BT INSTITUTIONAL FUNDS, 485BPOS, 1999-01-28

BT INSTITUTIONAL FUNDS
485BPOS, 1999-01-28

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As filed with the Commission on January 28, 1999
1933 Act File No. 33-34079
1940 Act File No. 811-6071

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ..........................
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Post-Effective Amendment No. 26 .......................... X
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and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 34 ......................................... X
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BT INSTITUTIONAL FUNDS
(Exact Name of Registrant as Specified in Charter)

One South Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)

(410) 895-5000
(Registrant's Telephone Number)
<TABLE>
<CAPTION>
<S> <C>
Daniel O. Hirsch Copies To: Burton M .Leibert, Esq.
One South Street Willkie Farr & Gallagher
Baltimore, MD 21202 One Citicorp Center
(Name and Address of Agent for Service) 153 East 53rd Street
New York, New York 10022
</TABLE>
It is proposed that this filing will become effective (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)

<PAGE>

[X] on January 31, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on ____ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

BT Investment Portfolios has also executed this Registration Statement.

<PAGE>

PROSPECTUS: JANUARY 31, 1999

[BT MUTUAL FUNDS LOGO APPEARS HERE]

BT Mutual Funds

Institutional
International
Equity Fund - Class I

WITH THE GOAL OF ACHIEVING LONG-TERM CAPITAL APPRECIATION
PRIMARILY THROUGH INVESTMENT IN THE STOCKS AND OTHER EQUITY
SECURITIES OF COMPANIES IN DEVELOPED COUNTRIES OUTSIDE THE
UNITED STATES

TRUST: BT INSTITUTIONAL FUNDS

INVESTMENT ADVISER: BANKERS TRUST COMPANY

[Like shares of all mutual funds, these securities have not
been approved or disapproved by the Securities and Exchange
Commission nor has the Securities and Exchange Commission
passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.]

<PAGE>

OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

[GOAL: THE FUND INVESTS FOR LONG-TERM CAPITAL APPRECIATION. CORE
STRATEGY: THE FUND INVESTS PRIMARILY IN THE STOCKS AND OTHER EQUITY
SECURITIES OF COMPANIES IN DEVELOPED COUNTRIES OUTSIDE THE UNITED
STATES.]

INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL EQUITY
FUND -- CLASS I

3 Goal
3 Core Strategy
3 Investment Policies and Strategies
4 Principal Risks of Investing in the Fund
4 Who Should Consider Investing in the Fund
5 Total Returns, After Fees and Expenses
6 Annual Fund Operating Expenses

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL
EQUITY FUND -- CLASS I

7 Objective
7 Strategy
7 Principal Investments
8 Investment Process
8 Risks
10 Management of the Fund
11 Calculating the Fund's Share Price
11 Performance Information
11 Dividends and Distributions
11 Tax Considerations
12 Buying and Selling Fund Shares
14 Financial Highlights

INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing primarily in companies in developed
foreign countries. The Fund may also invest a portion of its assets in
companies based in emerging markets. The companies are selected by an extensive
tracking system plus the input of experts from various financial disciplines.

3
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<PAGE>

OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:
- - Stocks that the Investment Adviser has selected could perform poorly; or
- - The stock market could perform poorly in one or more of the countries in
which the Fund has invested.

Beyond the risks common to all stock investing, an investment in the Fund could
also lose money or underperform alternative investments as a result of risks in
the foreign countries in which the Fund invests:
- - Adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full value;
- - Accounting and financial reporting standards differ from those in the U.S.
and could convey incomplete information when compared to information typically
provided by U.S. companies; or
- - The currency of a country in which the Fund invests may decrease in value
relative to the U.S. dollar, which could affect the value of the investment
itself to U.S. investors.

