o BT INSTITUTIONAL FUNDS o
INTERNATIONAL EQUITY FUND
ANNUAL REPORT
----------------
SEPTEMBER o 1998
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International Equity Fund
Table of Contents
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Letter to Shareholders 3
International Equity Fund
Statement of Assets and Liabilities 7
Statement of Operations 8
Statements of Changes in Net Assets 9
Financial Highlights 10
Notes to Financial Statements 11
Report of Independent Accountants 13
Tax Information 13
International Equity Portfolio
Schedule of Portfolio Investments 14
Statement of Assets and Liabilities 16
Statement of Operations 17
Statements of Changes in Net Assets 18
Financial Highlights 18
Notes to Financial Statements 19
Report of Independent Accountants 22
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The Fund is not insured by the FDIC and is not a deposit,
obligation of or guaranteed byBankers Trust Company. The Fund
is subject to investment risks, including possible loss of
principal amount invested.
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2
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International Equity Fund
Letter to Shareholders
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We are pleased to present you with this annual report for the International
Equity Fund (the "Fund"), providing a review of the markets, the Portfolio, and
our outlook, as well as a complete financial summary of the Fund's operations
and a listing of the Portfolio's holdings.
MARKET ACTIVITY
Emerging market uncertainties spoiled the record-setting pace most developed
equity markets had enjoyed through mid-July. Market watchers initially viewed
the sell-off as an over-reaction to localized events, but in time, it became
increasingly apparent that the G7 nations would not be immune to such contagion.
Although no single event led to the massive correction experienced this summer,
several bonfires contributed in a significant way. These included:
o Russian political, financial and economic turmoil
o Japanese indecisiveness regarding methods for stimulating its economy and
dealing with bankrupt financial institutions
o global bank exposure to foundering hedge funds
o weaker U.S. corporate earnings amid high price/earnings multiples
o moves toward impeachment proceedings against President Clinton
o potential for foreign loan defaults in Brazil, and
o election jitters in Germany.
Furthermore, world markets were disappointed that the U.S. Federal Reserve Board
reduced its key discount rate by only 0.25% to 5.25% during the closing days of
September. Although the Fed's behavior in recent years has been to move in such
increments, market pundits had expected a half percent move in recognition of
the rapidly weakening economic outlook both at home and abroad.
Europe
European markets, which had been this fiscal year's global performance leaders,
quickly gave back much of their tremendous gains during the summer months. For
example, while many equity markets delivered U.S. dollar returns in excess of
35% from January through mid-July 1998, most were scarcely ahead of where they
started the year by the end of September. For the six-month period ended
September 30, 1998, only Finland and Belgium offered positive returns. Europe's
largest markets--the United Kingdom, France, and Germany--delivered -12.7%,
- -6.9%, and -1.3% in U.S. dollar returns, respectively. Markets in Europe's
periphery, which are the beneficiaries of interest rate convergence, initially
soared, only to be turned back by the end of the fiscal period. These periphery
markets include Italy, Spain, Portugal, and Ireland.
Although the half year period paints a dismal picture, in the context of the
last twelve months, a more favorable story unfolds. Europe as a whole gained
8.7%, led by the continent's smaller markets--Finland, Italy, Spain, and
Portugal. France and Germany's annual performance was robust as well. The United
Kingdom's market--the largest in Europe--offered a lackluster, but still
positive, return.
Asia
This region's markets, overall, ended down 41.9% for the fiscal year ended
September 30, 1998. The worst performers, in U.S. dollar terms, were Indonesia,
Malaysia, Thailand, and South Korea.
Japan's economy is now mired in recession with no end in sight. The problems of
the beleaguered financial sector, if appropriately addressed, would likely
worsen the economic malaise, since it would result in massive layoffs and
downward revisions to assets values. Conversely, ignoring the extent of bad
debts and delaying their write-offs would likely dig a deeper hole for the
Nikkei Index, now trading at 12-year lows. Japanese equities declined by 18.8%
during the six-month period ended September 30, 1998 and by 33.4% over the
twelve-month period ended on that date, in U.S. dollar terms. The nation's poor
economic health does not bode well in terms of its impact on the rest of Asia.
TEN LARGEST STOCK HOLDINGS % of Net Assets
Credito Italiano (Banks) 2.01%
Railtrack Group Plc. (Transportation) 1.75%
Societe Generale d'Entreprises SA
(Building & Construction) 1.72%
Suez-Lyonnaise Des Eaux (Utilities) 1.69%
Endesa SA (Utilities-Electric) 1.64%
Canal Plus (Television) 1.56%
Telecom Italia SPA (Telecommunications) 1.54%
British Energy Plc. (Utilities-Electric) 1.53%
Fomento de Construcciones y Contratas SA
(Building) 1.50%
Bayerische Vereinsbank AG (Banks) 1.43%
Outside of Japan, economies in the region are still struggling to recover after
more than a year since the start of the Southeast Asia financial crisis.
Compounding the problem are the recession in Japan, the deflationary pressures
in the U.S. and Europe, and the global credit crunch, which is bidding up the
cost of capital beyond the means of many nations in the region. Many of the
crisis-torn countries are opting for lower domestic interest rates and larger
fiscal spending budgets, putting aside strict International Monetary Fund (IMF)
guidelines for the moment. Malaysia has imposed capital and currency controls,
while Hong Kong implemented tougher short-selling rules and spent $15 billion to
support its equity market. Unrest in Indonesia brought the resignation of
President Suharto amid sharp economic decline. Concerns heightened that China
would devalue its currency when the yen depreciated dramatically against the
U.S. dollar in August. Despite the skeptics, however, China has been able to
hold firm.
Although economic contraction accelerated in the second calendar quarter for
nearly every country in the region, some positive signs are developing.
o Restructuring efforts are underway and have led to falling interest rates over
the quarter and the year ended September 30, 1998, while regional currencies
have been fairly stable except in Indonesia.
o The Korean won and the Thai baht have risen about 26% year-to-date as of
September 30th, helped by projected current account surpluses in excess of 10%
of GDP.
o China has shown some re-acceleration with positive growth trends developing in
fixed asset investment, retail sales, loan balances, and money supply.
Other Markets
Canada began to feel the effect of a weaker Asia and a historically frail
currency over the fiscal year. Lower commodity prices and softer
3
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International Equity Fund
Letter to Shareholders (continued)
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U.S. demand are also having a negative impact on an otherwise benign domestic
environment, which has experienced good growth, low inflation, and political
stability.
Russia defaulted on its short-term domestic bond and currency contracts and saw
its currency plummet, despite receiving a $17.1 billion IMF-led package.
Investors quickly abandoned emerging market bonds, dramatically raising the cost
of capital.
Latin America's "feel-good factor" created by Brazil's successful privatization
of Telebras, the telecommunications company, was short-lived, with weak
commodity prices dampening the economic outlook for the region.
