) 9-30-99 (A)(D)
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PER SHARE DATA
NET ASSET VALUE BEGINNING OF PERIOD............ $ 10.00 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income ......................... 0.30 0.21
DISTRIBUTIONS TO SHAREHOLDERS:
Net Investment Income ......................... (0.30) (0.21)
-------- --------
NET ASSET VALUE END OF PERIOD.................. $ 10.00 $ 10.00
======== ========
TOTAL INVESTMENT RETURN (B).................... 3.05% 2.12%
RATIOS/SUPPLEMENTAL DATA
Net Assets End of Period (thousands)........... $ 499 $ 194
Ratio of Net Investment Income
to Average Net Assets........................ 6.04% 5.51%
Ratio of Expenses to Average Net Assets (c).... 1.28% 1.64%
Decrease Reflected in the Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust................................ .78% .92%
(a) Security Capital Preservation Fund Class A, B and C Shares were initially
capitalized on May 3, 1999, with a net asset value of $10 per share. Amounts
presented are for the period May 3, 1999 through September 30, 1999.
Percentage amounts, except for total return, have been annualized.
(b) Total return information does not reflect deduction of any sales charges
imposed at the time of purchase for Class A shares or upon redemption for
Class B and C shares.
(c) Ratio expenses to average net assets include expenses of the
PreservationPlus Income Portfolio.
(d) Net investment income was computed using average month-end shares
outstanding.
(e) Unaudited figures for the six months ended March 31, 2000. Percentage
amounts for the period, except total return, have been annualized.
See accompanying notes.
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7
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NOTES TO FINANCIAL STATEMENTS
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NOTE I - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Security Capital Preservation Fund (the "Fund") seeks to provide investors
with a high level of current income while seeking to maintain a stable net asset
value ("NAV") per share. Security Income Fund is an open-end management
investment company (mutual fund). The Fund is a separate series of Security
Income Fund and currently offers three classes of shares (the "Shares"). The
Shares are offered exclusively to retirement accounts such as tax-sheltered
annuity custodial accounts ("TSA Accounts"), individual retirement accounts
("IRAs"), and to employees investing through participant-directed employee
benefit plans.The Fund began operations on May 3, 1999. Class A shares are sold
with a sales charge at the time of purchase. Class A shares are not subject to a
sales charge when they are redeemed. Class B and C shares are offered without a
front-end sales charge but incur additional class-specific expenses. Redemptions
of the shares within 5 years of acquisition for Class B shares and redemptions
within 1 year of acquisition for Class C shares incur a contingent deferred
sales charge.
The Fund seeks to achieve its investment objective by investing
substantially all of its assets in the PreservationPlus Income Portfolio (the
"Portfolio"). The Portfolio is an open-end management investment company
registered under the Act. The value of such investment in Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio. At March 31,
2000, the Fund's investment was approximately 99% of the Portfolio.
The financial statements of the Portfolio, including a list of assets held,
are contained elsewhere in this report and should be read in conjunction with
the Fund's financial statements.
B. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME
The Fund earns income, net of expenses, on its investment in the Portfolio.
All of the net investment income and net realized and unrealized gains and
losses (including Wrapper Agreements) of the Portfolio are allocated pro rata
among the investors in the Portfolio on a daily basis.
Security transactions are accounted for on a trade date basis. Realized gains
and losses on investments sold are computed on the basis of identified cost. The
realized and unrealized gains and losses in the Statement of Operations
represent the Fund's pro rata interest in the realized and unrealized gains and
losses of the Portfolio, including the offsetting valuation change of the
Wrapper Agreements.
C. DISTRIBUTIONS
It is the Fund's policy to declare dividends daily and distribute dividends
monthly to shareholders from net investment income. Dividends payable to
shareholders are recorded by the Fund on the ex-dividend date. Distributions of
net realized short-term and long-term capital gains, if any, will be made
annually.
D. FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code and distribute income to shareholders. Therefore, no federal income
tax provision is required. The Fund may periodically make reclassifications
among certain of its capital accounts as a result of differences in the
characterization and allocation of certain income and capital gains determined
in accordance with federal tax regulations which may differ from generally
accepted accounting principles.
E. OTHER
Security Income Fund accounts separately for the assets, liabilities and
operations of each fund. Expenses directly attributable to a fund are charged to
that fund, while expenses which are attributable to all of the funds are
allocated among them on the basis of relative net assets.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
NOTE 2 - FEES AND TRANSACTIONS WITH AFFILIATES
The Fund has entered into an Administration and Services Agreement with
Security Management Company, LLC ("SMC").Under this agreement, SMC provides
administrative functions and transfer agency services. This agreement provides
for the Fund to pay SMC an administration fee, accrued daily and paid monthly,
equal to .09% per year of the average daily net assets of the Fund. SMC is paid
an annual fixed charge per account as well as transaction fees for shareholder
activity and dividend payments.