WHO SHOULD CONSIDER INVESTING IN THE FUND

The Institutional International Equity Fund -- Class I requires a minimum
investment of $5 million. You should consider investing in the Fund if you are
seeking long-term capital appreciation. There is, of course, no guarantee that
the Fund will realize its goal. Moreover, you should be willing to accept
greater short-term fluctuation in the value of your investment than you would
typically experience investing in bond or money market funds.

You should not consider investing in the Institutional International Equity
Fund if you are pursuing a short-term financial goal, if you seek regular
income or if you cannot tolerate fluctuations in the value of your investments.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to someone
who invests in U.S. securities alone. Diversifying investments may improve your
long-run investment return and lower the volatility of your overall investment
portfolio.

AN INVESTMENT IN THE INSTITUTIONAL INTERNATIONAL EQUITY FUND IS NOT A DEPOSIT
OF BANKERS TRUST COMPANY OR ANY OTHER BANK, AND IS NOT INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.

4
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<PAGE>

OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

INITIAL FUND PERFORMANCE

[BAR CHART APPEARS BELOW WITH THE FOLLOWING INFORMATION:]

1998
----
21.91%

Since inception, the Fund's highest return in any calendar quarter was 19.65%
and its lowest quarterly return was -16.21%. Past performance offers no
indication of how the Fund will perform in the future.

TOTAL RETURNS, AFTER FEES AND EXPENSES

The bar chart and table on this page can help you evaluate the potential risk
and rewards of investing in the Fund by showing changes in the Fund's
performance year to year. The bar chart shows the Fund's actual return for the
one full calendar year since the Fund began selling shares on April 1, 1997
(its inception date). The table compares the Fund's average annual return with
the Morgan Stanley Capital International (MSCI) EAFE Index over the last
calendar year and since its inception. Bear in mind that the Index is a passive
measure of combined national stock market returns. It does not factor in the
costs of buying, selling and holding stocks -- costs which are reflected in the
Fund's results.

- --------------------------------------

[FN]
The MSCI EAFE Index of major markets in Europe, Australia and the Far East
(EAFE) is a widely accepted benchmark of international stock performance. It is
a model, not an actual portfolio. It tracks stocks in Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom.
</FN>

AVERAGE ANNUAL RETURNS

(as of December 31, 1998)

<TABLE>
<CAPTION>
Since Inception
1 year (April 1, 1997)(1)
----------- -----------------
<S> <C> <C>
INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I 21.91% 21.04%
- ---------------------------------------------------- ----- -----
EAFE Index 20.00% 13.12%
- ---------------------------------------------------- ----- -----
Lipper International Fund Universe(2) 13.02% 9.72%
- ---------------------------------------------------- ----- -----
</TABLE>

(1) The EAFE Index and Lipper International Fund Universe averages are
calculated from March 31, 1997.
(2) Unweighted average return, net of fees and expenses, of all mutual funds
that invested primarily in stocks and other equity securities of companies
outside the United States.

5
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<PAGE>

OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and
expenses that you may pay if you buy and hold shares of the Institutional
International Equity Fund -- Class I.

Expense Example. The example below illustrates the expenses you would have
incurred on a $10,000 investment in the Fund. The numbers assume that the Fund
earned an annual return of 5% over the periods shown, the Fund's operating
expenses remained the same and you sold your shares at the end of the period.

You may use this hypothetical example to compare the Fund's expense history
with other funds.(1) Your actual costs may be higher or lower.

(1)Information on the annual operating expenses reflects the expenses of both
the Fund and the International Equity Portfolio, the master fund in which the
Institutional International Equity Fund invests its assets. (A further
discussion of the relationship between the Fund and the Portfolio appears in the
"Organizational Structure" section of this prospectus.)

(2) Bankers Trust has agreed, for the 16-month period from
the Fund's fiscal year end of September 30, 1998, to waive its fees and
reimburse expenses so that total expenses will not exceed 0.95%.

(3) Based on expenses, after fee waivers and reimbursements for the first 16
months only.