INVESTMENT REVIEW
During the last 6 months, the period under review, we continued to weight the
Fund's portfolio toward Europe, favoring the continent and its smaller markets.
Although we remain underweight the United Kingdom, as compared with the MSCI
EAFE benchmark, our exposure increased through the addition of strong growth
companies and yield opportunities. Though we added defensive holdings in Japan,
we remained substantially underweight there, but added defensive holdings there.
We significantly decreased our exposure to the Asia-Pacific region and to the
emerging markets. Our small weighting in Canada has been trimmed even further as
well. While absolute performance for the fiscal year was disappointing, the Fund
did notably outperform both its benchmark and its category average. For the year
and life of the Fund as of September 30th, the Fund has produced positive
returns, significantly outperforming its benchmark and category average in each
case.
Europe continues to offer the most attractive valuations and performance
potential in our equity universe. The Fund's holdings there are beneficiaries of
the restructuring and consolidation underway in specific industries as well as
the economic growth we should witness as part of European economic and monetary
union.
Although still underweight the Index, we added to our U.K. portfolio by
increasing existing positions in British Aerospace, pharmaceutical leader Glaxo
Wellcome, railway infrastructure company Railtrack Group, and British Energy. We
took profits in gas transportation provider BG plc. We also bought telecom
provider Colt Telecom and cellular provider Vodafone. We reduced the Fund's
exposure to the U.K. hotel sector through the sale of Millenium & Copthorne.
France remains the Fund's largest market exposure. New positions there include
media company Canal Plus, infrastructure developer Eiffage, data networker
Equant, and Vivendi (formerly Generale Des Eaux). We also made significant
additions to our holding in Suez Lyonnaise des Eaux; took profits in tire maker
Michelin; and disposed of the electrical machinery manufacturer Schneider. We
took profits in Franco-Belgian lender Dexia as well.
Elsewhere in core European markets, we were also actively buying and selling.
o Germany--We took advantage of market conditions in this nation to increase
positions in insurer Allianz, regional bank Bayerische Hypo-und Vereinsbank,
and diversified utility company Viag. We purchased pharmaceutical company
Hoechst and took profits in specialized software services firm SAP. In
addition, one of our holdings, Daimler-Benz, announced its plan to merge with
U.S. auto maker Chrysler, creating the world's fifth largest car company,
DaimlerChrysler.
o The Netherlands--We purchased telecommunications leader KPN and edged up our
holdings in food retailer Ahold. We sold consumer products firm Hagemeyer on
lower profit expectations in Asia and Latin America; Ispat on poor steel
market conditions; and Philips Electronics on weakening consumer electronics
demand.
o Switzerland--After diminished earnings prospects following disclosure
regarding Russian loans, we sold Credit Suisse but participated in the initial
public offering of Swisscom, the national telephone company.
We maintained the Fund's significant emphasis on Europe's peripheral markets
during the reporting period.
o Italy--We continued to find exciting opportunities here, where we added new
names in the restructuring financial sector. We replaced our holding in Banca
di Roma with Banca Commerciale Italiana and purchased shares in regional banks
Banca Popolare di Bergamo and Banca Popolare di Milano. With softening demand
in
<TABLE>
<CAPTION>
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Periods ended September 30, 1998 Cumulative Total Returns Average Annual Total Returns
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Past 1 Since Past 1 Since
year inception year inception
<S><C>
BT Institutional International
Equity Fund* (inception 4/1/97)
Class I -2.86% 18.90% -2.86% 12.28%
Class II -1.96% 20.10% -1.96% 13.03%
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Morgan Stanley Capital
International ("MSCI")
EAFE Index** -8.34% 2.83% -8.34% 1.88%
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Lipper International Equity
Funds Average*** -10.65% 0.89% -10.65% 0.48%
</TABLE>
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* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** Indexes are unmanaged, and investments cannot be made in an index.
*** Lipper figures represent the average of the total returns reported
by all of the mutual funds designated by Lipper Analytical Services,
Inc. as falling into the respective categories indicated. These figures do
not reflect sales charges.
4
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International Equity Fund
Letter to Shareholders (continued)
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DIVERSIFICATION OF PORTFOLIO INVESTMENTS
By Country as of September 30, 1998
(percentages are based on net assets)
[PIE CHART APPEARS HERE]
Netherlands 5% Japan 6%
Portugal 5% Italy 10%
Spain 8% Ireland 3%
Switzerland 3% United
Germany 10% Kingdom 13%
France 19% Cash and Cash Equivalents 7%
Other(+) 3% Finland 4%
Australia 2%
Canada 2%
- -------------------
(+) Includes countries with weightings of less than 2%.
Asia, we took profits in luxury goods maker Bulgari and in food company
Parmalat, which has considerable exposure to Brazil. We also sold Italgas for a
gain among signs that return on capital would weaken.
o Spain--We enlarged our position in utility bellwether Endesa and also added
shares in state tobacco monopoly Tabacalera.
o Portugal--The Fund continued to benefit from strong performance in this market
with our considerable presence there. But we sold Portugal Telecom, due to its
weakening expansion outlook in Brazil.
o Sweden--Difficult conditions in many of this nation's export markets led to
our sale of appliance maker Electrolux and paper company Stora. We used the
opportunity to take profits in auto maker Volvo and global engineering firm
ABB.
o Finland--We initiated a new position in cholesterol-reducer Raisio and telecom
service company Helsinki Telephone, while selling UPM-Kymmene due to concerns
over pricing power in the paper industry.
o Ireland--We participated in the initial public offering of long distance and
cellular provider Esat Telecom Group. We sold paper company Jefferson Smurfit.
We added only one new name to the Fund's Japanese portfolio, reflecting a lack
of confidence in the ability of policy makers to take the economy out of
recession and to fully address the bad debt crisis in the financial sector.
Household products manufacturer Kao Corporation was purchased. We sold one
pharmaceutical company, Sankyo, on valuation concerns, and we increased the
Fund's position in a competitor, Takeda Chemical.
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Performance Comparison
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Comparison of Change in
Value of a $10,000 Investment
in the International Equity
Fund - Class I and Class II,
with the MSCI EAFE Index
since April 1, 1997.
Total Return
Ended September 30, 1998
Class I Class II
Since 4/1/97* Since 4/1/97**
12.28%** 13.03%
One Year One Year
-2.86% -1.96%
* The Fund's inception date.
** Annualized
Investment return and principal value
may fluctuate so that shares, when
redeemed, may be worth more or less
than their original cost.
[GRAPH APPEARS HERE - SEE PLOT POINTS BELOW]
International
Equity Fund - MSCI EAFE
Class I - $11,890 Index - $10,283
April-97 10,000 10,000
Jun-97 11,298 11,238
Sep-97 11,860 11,218
Sep-98 11,890 10,283
[GRAPH APPEARS HERE - SEE PLOT POINTS BELOW]
International
Equity Fund - MSCI EAFE
Class II - $12,010 Index - $10,283
Apr-97 10,000 10,000
Jun-97 11,298 11,238
Sep-97 11,870 11,218
Sep-98 12,010 10,283
Past performance is not indicative of future performance. The Fund is not
insured by the FDIC and is not a deposit, obligation of or guaranteed by
Bankers Trust Company. The Fund is subject to investment risks, including
possible loss of principal amount invested.