Under a Sub-Accounting Agreement between SMC and Bankers Trust Company,
Bankers Trust has agreed to provide certain accounting services to the Fund,
including the daily calculation of the Fund's NAV. The Sub-Accounting Agreement
provides for SMC to pay Bankers Trust a fee, equal to $14,000 per year.
Pursuant to a separate Management Services Agreement, SMC also performs
certain other services on behalf of the Fund. Under this Agreement, SMC
provides, among other things, feeder fund management and administrative services
to the Fund which include monitoring the performance of the Portfolio,
coordinating the Fund's relationship with the Portfolio, communicating with the
Fund's Board of Directors and shareholders regarding the Portfolio's performance
and the Fund's two tier structure, and in general, assisting the Board of
Directors of the Fund in all aspects of the administration and operation of the
Fund. For these services, the Fund pays SMC a fee at the annual rate of .20% of
its average daily net assets, calculated daily and payable monthly.
Bankers Trust has agreed to waive its entire investment advisory fee payable
by the Portfolio until July 31, 2000. Bankers Trust has also voluntarily agreed
to waive a portion
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8
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NOTES TO FINANCIAL STATEMENTS (continued)
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NOTE 2 - FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
of its Portfolio administration fees. Bankers Trust may terminate or adjust the
waiver and reimbursement with respect to the administration agreement at any
time in its sole discretion without notice to shareholders. In addition, SMC has
agreed to cap the average annual expenses of the Fund at 1.50%, exclusive of
interest, taxes, brokerage fees and commissions, extraordinary expenses and
12b-1 fees.
The Fund has adopted Distribution Plans related to the offering of Class A, B
and C shares pursuant to Rule 12b-1 of the Investment Company Act of 1940. The
Plans provide for payments at an annual rate of 0.25% of the average net assets
of Class A shares, 0.75% of the average net assets of Class B shares and 0.50%
of the average net assets of Class C shares.
Security Distributors, Inc. (SDl), a wholly-owned subsidiary of Security
Benefit Group, Inc., a financial services holding company, is national
distributor for the Income Fund. For the period October 1, 1999 through March
31, 2000, SDI received net underwriting commissions on sales of Class A shares
and contingent deferred sales charges (CDSC) on redemptions of Class B and Class
C shares, after allowances to brokers and dealers in the amounts presented in
the following table:
SDI Underwriting (Class A) $ 378
SDI CDSC (Class B) $ 0
SDI CDSC (Class C) $ 106
Broker/Dealer (Class A) $7,446
Broker/Dealer (Class B) $3,523
Broker/Dealer (Class C) $1,529
Certain officers and directors of the Fund are also officers and/or directors of
Security Benefit Life Insurance Company and its subsidiaries, which include SMC
and SDI.
NOTE 3 - SHARES OF BENEFICIAL INTEREST
At March 31, 2000, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest for the
period ended March 31, 2000 were as follows:
Shares Shares Shares Increase (Decrease)
Sold Reinvested Redeemed Shares
------------------------------------------------------------
Class A 10,946,397 134,289 (699,905) 10,380,781
Class B 16,617 1,369 (2,040) 15,946
Class C 30,590 799 (936) 30,453
At September 30, 1999, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest for the
period ended September 30, 1999 were as follows:
Shares Shares Shares Increase (Decrease)
Sold Reinvested Redeemed Shares
------------------------------------------------------------
Class A 2,512,608 15,417 (1,954) 2,526,071
Class B 839,979 6,325 (813,923) 32,381
Class C 833,334 6,569 (820,500) 19,403
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SCHEDULE OF PORTFOLIO INVESTMENTS
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MARCH 31, 2000 (UNAUDITED)
------------------------------------------------
BT PRESERVATIONPLUS INCOME PORTFOLIO
------------------------------------------------
PRINCIPAL MARKET
ASSET-BACKED SECURITIES AMOUNT VALUE
------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 11.2%
California Infrastructure PG&E,
6.42%, 9-25-08...................... $ 2,000,000 $ 1,928,210
Chase Funding Mortgage Loan,
7.674%, 10-25-19.................... 3,000,000 3,000,000
First Union National Bank Commercial
Mortgage, 7.184%, 9-15-08........... 1,191,715 1,177,718
GE Capital Mortgage Services, Inc.