5
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International Equity Fund
Letter to Shareholders (continued)
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Elsewhere in the Asia-Pacific region, we sold more than we bought.
o Australia--We purchased diversified financial services leader AMP, which is
domestically-geared, and took profits in its competitor, Asia-exposed National
Mutual.
o New Zealand--We sold our position in Telecom Corporation of New Zealand due to
worsening economic prospects.
o Hong Kong--The Hong Kong Monetary Authority attempted to rescue its market by
injecting public funds, thereby providing liquidity for the Fund's portfolio
to take our weighting there to zero.
o Korea--We sold Pohang Iron &Steel over concerns of prolonged margin pressure.
Conditions in the rest of the region remain weak, although equity markets may be
finally forming a bottom. We moved out of small positions in Singapore,
Thailand, and the Philippines.
We also significantly reduced our emerging market exposure particularly through
the sale of our remaining holdings in Latin America due to deteriorating
economic conditions, high real interest rates and potential currency devaluation
in Brazil.
Activity in other markets was minimal. We added telephone giant BCE in Canada,
but then sold the shares due to weakening equipment demand. We purchased Greek
mobile telecom company STET Hellas.
MANAGER OUTLOOK
The risk premium for equities has risen considerably in recent months,
reflecting increased expectations of slower economic growth and weaker earnings
ahead. We believe the unprecedented volatility of not only emerging markets but
their mature counterparts as well points to a need to pare risk and to revisit
the fundamental facts that can contribute to outperformance. In the difficult
near-term environment we foresee, firms that have a clear strategy for
maintaining profitability and enhancing shareholder value will likely be those
rewarded with rising stock prices.
We continue to believe that economic and monetary union will be a driver for
European earnings. We also believe that lower interest rates will cushion the
impact of slower growth there and around the world. The trend towards
consolidation should accelerate as competitive pressures mount, leading to a
greater number of new partnerships, acquisitions, and mergers.
In the near term, Japan is unlikely to effect a long-lasting resolution to its
economic quagmire, in our opinion, nor is it realistic about solving its
financial sector's severe bad debt crisis. History has shown that symbolic
measures, while boosting the market temporarily, only lead to disappointment and
ever weaker equity prices. The nation is at best likely to endure a prolonged
recession, regardless of the speed at which problems are addressed. Asset
deflation, sharply higher unemployment, continued declines in consumer
confidence and corporate failures are the realities Japan must now face, because
policy makers have too long ignored the depth of its problems. Perhaps a crisis
of this magnitude will now prompt meaningful reform to take place, though the
cure may be nearly as painful as the disease.
Since September, the Asia ex-Japan markets have staged a mild rally with the
strengthening yen, the disappearance of short sellers due to the decline of
hedge fund activity and fear of further government intervention, and the
marginal allocation of monies into the region. However, we believe this
mini-rally is akin to the false start we had earlier in the first calendar
quarter, when marginal allocation of monies into the region produced large index
returns due to the limited liquidity in the markets. The region has moved
strongly on back of the yen's appreciation to below the 120 level, which we feel
is unsustainable given Japan's weak fundamentals. The cracks forming in the U.S.
and European economies will likely drag the Asian region down another notch,
just when there are some signs that the economies are nearing a bottom. Export
growth is already negative in U.S. dollar terms for Thailand and South Korea,
even though these economies have not yet seen the impact of slowing in the U.S.
and Europe. An economy must show signs of recovery for a sustained improvement
in equity performance. Asia's markets could be range-bound for some time, with
many policy and implementation issues still outstanding amid a deteriorating
external environment.
Caution is still the word, we believe, for emerging markets, particularly in the
global credit crunch scenario. Emerging Asia will likely perform the best, since
it is furthest along in the correction process. Plus, within the emerging
markets, Asia has the lowest real interest rates. Meanwhile, Latin America has
the highest real interest rates, which supports our negative stance on the
region. We still do not see a sustained recovery in commodity prices to which
Latin America is very exposed. Even if Brazil succeeds in avoiding a currency
devaluation, the economy will likely undergo a contraction. Eastern Europe has
been hurt by the Russian meltdown, even though the region has, in recent years,
moved more closely to its western counterparts. If western Europe slows, Eastern
Europe will likely feel a double impact.
We will, of course, continue to monitor economic conditions and political
initiatives and their effect on financial markets as we seek long-term capital
appreciation.
We value your support of the BT Institutional International Equity Fund and look
forward to continuing to serve your investment needs in the years ahead.
/s/ Michael Levy
________________
/s/ Robert Reiner
_________________
/s/ Julie Wang
______________
Michael Levy, Robert Reiner and Julie Wang
Portfolio Managers of the
International Equity Portfolio
September 30, 1998
6
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International Equity Fund
Statement of Assets and Liabilities September 30, 1998
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<TABLE>
<S><C>
Assets
Investment in International Equity Portfolio, at Value $ 567,368,112
Receivable for Shares of Beneficial Interest Subscribed 1,439,416
Prepaid Expenses and Other 23,144
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Total Assets 568,830,672
---------------
Liabilities
Payable for Shares of Beneficial Interest Redeemed 3,729,717
Accrued Expenses and Other 161,150
Due to Bankers Trust 26,995
---------------
Total Liabilities 3,917,862
---------------
Net Assets $ 564,912,810
===============
Composition of Net Assets
Paid-in Capital $ 613,481,815
Undistributed Net Investment Income 5,366,265
Accumulated Net Realized Loss from Investment, Option, Foreign Currency,
Forward Foreign Currency and Foreign Futures Transactions (31,837,489)
Net Unrealized Depreciation on Investment, Option, Foreign Currency
and Forward Foreign Currency Contracts (22,097,781)
---------------
Net Assets $ 564,912,810
===============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by shares outstanding)
Class I* $ 11.89
===============
Class II** $ 12.01
===============
</TABLE>
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* Net asset value, redemption price and offering price per share (based on net
assets of $556,179,645 and 46,776,813 shares of beneficial interest
outstanding and .001 par value, unlimited number of shares of beneficial
interest authorized).
** Net asset value, redemption price and offering price per share (based on net
assets of $8,733,165 and 727,296 shares of beneficial interest outstanding
and .001 par value, unlimited number of shared beneficial interest
authorized).