6.00%, 7-25-29...................... 927,643 869,280
LB Comm Conduit Mortgage Trust,
6.41%, 8-15-07...................... 3,003,408 2,882,038
Norwest Asset Securities Corporation,
6.75%, 8-25-29...................... 1,015,000 975,867
Providian Master Trust,
7.49%, 8-17-09...................... 2,500,000 2,534,313
Residential Funding Mortgage I
Securities, 6.75%, 4-25-29.......... 937,460 888,183
Vendee Mortgage Trust,
7.50%, 8-15-17...................... 150,000 150,353
------------
Total asset-backed securities............................. 14,405,962
------------
CORPORATE DEBT - 34.1%
----------------------
FINANCIAL SERVICES - 18.3%
Abbey National PLC,
6.69%, 10-17-05..................... 1,000,000 952,626
ABN Amro Bank, NV,
7.25%, 5-31-05...................... 1,000,000 984,814
Allstate Corporation,
7.20%, 12-1-09...................... 1,000,000 955,780
American General Finance,
5.875%, 12-15-05.................... 1,440,000 1,325,052
Associates Corporation,
8.55%, 7-15-09...................... 1,500,000 1,585,889
Bank of Tokyo - Mitsubishi,
8.40%, 4-15-10...................... 1,000,000 1,014,602
BankBoston, 6.50%, 12-19-07............ 1,000,000 919,548
Bear Stearns Company, Inc.,
7.625%, 2-1-05...................... 1,000,000 994,840
Bear Stearns Commercial Mortgage
Securities, 7.64%, 2-15-09.......... 114,545 115,600
CIT Group, Inc.,
7.125%, 10-15-04.................... 1,000,000 986,303
CNA Financial,
6.45%, 1-15-08...................... 1,000,000 891,638
Everest Reins Holding, Company,
8.75%, 3-15-10...................... 1,000,000 1,044,000
First Union, Lehman Brothers Bank
of America, 6.28%, 6-18-07.......... 360,887 346,307
Ford Motor Credit Company,
7.375%, 10-28-09.................... 2,000,000 1,956,400
General Motors Acceptance
Corporation, 7.75%, 1-19-10......... 2,000,000 2,001,480
Household Finance Corporation,
6.50%, 11-15-08..................... 1,000,000 920,601
J.P. Morgan & Company, Inc.,
6.00%, 1-15-09...................... 1,000,000 889,987
Lehman Brothers Holdings,
6.625%, 12-27-02.................... 950,000 923,842
Morgan Stanley Dean Witter,
7.00%, 10-1-13...................... 1,600,000 1,509,438
Paine Webber Group, Inc.
6.375%, 5-15-04..................... 1,000,000 947,548
Santander Finance Issuance,
6.80%, 7-15-05...................... 1,500,000 1,436,955
Westdeutsche Landesbank NY,
6.05%, 1-15-09...................... 1,000,000 899,500
------------
23,602,750
------------
INDUSTRIAL - 4.9%
Delphi Auto Systems Corporation,
6.50%, 5-1-09....................... 1,000,000 899,548
Laidlaw, Inc.,
7.70%, 8-15-02...................... 1,000,000 550,000
News America Holdings,
8.50%, 2-15-05...................... 1,000,000 1,027,489
Northrop-Grumman Corporation,
7.00%, 3-1-06....................... 1,000,000 940,519
Time Warner, Inc.,
7.48%, 1-15-08...................... 1,000,000 982,111
TYCO International Group,
5.875%, 11-1-04..................... 1,000,000 932,500
Union Pacific Corporation,
7.25%, 11-1-08...................... 1,000,000 956,029
------------
6,288,196
------------
UTILITIES - 2.5%
Dynegy Holdings, Inc.,
8.125%, 3-15-05..................... 1,000,000 1,017,800
MCI Worldcom, Inc.,
6.95%, 8-15-06...................... 1,000,000 974,541
Tosco Corporation,
7.625%, 5-15-06..................... 1,250,000 1,227,983
------------
3,220,324
------------
-------------------------------------------------------------------------------
10
<PAGE> 12
SCHEDULE OF PORTFOLIO INVESTMENTS
-------------------------------------------------------------------------------
MARCH 31, 2000 (UNAUDITED)
------------------------------------------------
BT PRESERVATIONPLUS INCOME PORTFOLIO
(CONTINUED)
------------------------------------------------
PRINCIPAL MARKET
CORPORATE DEBT (CONTINUED) AMOUNT VALUE
------------------------------------------------------------------------------
OTHER - 8.4%
Cox Communication, Inc.,
7.50%, 8-15-04...................... $ 1,000,000 $ 992,349
Delta Airlines, 7.90%, 12-15-09........ 1,000,000 955,756
Duke Capital Corporation,
7.50%, 10-1-09...................... 1,000,000 982,168
Federated Department Stores,
6.90%, 4-1-29....................... 1,000,000 858,986
Goodyear Tire & Rubber,
8.50%, 3-15-07...................... 1,000,000 1,012,536
Kroger Company,
7.45%, 3-1-08....................... 1,000,000 975,000
Lockheed Martin Corporation,
7.25%, 5-15-06...................... 1,137,000 1,089,587
Marriot International,
6.875%, 11-15-05.................... 1,000,000 949,800
Sears Roebuck Acceptance,
6.00%, 3-20-03...................... 1,000,000 958,157
TRW, Inc., 6.50%, 6-1-02............... 1,000,000 969,990
Vodafone Airtouch PLC,
7.75%, 2-15-10...................... 1,000,000 1,007,911
------------
10,752,240
------------
Total corporate debt...................................... 43,863,510
------------
FOREIGN DEBT - 1.5%
-------------------
Celulosa Arauco y Constitu,
6.75%, 12-15-03..................... 1,000,000 944,785
Corp Andina de Fomento,
7.75%, 3-1-04....................... 1,000,000 990,982
------------
Total foreign debt........................................ 1,935,767
------------
MORTGAGE BACKED SECURITIES - 29.5%
----------------------------------
FGLMC GOLD,
7.50%, 10-1-24...................... 4,858,143 4,803,539
8.00%, 3-1-27....................... 1,028,460 1,033,452
FHLMC, 6.25%, 7-15-04.................. 4,000,000 3,875,836
FNCL,
8.00%, 5-1-25....................... 4,278,187 4,300,357
8.00%, 9-1-26....................... 2,380,274 2,390,562
7.50%, 7-1-27....................... 2,116,089 2,080,289
7.50%, 9-1-27....................... 5,854,478 5,755,432
8.00%, 9-1-27....................... 5,838,923 5,869,225
6.50%, 9-1-28....................... 1,022,722 960,198
6.50%, 10-1-28...................... 1,066,060 1,000,887
6.50%, 12-1-28...................... 957,553 899,014
FNMA, 7.369%, 1-17-13.................. 4,980,612 5,039,817
------------
Total mortgage backed securities.......................... 38,008,608
------------
U.S. TREASURY SECURITY - 0.3%
-----------------------------
U.S. Treasury Note,
5.25%, 5-15-04...................... $ 440,000 $ 422,400
------------
SHORT-TERM INSTRUMENTS - 37.3%
------------------------------
MUTUAL FUND - 36.4%
Institutional Cash Management.......... 46,856,778 46,856,778
U.S. TREASURY BILLS - 0.9%
U.S. Treasury Bills,
5.04%, 4-6-00....................... 275,000 274,880
5.36%, 4-6-00....................... 910,000 909,604
------------
1,184,484
------------
Total short-term instruments.............................. 48,041,262
------------
Total investments - 113.9%................................ 146,677,509
------------
WRAPPER AGREEMENTS* - 0.4%
Bank of America NT&SA.................. 182,782
Daisse Des Depots et Consignation...... 182,716
TransAmerica Life Insurance
& Annuity Company................... 182,767
------------
Total Wrapper Agreements.................................. 548,265
------------
Liabilities in excess of other assets - (14.3%)........... (18,461,863)
------------
Net assets - 100%......................................... $128,763,911
============
The following abbreviations are used in portfolio descriptions:
FGLMC - Federal Government Loan Mortgage Company
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
FNCL - Federal National Mortgage Association Class Loan
*-Wrapper Agreements - Each Wrapper Agreement obligates the wrapper provider to
maintain the book value of a portion of the Portfolio's assets up to a specified
maximum dollar amount, upon the occurrence of certain specified events.
See accompanying notes.