See Notes to Financial Statements on Page 11
7
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International Equity Fund
Statement of Operations For the year ended September 30, 1998
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<TABLE>
<S><C>
Investment Income
Income Allocated from International Equity Portfolio, net $ 6,217,369
---------------
Expenses
Administration and Services Fees-- Class I 1,446,112
Administration and Services Fees-- Class II 14,950
Registration Fees 7,047
Registration Fees-- Class I 152,524
Registration Fees-- Class II 543
Professional Fees 15,677
Trustees Fees 1,427
Miscellaneous 42,758
---------------
Total Expenses 1,681,038
Less: Expenses Absorbed by Bankers Trust -- Class I (611,813)
Expenses Absorbed by Bankers Trust -- Class II (16,556)
---------------
Net Expenses 1,052,669
---------------
Net Investment Income 5,164,700
---------------
Realized and Unrealized Gain (Loss) on Investment, Option, Foreign Currency,
Forward Foreign Currency and Foreign Futures Contracts
Net Realized Gain (Loss) from:
Investment Transactions (13,219,308)
Options Transactions (4,915,757)
Foreign Currency Transactions 459,487
Forward Foreign Currency Transactions (215,625)
Foreign Futures Transactions 1,331,887
Net Change in Unrealized Appreciation/Depreciation on Investment, Option, Foreign Currency and
Forward Foreign Currency Contracts (23,262,874)
---------------
Net Realized and Unrealized Loss on Investment, Option, Foreign Currency,
Forward Foreign Currency and Foreign Futures Contracts (39,822,190)
---------------
Net Decrease in Net Assets from Operations $ (34,657,490)
===============
</TABLE>
See Notes to Financial Statements on Page 11
8
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International Equity Fund
Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
For the For the period
year ended April 1, 1997* through
September 30, 1998 September 30, 1997
------------------ ----------------------
<S><C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 5,164,700 $ 38,801
Net Realized Gain (Loss) from Investment, Option, Foreign Currency,
Forward Foreign Currency and Foreign Futures Transactions (16,559,316) 592,278
Net Change in Unrealized Appreciation/Depreciation on Investment, Option,
Foreign Currency and Forward Foreign Currency Contracts (23,262,874) 1,165,093
--------------- ---------------
Net Increase (Decrease) in Net Assets from Operations (34,657,490) 1,796,172
--------------- ---------------
Capital Transactions in Shares of Beneficial Interest
Net Increase Resulting from Class I Shares 548,604,135 41,615,668
Net Increase Resulting from Class II Shares 189,409 7,364,916
--------------- ---------------
Net Increase from Capital Transactions in Shares of Beneficial Interest 548,793,544 48,980,584
--------------- ---------------
Total Increase in Net Assets 514,136,054 50,776,756
Net Assets
Beginning of Year 50,776,756 --
--------------- ---------------
End of Year (including undistributed net investment income of $5,366,265 and
$58,795, respectively) $ 564,912,810 $ 50,776,756
=============== ===============
</TABLE>
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* Commencement of operations
See Notes to Financial Statements on Page 11
9
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International Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the periods
indicated for the International Equity Fund.
<TABLE>
<CAPTION>
Class I Shares Class II Shares
-------------------------------------- -------------------------------------
For the For the period For the For the period
year ended April 1, 1997* through year ended April 1, 1997* through
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- ---------------------- -------------- ----------------------
<S><C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $12.24 $10.00 $12.25 $10.00
------ ------ ------ ------
Income fromInvestment Operations
Net Investment Income 0.10 0.00(+) 0.14 0.04
Net Realized and Unrealized Gain (Loss) on Investment,
Option, Foreign Currency, Forward Foreign Currency
and Foreign Futures Contracts (0.45) 2.24 (0.38) 2.21
------ ------ ------ ------
Total from Investment Operations (0.35) 2.24 (0.24) 2.25
------ ------ ------ ------
Distributions to Shareholders
Net Investment Income -- -- -- --
Net Realized Gains -- -- -- --
------ ------ ------ ------
Total Distributions -- -- -- --
------ ------ ------ ------
Net Asset Value, End of Period $11.89 $12.24 $12.01 $12.25
====== ====== ====== ======
Total Investment Return (2.86)% 22.40% (1.96)% 22.50%
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $556,180 $42,566 $8,733 $8,211
Ratios to Average Net Assets:
Net Investment Income 1.40% 0.20%** 1.89% 0.85%**
Expenses, Including Expenses of the
International Equity Portfolio 0.95% 0.95%** 0.75% 0.80%**
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses by
Bankers Trust 0.32% 0.67%** 0.36% 0.64%**
</TABLE>
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* Commencement of operations
** Annualized
(+) Less than $.001
See Notes to Financial Statements on Page 11
10
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International Equity Fund
Notes to Financial Statements
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Note 1--Organization and Significant Accounting Policies
A. Organization
BT Institutional Funds Trust (the "Trust") is registered under the Investment
Company Act of 1940 (the "Act"), as amended, as an open-end management
investment company. The Trust was organized on March 26, 1990, as a business
trust under the laws of the Commonwealth of Massachusetts. The International
Equity Fund (the "Fund") is offered to investors by its respective Trust.
The Fund offers two classes of shares to investors: Class I and Class II shares
(the "Classes"). Both classes of shares have identical rights to earnings,
assets and voting privileges, except that each class has its own expenses
directly attributable to a particular class and exclusive voting rights with
respect to matters affecting a single class.
The Class I and Class II shares commenced operations and began offering shares
of beneficial interest on April 1, 1997.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the International Equity Portfolio (the "Portfolio"). The
Portfolio is an open-end management investment company registered under the Act.
The value of such investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio. At September 30, 1998, the Fund's
investment was approximately 31% of the Portfolio.
The financial statements of the Portfolio, including the Schedule of Portfolio
Investments, are contained elsewhere in this report, and should be read in
conjunction with the Fund's financial statements.
B. Investment Valuation
Valuation of securities by the Portfolio is discussed in Note 1B of the
Portfolio's Notes to Financial Statements which are included elsewhere in this
report.
C. Investment Income
The Fund's income, net of expenses, is earned daily on its investment in the
Portfolio. All of the net investment income and realized and unrealized gains
and losses from the security transactions of the Portfolio are allocated pro
rata among the investors in the Portfolio at the time of such determination. Net
investment income is allocated daily to each class of shares based upon its
relative proportion of net assets.
D. Organizational Expenses
Costs incurred by the Fund in connection with its organization and initial
registration is being amortized over a five-year period.
E. Distributions
It is the Fund's policy to declare and distribute dividends annually to
shareholders from net investment income and net realized short-term and
long-term capital gains, if any. Dividends payable to shareholders are recorded
by the Fund on the ex-dividend date.
F. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code and distribute substantially all of its 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
gain distributions determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles. The
Fund has capital loss carryover of $1,302,651 and $599,872 expiring 2005 and
2006, respectively. In addition the Fund has deferred post October currency
losses of $3,818,300 and post October capital losses of $29,934,965 to next
year.
G. Other
The Trust accounts separately for the assets, liabilities and operations of each
Fund and each Class. Expenses directly attributable to each Fund or Class are
charged to that Fund or Class, while expenses, which are attributable to the
Trust are allocated among the Funds.