-------------------------------------------------------------------------------
11
<PAGE> 13
===============================================================================
BT PreservationPlus Income Portfolio
STATEMENT OF ASSETS AND LIABILITIES March 31, 2000 (Unaudited)
-------------------------------------------------------------------------------
ASSETS
Investment at Value (Cost $147,572,245)..................... $146,677,509
Interest Receivable......................................... 1,384,625
Prepaid Expenses and Other ................................. 69,121
Wrapper Agreements.......................................... 548,265
Due from Bankers Trust...................................... 22,679
Variation Margin Receivable................................. 518,726
-----------
Total Assets................................................... 149,220,925
-----------
LIABILITIES
Payable for Securities Purchased............................ 20,453,125
Accrued Expenses and Other.................................. 3,889
-----------
Total Liabilities.............................................. 20,457,014
------------
COMPOSITION OF NET ASSETS
Paid in Capital............................................. 129,453,491
Net Unrealized Appreciation/Depreciation on
Investments, Foreign Currencies, Forward Foreign
Currency Contracts, Foreign and Domestic Futures
and Wrapper Agreements.................................... (689,580)
------------
NET ASSETS.................................................... $128,763,911
============
STATEMENT OF OPERATIONS (Unaudited)
===============================================================================
For the six
Months ended
March 31, 2000
--------------
INVESTMENT INCOME:
Interest Income............................................. $ 1,250,518
Credited Rate Interest...................................... 134,227
------------
Total Investment Income........................................ 1,384,745
------------
EXPENSES:
Advisory Fees............................................... 129,617
Wrapper Fees................................................ 37,536
Professional Fees........................................... 27,288
Administration and Service Fees............................. 9,384
Trustees Fees............................................... 1,630
Miscellaneous............................................... 8,088
------------
Total Expenses................................................. 213,543
Less: Fee Waivers or Expense Reimbursements.................... (147,889)
------------
Net Expenses.............................................. 65,654
------------
NET INVESTMENT INCOME.......................................... 1,319,091
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCIES, FORWARD FOREIGN CURRENCY, FOREIGN
AND DOMESTIC FUTURES AND WRAPPER AGREEMENTS
Net Realized Gain (Loss) from:
Investment Transactions................................. --
Foreign Currency Transactions........................... 20,683
Forward Foreign Currency Transactions................... (18,568)
Foreign and Domestic Futures Transactions............... 720,285
Net Change in Unrealized Appreciation/Depreciation
on Investments, Foreign Currency, Forward Foreign
Currency and Foreign Futures Contracts.................. (726,809)
Net Change in Unrealized Appreciation/Depreciation
on Wrapper Agreements..................................... 4,409
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FOREIGN CURRENCIES, FORWARD FOREIGN CURRENCY, FOREIGN
AND DOMESTIC FUTURES AND WRAPPER AGREEMENTS................. --
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS..................... $ 1,319,091
============
------------------------------------------------------------------------------
12
<PAGE> 14
==============================================================================
BT PreservationPlus Income Portfolio
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
For the Period
For the six December 23, 1998(1)
Months ended through
March 31, 2000(2) September 30, 1999
INCREASE (DECREASE) IN NET ASSETS FROM:
OPERATIONS ----------------- --------------------
Net Investment Income............. $ 1,319,091 $ 597,975
Net Realized Gain (Loss) from
Investments, Foreign Currencies,
Forward Foreign Currency and
Foreign and Domestic Futures
Transactions.................... 722,400 (32,820)
Net Change in Unrealized
Appreciaiton/Depreciation on
Investments, Foreign Currencies,
Forward Foreign Currency and
Foreign and Domestic
Futures Contracts............... (726,809) (329,564)
Net Unrealized Appreciation/
Depreciation on Wrapper
Agreements...................... 4,409 362,384
------------- -------------
Net Increase in Net Assets
from Operations................... 1,319,091 597,975
------------- -------------
CAPITAL TRANSACTIONS
Proceeds from Capital lnvested.... 190,674,551 44,761,026
Value of Capital Withdrawn........ (89,324,728) (19,264,004)
------------- -------------
Net Increase in Net Assets from
Capital Transactions.............. 101,349,823 25,497,022
------------- -------------
TOTAL INCREASE IN NET ASSETS......... 102,668,914 26,094,997
NET ASSETS
Beginning of Period............... 26,094,997 --
------------- -------------
End of Period..................... $ 128,763,911 $ 26,094,997
============= =============
(1) Commencement of operations
(2) Unaudited
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
Contained below are selected supplemental data and ratios to average net assets
for the periods indicated for the PreservationPlus Income Portfolio.
For the Period
For the six December 23, 1998(1)
Months ended through
March 31, 2000(3) September 30, 1999
----------------- ------------------
SUPPLEMENTAL DATA AND RATIOS
Net Assets, End of
Period (000s omitted)............. $ 128,764 $ 26,095
Ratios to Average Net Assets
Net Investment Income .............. 6.95%(2) 6.47%(2)
Expenses After Waivers.............. 0.35%(2) 0.49%(2)
Expenses Before Waivers............. 1.13%(2) 1.41%(2)
Portfolio Turnover Rate.............. 4.67% 149%
(1) Commencement of operations.