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 Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of .40% and .70% of average daily net assets for Class
I and Class II, respectively. Prior to August 13, 1998, the Administrative and
Service Fee for Class II was 0.15% of average daily net assets.
The Trust has entered into a distribution agreement with ICCDistributors, Inc.
("ICC") under which ICCwill serve as distributor for shares sold on behalf of
each class of Shares.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of each Class of Shares, to the extent necessary, to limit all expenses
as follows: International Equity Fund Class I shares to 0.25 of 1% of the
average daily net assets of the Class, excluding expenses of the Portfolio and
.95% of the average daily net assets of the Class, including expenses of the
Portfolio; International Equity Fund Class II shares to .55% of the average
daily net assets of the Class, excluding expenses of the Portfolio, and 1.25% of
the average daily net assets of the Class, including expenses of the Portfolio.
Prior to August 13, 1998, Bankers Trust voluntarily waived and reimbursed
expenses for Class I at a rate of 0.30% of the average daily net assets of the
Class, excluding expenses of the Portfolio and 0.95% of the average daily net
assets of the Class, including expenses of the Portfolio; Class II at a rate of
0.15% of the average daily net assets of the Class, excluding expenses of the
Portfolio, and 0.80% of the average daily net assets of the Class, including
expenses of the Portfolio.
The Fund is a participant with other affiliated entities in a revolving credit
facility (the "revolver") and a discretionary demand line of credit facility
collectively (the "credit facilities") in the amounts of $50,000,000 and
$100,000,000, respectively. A commitment fee of .07% per annum on the average
daily amount of the available commitment is payable on a quarterly basis and is
apportioned equally among all participants. Amounts borrowed under the credit
facilities will bear interest at a rate per annum equal to the Federal Funds
Rate plus .45%. No amounts were drawn down or outstanding under the credit
facilities as of and for the year ended September 30, 1998.
11
<PAGE>
- --------------------------------------------------------------------------------
International Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 3--Shares of Beneficial Interest
At September 30 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
Class I Shares Class I Shares
For the Year Ended For the Period Ended
September 30, 1998 September 30, 1997*
--------------------------- -------------------------
Shares Amount Shares Amount
----------- ------------- ---------- -----------
Sold 62,156,856 $797,499,509 3,500,360 $41,890,813
Reinvested -- -- -- --
Redeemed (18,857,253) (248,895,374) (23,150) (275,145)
----------- ------------ --------- -----------
Net Increase 43,299,603 $548,604,135 3,477,210 $41,615,668
=========== ============ ========= ===========
Class II Shares Class II Shares
For the Year Ended For the Period Ended
September 30, 1998 September 30, 1997*
--------------------------- -------------------------
Shares Amount Shares Amount
----------- ------------- ---------- -----------
Sold 727,688 $9,444,662 1,871,504 $21,815,000
Reinvested -- -- -- --
Redeemed (670,710) (9,255,253) (1,201,186) (14,450,084)
----------- ------------ --------- -----------
Net Increase 56,978 $ 189,409 670,318 $ 7,364,916
=========== ============ ========= ===========
- -------------------
* Commencement of operations for the International Equity Fund Class I and Class
II Shares was April 1, 1997.
Note 4--Risks of Investing in Foreign Securities
The Portfolio invests in foreign securities. Investing in foreign companies and
foreign governments involves special risks and considerations not typically
associated with investing in securities of U.S. companies and the U.S.
government. These risks include devaluation of currencies and future adverse
political and economic developments. Moreover, securities of many foreign
companies and foreign governments and their markets may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies and
the U.S. government. This is particularly true with respect to emerging markets
in developing countries.
12
<PAGE>
- --------------------------------------------------------------------------------
International Equity Fund
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees of BT Institutional Funds and Shareholders of International
Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the International Equity Fund (one of the Funds comprising BTInstitutional
Funds, hereafter referred to as the "Fund") at September 30, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1998 by
correspondence with the transfer agent, provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 6, 1998
- --------------------------------------------------------------------------------
Tax Information (Unaudited) For the Year Ended September 30, 1998
- --------------------------------------------------------------------------------
During the year ended September 30, 1998, the Fund received income from foreign
sources in the amount of $2,595,228. The Fund paid foreign taxes in the amount
of $706,709, or $0.0149 per share. Such amounts are eligible for the foreign tax
credit. You should consult your tax advisor relating to the appropriate
treatment of foreign taxes paid.
13
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
Schedule of Portfolio Investments September 30, 1998
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
COMMON STOCK - 93.00%
Australia - 2.15%
1,127,100 AMP Limited (Insurance) (a) $ 13,652,038
716,000 Brambles Industries Ltd. (Transportation) 15,448,634
1,760,900 TABCORP Holdings Ltd. (Gaming) 10,221,215
--------------
39,321,887
--------------
Austria - 0.83%
313,687 Die Erste Bank Der Oesterreichisch
Spar-Casse AG (Banks) 15,204,993
--------------
Botswana - 0.34%
4,890,200 Sechaba Breweries Ltd. (Brewery) 6,175,222
--------------
Canada - 2.25%
317,400 Cadillac Fairview Corp. (Real Estate
Invest/Mgmt) (a) 5,760,700
800,100 Newcourt Credit Group, Inc. (Finance) 20,707,607
362,600 Royal Bank of Canada (Banks) 14,706,421
--------------
41,174,728
--------------
Finland - 3.76%
381,100 Helsinginpuhelin Telecom
(Telecommunications) 17,075,581
510,975 KCI Konecranes International Plc.
(Engineering) (c) 20,093,169
267,800 Nokia Corp., ADR-A (Telecommunication
Equipment) 21,005,562
732,100 Raisio Group PLC (Food) 10,646,425
--------------
68,820,737
--------------
France - 18.94%
100,157 Accor SA (Lodging) 20,997,087
236,600 AXA (Insurance) 21,655,688
397,600 Banque Nationale de Paris (Banks) 21,281,758
117,900 Canal Plus (Television) 28,629,371
546,200 Dassault Systemes SA, ADR
(Computer Software) 19,048,725
144,213 Eiffage (Building and Construction) 9,919,018
195,900 Elf Aquitaine SA (Oil & Gas) 24,151,959
185,200 Equant N.V. (Computer Services) (a) 9,549,458
229,900 Paribas (Financial Services) 12,387,561
627,000 Renault SA (Autos &Trucks) 25,058,521
33,500 Rexel SA (Electrical Equipment) 2,928,740
454,100 Rhone-Poulenc-A (Pharmaceuticals) 19,039,662
321,874 SEITA (Tobacco) 18,606,762
841,570 Societe Generale d'Entreprises SA
(Building &Construction) (c) 31,456,772
181,500 Suez Lyonnaise Des Eaux (Utilities) 30,893,341
197,700 Total SA-B (Oil & Gas) 24,902,977
125,596 Unibail (Real Estate Invest/Mgmt) (c) 17,590,790
44,900 Vivendi (Utilities) 8,940,265
--------------
347,038,455
--------------
Germany 10.01%
191,300 Adidas-Solomon AG (Athletic Apparel) (b) 21,918,123
63,300 Allianz AG (Insurance) 19,617,926
355,350 Bayerische Hypo-Und Vereinsbank AG
(Banks) 26,150,563
222,600 Daimler-Benz AG (Autos & Trucks) 18,618,810
331,800 Hoechst AG (Pharmaceuticals) 13,697,618
1,116,100 Lufthansa Aktien AG (Airlines) 22,042,875
215,000 Mannesmann AG (Multi-Industry) 19,681,105
Shares Description Value
------ ----------- -----
26,200 Viag AG (Utilities) $ 17,995,453
329,090 Volkswagen AG (Autos and Trucks) 23,725,825
--------------
183,448,298
--------------
Greece - 0.38%
22 Hellenic Telecommunication Organization
SA (Telecommunications) 519
226,200 STET Hellas Telecom ADR
(Telecommunications) (a) 7,012,200
--------------
7,012,719
--------------
India - 0.22%
125,400 NIIT Limited (Computer Software) (a) 4,042,700
--------------
Ireland - 3.30%
1,455,700 Bank of Ireland (Bank) (a) 25,888,969
1,907,270 CRH Plc. (Building Materials) 24,086,007
300,800 Esat Telecom Group ADR
(Telecommunications) (a) (c) 10,076,800
243,416 Smurfit (Jefferson Group) (Paper) 363,785
--------------
60,415,561
--------------
Israel - 0.16%
1,229,762 Bank Hapoalim Ltd (Banks) (a) 3,003,008
--------------
Italy - 9.54%
753,925 Assicurazioni Generali (Insurance) 24,500,452
4,214,900 Banca Commerciale Italia (Banks) (a) 25,315,672
8,149,000 Banca Nazionale del Lavoro (Banks) 20,712,155
476,200 Banca Popolare di Bergamo (Banks) 9,639,560
1,418,200 Banca Popolare di Milano (Banks) 10,213,066
8,840,200 Credito Italiano (Banks) 36,806,303
2,509,000 ENI SPA (Oil & Gas) 15,365,718
37,600 ENI SPA, ADR (Oil & Gas) 2,303,000
406,200 Italgas SPA (Utilities) 1,742,841
4,090,500 Telecom Italia SPA (Telecommunications) 28,157,848
--------------
174,756,615
--------------
Japan - 5.96%
182,100 AJL Peps Trust (Household Products) 819,450
411,000 Fuji Photo Film Co. (Photo Equipment
& Supplies) 14,191,155
1,230,600 Kao Corp. (Household Products) 19,708,404
220,200 Nintendo Co. Ltd. (Toys & Games) 20,771,143
174,600 Rohm Co. Ltd. (Electronics) 16,674,993
234,200 Sony Corp. (Consumer Electronics) 16,327,931
772,900 Takeda Chemical Industries
(Pharmaceuticals) 20,724,985
--------------
109,218,061
--------------
Netherlands - 5.20%
843,100 Ahold NV (Retail - Food) 25,179,847
285,900 Benckiser NV (Household Products) 14,256,326
470,484 ING Groep NV (Financial Services) 21,189,375
593,400 Koninklijke PTT NV (Telecommunications) 18,320,450
443,300 Nutreco Holding NV (Food) 16,390,648
--------------
95,336,646
--------------
Portugal - 4.92%
548,100 Banco Comercial Portugues, SA (Banks) 14,786,830
402,700 BPI-SGPS, SA (Banks) 11,094,233
635,800 Cimpor-Cimentos de Portugal SGPS SA
(Building Materials) 17,712,485
979,400 Electricidade de Portugal SA (Utilities -
Electric) 22,511,727
See Notes to Financial Statements on Pages 19, 20 and 21
14
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
Schedule of Portfolio Investments September 30, 1998
- --------------------------------------------------------------------------------
Shares Description Value
------ ----------- -----
186,700 Telecel-Comunicacaoes Pessoais, SA
(Telecommunications) $ 24,105,735
--------------
90,211,010
--------------
Singapore - 0.18%
1,076,600 Venture Manufacturing (Singapore) Ltd.
(Contract Manufacturers) 3,323,037
--------------
Spain - 8.37%
247,383 Aldeasa SA (Retail) 8,558,670
1,047,560 Argentaria Corp Bancaria (Banks) 20,831,007
326,000 Banco Popular Espanol SA (Banks) 20,537,782
1,333,132 Endesa SA (Utilities - Electric) 30,028,666
589,191 Fomento de Construcciones y Contratas SA
(Building & Construction) 27,496,824
1,190,100 Tabacalera SA (Tobacco) 26,094,826
543,197 Telefonica Compania de Espana
(Telecommunications) 19,806,148
--------------
153,353,923
--------------
Sweden - 0.75%
1,393,000 Castellum AB (Real Estate Invest/Mgmt) (c) 13,779,756
--------------
Switzerland - 2.90%
11,080 Novartis AG (Pharmaceuticals) 17,760,977
74,800 UBS-Bearer (Banks) 14,589,323
42,000 Zurich (Insurance) 20,843,748
--------------
53,194,048
--------------
United Kingdom - 12.84%
796,900 Barclays Plc. (Banks) 12,960,190
4,137,375 British Aerospace Plc. (Aerospace) 24,942,668
2,877,600 British Energy Plc. (Utilities - Electric) 28,020,809
2,040,800 British Land Co. Plc. (Real Estate
Invest/Mgmt) 20,392,637
222,809 British Petroleum Plc., ADR (Oil & Gas) 19,440,085
12,000 COLT Telecom Group, ADR
(Telecommunications) 408,000
1,856,700 COLT Telecom Group Plc.
(Telecommunications) 15,893,259
2,616,600 Compass Group Plc. (Services - Catering) 24,345,409
799,000 Glaxo Wellcome Plc. (Pharmaceuticals) 23,531,031
2,340,000 Orange Plc (Telecommunications) (a) 21,851,395
1,121,300 Railtrack Group Plc. (Transportation) 31,993,970
2,059,300 SOCO International Plc. (Oil & Gas) (a) (c) 2,169,736
798,900 Vodafone Group Plc. (Telecommunications) 9,313,484
--------------
235,262,673
--------------
Total Common Stock (Cost $1,687,770,198) 1,704,094,077
--------------
Short Term Instruments - 9.46%
USA - 9.46%
173,362,832 BT Institutional Cash Management Fund
(cost $173,362,832) 173,362,832
--------------
Options 0.26%
1,569 Nikkei 225 Index, December 1999 101,014
1,832 Nikkei 225 Index, March 1999 1,452,688
3,334 Nikkei 225 Index, March 1999 2,405,301
2,541 Nikkei 225 Index, March 1999 708,594
--------------
Total Options (Cost $9,173,704) 4,667,597
--------------
Shares Description Value
------ ----------- -----
Total Investments (Cost $1,870,306,734) 102.72% $1,882,124,506
Liabilities in Excess of Other Assets (2.72)% (49,872,679)
------ --------------
Net Assets 100.00% $1,832,251,827
====== ==============
- -------------------
(a) Non-Income Producing Security
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. This Security may be resold in transactions exempt from registrations,
normally to qualified institutional buyers.