(2) Annualized.
(3) Unaudited.
-------------------------------------------------------------------------------
13
<PAGE> 15
===============================================================================
BT PreservationPlus Income Portfolio
NOTE 1-ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. Organization
The BT Investment Portfolios (the "Portfolio Trust") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio, one of the series of the Portfolio
Trust, was organized and began operations on December 23, 1998. The Portfolio
Trust was organized as an unincorporated trust under the laws of New York. The
Declaration of Trust permits the Board of Trustees (the "Trustees") to issue
beneficial interests in the Portfolio.
B. Security Valuation
Debt securities (other than short-term debt obligations maturing in 60 days or
less), including listed securities and securities for which price quotations are
available, will normally be valued on the basis of market valuations furnished
by a pricing service. Such market valuations may represent the last quoted price
on the securities' major trading exchange or quotes received from dealers or
market makers in the relevant securities or may be determined through the use of
matrix pricing. In matrix pricing, pricing services may use various pricing
models, involving comparable securities, historic relative price movements,
economic factors and dealer quotations. Over-the-counter securities are normally
valued at the bid price. Short-term debt obligations and money market securities
maturing in 60 days or less are valued at amortized cost. Securities for which
market quotations are not readily available are valued by Bankers Trust Company
pursuant to procedures adopted by the Portfolio's Board of Trustees.
Wrapper Agreements generally will be equal to the difference between the Book
Value and Market Value (plus the crediting rate adjustment) on the applicable
covered assets and will either be reflected as an asset or a liability of the
Portfolio. The Portfolio's Board of Trustees, in performing its fair value
determination of the Portfolio's Wrapper Agreements, considers the
creditworthiness and the ability of Wrapper Providers to pay amounts due under
the Wrapper Agreements.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Interest income
is recorded on the accrual basis and includes amortization of premium and
accretion of discount on investments. Realized gains and losses from security
transactions are recorded on the identified cost basis. The credited rate
interest represents the actual interest earned on covered assets under the
Portfolio's Wrapper Agreements (the "agreements") plus or minus an adjustment
for an amount receivable from or payable to the wrapper provider based on
fluctuations in the market value of covered assets under the agreements.
All of the net investment income and net realized and unrealized gains and
losses (including the Wrapper Agreements) of the Portfolio are allocated pro
rata to the investors in the Portfolio on a daily basis.
D. TBA Purchase Commitments
The Portfolio may enter into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed price at a future date, typically not exceeding
45 days. TBA purchase commitments may be considered securities in themselves,
and involve a risk of loss if the value of the security to be purchased declines
prior to settlement date. This risk is in addition to the risk of decline in the
value of the Portfolio's other assets. Unsettled TBA purchase commitments are
valued at the current market value of the underlying securities, according to
the procedures described under "Security Valuation" above.
E. Foreign Currency Transactions
The books and records of the Portfolio are maintained in U.S. dollars. All
assets and liabilities initially expressed in foreign currencies are converted
into U.S. dollars at prevailing exchange rates. Purchases and sales of
investment securities, dividend and interest income, and certain expenses are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
F. Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts for the purpose
of settling specific purchases or sales of securities denominated in a foreign
currency or with respect to the Portfolio's investments. The net U.S. dollar
value of foreign currency underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation are
determined using prevailing exchange rates. With respect to forward foreign
currency contracts, losses in excess of amounts recognized in the Statement of
Operations may arise due to changes in the value of the foreign currency or if
the counterparty does not perform under the contract.
G. Option Contracts
The Portfolio may enter into option contracts. Upon the purchase of a put option
or a call option by the Portfolio, the premium paid is recorded as an
investment, and marked-to-market daily to reflect the current market value. When
a purchased option expires, the Portfolio will realize a loss in the amount of
the cost of the option. When the Portfolio enters into a closing sale
transaction, the Portfolio will realize a gain or loss depending on whether the
sale proceeds from the closing sale transaction are greater or less than the
cost of the option. When the Portfolio exercises a put option, it realizes a
gain or loss from the sale of the underlying security and the proceeds from such
sale will be decreased by the premium originally paid. When the Portfolio
exercises a call option, the cost of the security which the Portfolio purchases
upon exercise will be increased by the premium originally paid.