(c) Illiquid securities fair valued by the valuation committee of the Board of
Trustees (See Footnote 1)
Industry Diversification (as a percentage of Net Assets):
(Unaudited)
Banks 16.58%
Telecommunications 9.39%
Insurance 5.47%
Pharmaceuticals 5.17%
Oil & Gas 4.82%
Utilities - Electric 4.40%
Building & Construction 3.76%
Autos & Trucks 3.68%
Utilities 3.25%
Real Estate Invest/Mgmt 3.14%
Transportation 2.59%
Tobacco 2.44%
Building Materials 2.28%
Household Products 1.90%
Financial Services 1.83%
Television 1.56%
Food 1.48%
Retail - Food 1.37%
Aerospace 1.36%
Services - Catering 1.33%
Computer Software 1.26%
Airlines 1.20%
Athletic Apparel 1.20%
Telecommunication Equipment 1.15%
Lodging 1.15%
Toys & Games 1.13%
Finance 1.13%
Engineering 1.10%
Multi Industry 1.07%
Other Industries* 4.81%
-------
93.00%
Cash & Cash Equivalents 7.00%
-------
100.00%
=======
* No one industry represents more than 1.00% of the Portfolio.
See Notes to Financial Statements on Pages 19, 20 and 21
15
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
Statement of Assets and Liabilities September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S><C>
Assets
Investments, at Value:
Common Stock and Options (Cost $1,696,943,902) $ 1,708,761,674
Short Term Instruments (Cost $173,362,832) 173,362,832
---------------
Total Investments, at Value 1,882,124,506
Cash* 52,580,209
Receivable for Securities Sold 15,996,325
Unrealized Appreciation on Forward Foreign Currency Contracts 1,672,301
Receivable for Foreign Taxes Withheld 3,045,098
Dividends and Interest Receivable 3,262,544
---------------
Total Assets 1,958,680,983
---------------
Liabilities
Due to Bankers Trust 1,055,109
Payable for Securities Purchased 109,889,032
Unrealized Depreciation on Forward Foreign Currency Contracts 15,367,696
Accrued Expenses and Other 117,319
---------------
Total Liabilities 126,429,156
---------------
Net Assets $ 1,832,251,827
===============
Composition of Net Assets
Paid-in Capital $ 1,833,981,668
Net Unrealized Depreciation on Investments, Options, Foreign Currencies and
Forward Foreign Currency Contracts (1,729,841)
---------------
Net Assets $ 1,832,251,827
===============
</TABLE>
- -------------------
* Includes foreign cash of $31,861,454 with a cost of $31,731,283
See Notes to Financial Statements on Pages 19, 20 and 21
16
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
Statement of Operations For the year ended September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S><C>
Investment Income
Dividends (net for foreign withholding tax of $2,253,438) $ 27,824,776
Interest 621,775
---------------
Total Investment Income 28,446,551
---------------
Expenses
Advisory Fees 8,493,173
Administration and Service Fees 1,959,963
Professional Fees 36,286
Miscellaneous 83,557
Trustees Fees 7,834
---------------
Total Expenses 10,580,813
Less: Expenses Absorbed by Bankers Trust (1,959,180)
---------------
Net Expenses 8,621,633
---------------
Net Investment Income 19,824,918
---------------
Realized and Unrealized Gain (Loss) on Investments, Options, Foreign Currencies,
Forward Foreign Currency and Foreign Futures Contracts
Net Realized Gain (Loss) from:
Investment Transactions (45,846,510)
Options Transactions (16,365,146)
Foreign Currency Transactions 1,372,837
Forward Foreign Currency Transactions (1,384,734)
Foreign Futures Transactions 4,715,048
Net Change in Unrealized Depreciation on Investments, Options, Foreign Currencies and
Forward Foreign Currency Contracts (106,649,538)
---------------
Net Realized and Unrealized Loss on Investments, Options, Foreign Currencies,
Forward Foreign Currency and Foreign Futures Contracts (164,158,043)
---------------
Net Decrease in Net Assets from Operations $ (144,333,125)
===============
</TABLE>
See Notes to Financial Statements on Pages 19, 20 and 21
17
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the For the
year ended year ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S><C>
Increase in Net Assets from:
Operations
Net Investment Income $ 19,824,918 $ 4,290,878
Net Realized Gain(Loss) from Investment, Option, Foreign Currency,
Forward Foreign Currency Contracts and Foreign Futures Transactions (57,508,505) 10,056,354
Net Change in Unrealized Appreciation/Depreciation on Investments, Options,
Foreign Currencies and Forward Foreign Currency Contracts (106,649,538) 85,109,689
--------------- ---------------
Net (Increase) Decrease in Net Assets from Operations (144,333,125) 99,456,921
--------------- ---------------
Capital Transactions
Proceeds from Capital Invested 2,330,783,580 476,033,118
Value of Capital Withdrawn (926,603,490) (167,898,538)
--------------- ---------------
Net Increase in Net Assets from Capital Transactions 1,404,180,090 308,134,580
--------------- ---------------
Total Increase in Net Assets 1,259,846,965 407,591,501
Net Assets
Beginning of Year 572,404,862 164,813,361
--------------- ---------------
End of Year $ 1,832,251,827 $ 572,404,862
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected ratios to average net assets and other supplemental
data for periods indicated for the International Equity Portfolio.
<TABLE>
<CAPTION>
For the years ended
September 30, For the period For the
---------------------------------- January 1, 1995 to year ended
1998 1997 1996 September 30, 1995(+) December 31, 1994
---- ---- ---- ------------------- -----------------
<S><C>
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $1,832,252 $572,405 $164,813 $83,313 $56,042
Ratios to Average Net Assets:
Net Investment Income 1.52% 1.35% 1.76% 2.39%* 1.69%
Expenses 0.66% 0.65% 0.65% 0.65%* 0.65%
Decrease Reflected in Above Expense
Ratio Due to Absorption of Expenses
by Bankers Trust 0.15% 0.17% 0.20% 0.22%* 0.24%
Portfolio Turnover Rate 65% 63% 68% 21% 15%
</TABLE>
- -------------------
* Annualized
(+) On August 2, 1995, the Board of Trustees approved the change of the fiscal
year end from December 31 to September 30.
See Notes to Financial Statements on Pages 19, 20 and 21
18
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
The International Equity Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized on December 11, 1991
as an unincorporated trust under the laws of New York and commenced operations
on August 4, 1992. The Declaration of Trust permits the Board of Trustees (the
"Trustees") to issue beneficial interests in the Portfolio.