H. Futures Contracts
The Portfolio may enter into financial futures contracts, which are contracts to
buy a standard quantity of securities at a specified price on a future date. The
Portfolio is required to make initial margin deposits either in cash or
securities in an amount equal to a certain percentage of the contract amount.
Variation margin payments are made or received by the Portfolio each day,
depending on the daily fluctuations in the value of the underlying security, and
are recorded for financial statement purposes as unrealized gains or losses by
the Portfolio.
Futures contracts do involve certain risks. These risks could include a lack of
correlation between the futures contract and the corresponding securities
market, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in poorer overall performance than
if a futu res contract had not been entered into.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
I. Federal Income Taxes
The Portfolio is considered a partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
J. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
NOTE 2--FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"), an indirect wholly owned subsidiary of
Deutsche Bank A.G. Under this agreement, Bankers Trust provides administrative,
custody, transfer agency and shareholder services to the Portfolio in return for
a fee computed daily and paid monthly at an annual rate of .05% of the
Portfolio's average daily net assets.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this agreement, the Portfolio pays Bankers Trust an advisory fee computed daily
and paid monthly at an annual rate of .70% of the Portfolio's average daily net
assets, less advisor fees paid for the pro rata amount due to investment in the
Institutional Cash Management Fund.
-------------------------------------------------------------------------------
14
<PAGE> 16
===============================================================================
BT PreservationPlus Income Portfolio
NOTE 2--FEES AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
Bankers Trust has contractually agreed to waive its fees through January 31,
2010 and reimburse expenses of the Portfolio, to the extent necessary, to limit
all expenses to .35% of the average daily net assets of the Portfolio.
The Portfolio may invest in the Institutional Cash Management Fund (the "Cash
Management Fund"), an open-end management investment company managed by Bankers
Trust Company. The Cash Management Fund is offered as a cash management option
to the Portfolio and other accounts managed by Bankers Trust. Distributions from
the Cash Management Fund to the Portfolio for the six months ended March 31,
2000 amounted to $290,703, and are included in dividend income.
At March 31, 2000, the Portfolio was a participant with other affiliated
entities in a revolving credit facility in the amount $150,000,000, which
expires April 29, 2000. A commitment fee on the average daily amount of the
available commitment is payable on a quarterly basis and apportioned among all
participants based on net assets. No amounts were drawn down or outstanding for
this Portfolio under the credit facility for the six months ended March 31,
2000.
NOTE 3--PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the six months ended March 31, 2000, were
$78,269,296 and $0, respectively. For federal income tax purposes, the tax basis
of investments held at March 31, 2000, was $147,572,245. The aggregate gross
unrealized appreciation was $298,265, and the aggregate gross unrealized
depreciation for all investments was $1,193,001 as of March 31, 2000.
NOTE 4--WRAPPER AGREEMENTS
The Portfolio will enter into Wrapper Agreements with insurance companies, banks
or other financial institutions ("Wrapper Providers") that are rated, at the
time of purchase, in one of the top two long-term rating categories by Moody's
or S&P. A wrapper agreement is a derivative instrument that is designed to
protect the portfolio from investment losses and under most circumstances permit
the Fund to maintain a constant NAV per share. There is no active trading market
for Wrapper Agreements, and none is expected to develop; therefore, they are
considered illiquid.
A default by the issuer of a Portfolio Security or a Wrapper Provider on its
obligations may result in a decrease in the value of the Portfolio assets. The
Wrapper Agreements generally do not protect the Portfolio from loss if an issuer
of Portfolio Securities defaults on payments of interest or principal.
Additionally, a Fund shareholder may realize more or less than the actual
investment return on the Portfolio securities depending upon the timing of the
shareholder's purchases and redemption of shares, as well as those of other
shareholders.