B. Security Valuation
The Portfolio's investments listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the closing price of the
security traded on that exchange prior to the time when the Portfolio assets are
valued. Short-term debt securities are valued at market value until such time as
they reach a remaining maturity of 60 days, whereupon they are valued at
amortized cost using their value on the 61st day. All other securities and other
assets are valued at their fair value as determined in good faith under
procedures established by and under the general supervision of the Trustees.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Dividend income,
less foreign taxes withheld, if any, is recorded on the ex-dividend date or upon
receipt of ex-dividend notification in the case of certain foreign securities.
Interest income is recorded on the accrual basis and includes amortization of
premium and discount on investments. Expenses are recorded as incurred. Realized
gains and losses from securities transactions are recorded on the identified
cost basis.
All of the net investment income and realized and unrealized gains and losses
from the security and foreign currency transactions of the Portfolio are
allocated pro rata among the investors in the Portfolio at the time of such
determination.
D. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Advisors, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian, and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
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 currencies 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 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
Upon the purchase of a put option or a call option by a 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 deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent 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 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"). Under this Administration and Services
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 0.15% of the Portfolio's average daily net
assets.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, the Portfolio pays Bankers Trust
19
<PAGE>
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International Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
an advisory fee computed daily and paid monthly at an annual rate of .65% of the
Portfolio's average daily net assets.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio, to the extent necessary, to limit all expenses to
0.70% of the average daily net assets of the Portfolio. Prior to August 13,
1998, Bankers Trust voluntarily waived and reimbursed expenses of the Portfolio
to the extent necessary, to limit all expenses to 0.65% of the average daily net
assets of the Portfolio.
The Portfolio may invest in the BT Institutional Cash Management Fund (the
"Fund"), an open-end management investment company managed by Bankers Trust
Company (the "Company"). The Fund is offered as a cash management option to the
Portfolio and other accounts managed by the Company. Distributions from the Fund
to the Portfolio for the year ended September 30, 1998 amounted to $4,753,884.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility (the "revolver")and a discretionary demand line of credit
facility collectively (the "credit facilities") in the amounts of $50,000,000
and $100,000,000, respectively. A quarterly commitment fee of .07% per annum on
the average daily amount of the available commitment is payable on a quarterly
basis and is apportioned equally among all participants. Amounts borrowed under
the credit facilities will bear interest at a rate per annum equal to the
Federal Funds Rate plus .45%. No amounts were drawn down or outstanding under
the credit facilities as of and for the year ended September 30, 1998.
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 year ended September 30, 1998, were
$2,087,017,745 and $781,369,255, respectively.
The tax basis of investments held at September 30, 1998 amounted to
$1,870,059,642. The aggregate gross unrealized appreciation for all investments
was $113,857,813 and the aggregate gross depreciation for all investments was
$101,792,949.
Note 4--Open Forward Foreign Currency Contracts
As of September 30, 1998, the International Equity Portfolio had the following
open forward foreign currency contracts outstanding:
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
Contracts to Deliver In Exchange For Settlement Date Value (US$) (Depreciation) (US$)
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Sales
- ---------------------------------------------------------------------------------------------------------------------
German Deutsche Mark 275,200,000 US Dollar 153,314,763 10/23/98 164,958,341 (11,643,578)
German Deutsche Mark 161,860,000 US Dollar 93,581,384 10/23/98 97,020,920 (3,439,536)
Italian Lira 2,000,000,000 US Dollar 1,206,637 10/1/98 1,210,324 (3,687)
Dutch Guilder 1,800,000 US Dollar 952,482 10/1/98 954,857 (2,375)
Dutch Guilder 10,000,000 US Dollar 5,312,085 10/2/98 5,304,758 7,327
Singapore Dollar 2,000,000 US Dollar 1,193,317 10/1/98 1,187,155 6,162
- ---------------------------------------------------------------------------------------------------------------------
Total Sales (15,075,687)
- ---------------------------------------------------------------------------------------------------------------------
Purchases
- ---------------------------------------------------------------------------------------------------------------------
Austrian Schilling 12,000,000 US Dollar 1,018,244 10/1/98 1,020,460 2,216
Austrian Schilling 10,600,000 US Dollar 902,512 10/2/98 901,407 (1,105)
Australian Dollar 20,000,000 US Dollar 11,948,000 10/1/98 11,846,000 (102,000)
Canadian Dollar 500,000 US Dollar 327,761 10/1/98 327,611 (150)
Finnish Markka 2,800,000 US Dollar 549,505 10/1/98 550,250 745
Finnish Markka 8,000,000 US Dollar 1,576,355 10/2/98 1,572,142 (4,213)
British Pound 10,000,000 US Dollar 17,120,000 10/1/98 16,994,000 (126,000)
British Pound 56,103,947 US Dollar 93,581,384 10/23/98 95,230,840 1,649,456
Greek Drachma 29,600,000 US Dollar 102,714 10/1/98 102,776 62
Irish Punt 700,000 US Dollar 1,049,160 10/2/98 1,046,150 (3,010)
Japanese Yen 400,000,000 US Dollar 2,980,626 10/1/98 2,938,584 (42,042)
Japanese Yen 700,000,000 US Dollar 5,139,500 10/2/98 5,142,521 3,021
Portuguese Escudo 1,300,000,000 US Dollar 7,574,874 10/1/98 7,578,186 3,312
- ---------------------------------------------------------------------------------------------------------------------
Total Purchases 1,380,292
- ---------------------------------------------------------------------------------------------------------------------
Net Depreciation (13,695,395)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
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International Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 5--Foreign Securities
The Portfolio invests in foreign securities. Investing in foreign companies and
foreign governments involves special risks and considerations not typically
associated with investing in securities of U.S. companies and the U.S.
government. These risks include devaluation of currencies and future adverse
political and economic developments. Moreover, securities of many foreign
companies and foreign governments and their markets may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies and
the U.S. government. This is particularly true with respect to emerging markets
in developing countries.
21
<PAGE>
- --------------------------------------------------------------------------------
International Equity Portfolio
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Trustees and Holders of Beneficial Interest of the
International Equity Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the International Equity Portfolio
(hereafter referred to as the "Portfolio") at September 30, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
November 6, 1998
22
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<PAGE>
BT INSTITUTIONAL FUNDS
INTERNATIONAL EQUITY FUND
Investment Advisor and Administrator of the Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Distributor
ICCDISTRIBUTORS, INC.
P.O. Box 7558
Portland, ME 04112-9892
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, MD 21201
Counsel
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10019
--------------------------
For information on how to invest, shareholder account information and current
price and yield information, please contact your relationship manager or the BT
Mutual Fund Service Center at (800) 730-1313. This report must be preceded or
accompanied by a current prospectus for the Fund.
--------------------------
BT Institutional International Equity -- Class I CUSIP#055924856
Class II CUSIP#055924849
STA499/500200 (9/98)