NOTE 5--FUTURES CONTRACTS
A summary of obligations under these financial instruments at March 31, 2000 is
as follows:
<TABLE>
<CAPTION>
Unrealized
Appreciation
Types of Futures Expiration Contracts Position Market Value (Depreciation)
---------------- ------------- --------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
U.S. 10 Year Note Futures June 22, 2000 82 Long $ 8,042,396 $ 207,007
U.S. 5 Year Note Futures June 22, 2000 76 Long 7,486,000 92,283
S&P/Toronto Stock
Exchange 60 Index Futures June 16, 2000 53 Long 4,224,214 111,815
Euro Bond Futures June 9, 2000 21 Long 2,114,887 22,474
DAX Index Futures June 19, 2000 15 Long 2,724,687 28,836
U.S. Long Bond Futures June 22, 2000 10 Long 976,870 32,768
Tokyo Price Index Futures June 9, 2000 9 Long 1,495,906 98,733
SPI Futures July 4, 2000 3 Long 144,791 1,000
Long Gilt Futures June 29, 2000 2 Long 361,618 1,247
FTSE 100 Index Futures June 19, 2000 (1) Short (105,139) 113
Japan 10 Year Bond Futures June 12, 2000 (1) Short (1,281,926) (242)
Amsterdam Information
Technology Futures June 17, 2000 (14) Short (1,910,101) (8,141)
S&P 500 Index Futures June 16, 2000 (16) Short (6,061,200) (521,796)
CAC 40 10 Euro Index Futures June 30, 2000 (31) Short (1,857,903) (20,705)
U.S. 10 Year Note Futures June 22, 2000 (39) Short (3,825,042) (74,035)
Canadian 10 Year Bond Futures June 22, 2000 (72) Short (4,945,780) (47,616)
U.S. 5 Year Note Futures June 22, 2000 (76) Short (7,486,000) (66,842)
--- ----------- -------
Total 21 $ 98,278 $(143,101)
--- =========== =========
</TABLE>
-------------------------------------------------------------------------------
15
<PAGE> 17
===============================================================================
BT PreservationPlus Income Portfolio
NOTE 6--FORWARD FOREIGN CURRENCY CONTRACTS
As of March 31, 2000, the PreservationPlus Income Portfolio had the following
open forward foreign currency contracts:
Net Unrealized
<TABLE>
<CAPTION>
Appreciation
Contracts In Exchange For Settlement Date Value (US$) (Depreciation) (US$)
------------------------------------------------------------------------------------------------------------------
Sales
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Australian Dollar 383,000 US Dollars 233,396 4/6/00 $232,814 $ 582
Australian Dollar 1,350,000 US Dollars 828,158 4/6/00 820,625 7,533
Canadian Dollar 259,000 US Dollars 178,242 4/5/00 178,658 (416)
Canadian Dollar 918,000 US Dollars 626,142 4/5/00 633,233 (7,091)
------------------------------------------------------------------------------------------------------------------
Total Sales 608
------------------------------------------------------------------------------------------------------------------
Purchases
------------------------------------------------------------------------------------------------------------------
Euro Dollar 23,000 US Dollars 22,299 4/6/00 $ 21,986 (313)
Euro Dollar 82,000 US Dollars 79,621 4/6/00 78,386 (1,235)
British Pound 33,000 US Dollars 52,109 4/6/00 52,566 457
British Pound 117,000 US Dollars 183,975 4/6/00 186,369 2,394
------------------------------------------------------------------------------------------------------------------
Total Purchases 1,303
------------------------------------------------------------------------------------------------------------------
Net Unrealized Appreciation $ 1,911
=======
</TABLE>
NOTE 7--PORTFOLIO NAME CHANGE
As of January 31, 2000, the Portfolio changed its name from BT PreservationPlus
Income Portfolio to Deutsche PreservationPlus Income Portfolio.
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-------------------------------------------------------------------------------
17
<PAGE> 19
THE SECURITY GROUP OF
MUTUAL FUNDS
Security Growth and Income Fund
Security Equity Fund
- Equity Series
- Global Series
- Total Return Series
- Social Awareness Series
- Value Series
- Small Company Series
- Enhanced Index Series
- International Series
- Select 25 Series
Security Ultra Fund
Security Income Fund
- Diversified Income Series
- High Yield Series
- Capital Preservation Series
Security Municipal Bond Fund
Security Cash Fund
SECURITY FUNDS
OFFICERS AND DIRECTORS
DIRECTORS
Donald A. Chubb, Jr.
John D. Cleland
Penny A. Lumpkin
Mark L. Morris, Jr., D.V.M.
Maynard F. Oliverius
James R. Schmank
OFFICERS
John D. Cleland, Chairman of the Board
James R. Schmank, President
Steven M. Bowser, Vice President
Thomas A. Swank, Vice President
Amy J. Lee, Secretary
Christopher D. Swickard, Assistant Secretary
Brenda M. Harwood, Treasurer
This report is submitted for the general information of the shareholders of the
Funds. The report is not authorized for distribution to prospective investors in
the Funds unless preceded or accompanied by an effective prospectus which
contains details concerning the sales charges and other pertinent information.
------------------------------------------
[LOGO] SECURITY DISTRIBUTORS, INC.
------------------------------------------
700 SW Harrison St.
Topeka, KS 66636-0001
SDI 803a (R5-00)
46-08030-01