ANNUAL FEES AND EXPENSES

<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets(1)
---------------------------
<S> <C>
Management Fees 0.65%
- --------------------------------------- -----
Distribution and Service (12b-1) Fees None
- --------------------------------------- -----
Other Fund Operating Expenses 0.46%
- --------------------------------------- -----
Total Fund Operating Expenses 1.11%
- --------------------------------------- -----
Less: Fee Waiver or Expense
Reimbursement (0.32)%(2)
- --------------------------------------- ----------
NET EXPENSES 1.75%
- --------------------------------------- ----------
</TABLE>

<TABLE>
<CAPTION>
[Expense Example(3)
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
$77 $313 $584 $1,358]
</TABLE>

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6
<PAGE>

A DETAILED LOOK
AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

OBJECTIVE

The Fund seeks long-term capital appreciation. Under normal circumstances, the
Fund invests at least 65% of its total assets in the stocks and other
securities with equity characteristics of companies in developed countries
outside the United States.

The Fund invests for capital appreciation, not income; any dividend and
interest income is incidental to the pursuit of its objective. While we give
priority to capital appreciation, we cannot offer any assurance of achieving
this objective. The Fund's objective is not a fundamental policy. We must
notify shareholders before we change it, but we do not require their approval
to do so.

STRATEGY

The Fund invests for the long term. We employ a strategy of growth at a
reasonable price. We seek to identify companies outside the United States that
combine strong potential for earnings growth with reasonable investment value.
Such companies typically exhibit increasing rates of profitability and cash
flow, yet their share prices compare favorably to other stocks in a given
market and to their global peers. In evaluating stocks, we consider factors
such as sales, earnings, cash flow and enterprise value. Enterprise value is a
company's market capitalization plus the value of its net debt. We further
consider the relationship between these and other quantitative factors.
Together, these indicators of growth and value may identify companies with
improving prospects before the market in general has taken notice.

PRINCIPAL INVESTMENTS

Almost all the companies in which the Fund invests are based in the developed
foreign countries that make up the EAFE Index, plus Canada. The Fund may also
invest a portion of its assets in companies based in the emerging markets of
Latin America, the Middle East, Europe, Asia and Africa if we believe that
their return potential more than compensates for the extra risks associated
with these markets. While we have invested in emerging markets in the past,
under normal market conditions we do not consider this a central element of the
Fund's strategy. Typically, we would not hold more than 15% of net assets in
emerging markets.

BEST/WORST PERFORMING STOCK MARKETS

[BAR CHART APPEARS BELOW DEPICTING THE BEST/WORST PERFORMING STOCK MARKETS]

1988 1994
New Zealand -12% Hong Kong -5%
Belgium 55% Finland 52%

1989 1995
Finland -9% Austria -4%
Austria 104% Switzerland 45%

1990 1996
New Zealand -37% Japan -15%
United Kingdom 10% Spain 41%

1991 1997
Finland -17% Malaysia -68%
Hong Kong 50% Switzerland 45%

1992 1998
Denmark -28% Norway -30%
Hong Kong 32% Finland 123%

1993
US 10%
Hong Kong 116%

Returns in U.S. dollars

- --------------------------------------------------------------------------------

THIS CHART DOES NOT REPRESENT THE PERFORMANCE OF ANY OF THE BT MUTUAL FUNDS.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

[FN]
FROM 1988 TO 1998, THE DIFFERENCE IN ANNUAL RETURNS BETWEEN THE STRONGEST
PERFORMING MARKETS AND THE WEAKEST AVERAGED 81%, ACCORDING TO FACTSET. AND THE
UNITED STATES, NOTWITHSTANDING SOME OUTSTANDING YEARS DURING THIS PERIOD, NEVER
POSTED THE BEST ANNUAL RETURN. THUS, BY MAINTAINING A PRESENCE ACROSS THE
DEVELOPED MARKETS, INVESTORS CAN POTENTIALLY IMPROVE THEIR RETURNS COMPARED TO
INVESTING SOLELY IN U.S. STOCKS.
</FN>

7
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<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

INVESTMENT PROCESS
Company research lies at the heart of our investment process, as it does with
many stock mutual funds. We track several thousand companies to arrive at the
approximately 100 stocks the Fund normally holds. But our process brings an
added dimension to this fundamental research. It draws on the insight of
experts from a range of financial disciplines -- regional stock market
specialists, global industry specialists, economists and quantitative analysts.
They challenge, refine and amplify each other's ideas. Their close
collaboration is a critical element of our investment process.

RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH INTERNATIONAL
INVESTING, AS WELL AS INVESTING IN GENERAL, AND WE DETAIL OUR APPROACHES TO
CONTAINING THEM. ALTHOUGH WE ATTEMPT TO ASSESS THE LIKELIHOOD THAT THESE RISKS
MAY ACTUALLY OCCUR AND TO LIMIT THEM, WE MAKE NO GUARANTEE THAT WE WILL
SUCCEED.

PRIMARY RISKS

MARKET RISK. Although individual stocks can outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

STOCK SELECTION RISK. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. To
minimize this risk, we monitor each of the stocks in the Fund according to
three basic quantitative criteria. We subject a stock to intensive review if:

- - its rate of price appreciation begins to trail that of its national stock
index;
- - the financial analysts who follow the stock, both within Bankers Trust and
outside, cut their estimates of the stock's future earnings; or
- - the stock's price approaches the downside target we set when we first bought
the stock (and may since have modified to reflect changes in market and
economic conditions).

In this review, we seek to learn if the deteriorating performance accurately
reflects deteriorating prospects or if, in our view, it merely reflects
investor overreaction to temporary circumstances.

POLITICAL RISK. Some foreign governments have limited the outflow of profits to
investors abroad, extended diplomatic disputes to include trade and financial
relations, and imposed high taxes on corporate profits. While these political
risks have not occurred recently in the major countries in which the Fund
invests, we analyze countries and regions to try to anticipate these risks.

- --------------------------------------------------------------------------------

PORTFOLIO TURNOVER. The portfolio turnover rate measures the frequency that the
Portfolio sells and replaces the securities it holds within a given period.
Historically, this Fund has had a low portfolio turnover rate.

INFORMATION RISK. Financial reporting standards for companies based in foreign
markets differ from those in the United States. Since the "numbers" themselves
sometimes mean different things, the Investment Adviser devotes much of its
research effort to understanding and assessing the impact of these differences
upon a company's financial conditions and prospects.

FOREIGN STOCK MARKET RISK. From time to time, foreign capital markets have
exhibited more volatility than those in the United States. Trading stocks on
some foreign exchanges is inherently more difficult than trading in the United
States for reasons including:

- - LIQUIDITY RISK. Stocks that trade less can be more difficult or more costly
to buy, or to sell, than more liquid or active stocks. This liquidity risk is a
factor of the trading volume of a particular stock, as well as the size and
liquidity of the entire local market. On the whole, foreign exchanges are
smaller and less liquid than the U.S. market. This can make buying and selling
certain shares more difficult and costly. Relatively small transactions in some
instances can have a disproportionately large effect on the price and supply of
shares. In certain situations, it may become virtually impossible to sell a
stock in an orderly fashion at a price that approaches our estimate of its
value.
- - REGULATORY RISK. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.
The management of certain foreign companies may be less focused on short-term
earnings than some U.S. companies. For example, they may pay lower dividends.

In an effort to reduce these foreign stock market risks, the Fund diversifies
its investments, just as you may spread your investments among a range of
securities so that a setback in one need not overwhelm the entire strategy. In
this way, a reversal in one

market or stock need not undermine the pursuit of long-term capital
appreciation.

CURRENCY RISK. The Fund invests in foreign securities denominated in foreign
currencies. This creates the possibility that changes in foreign exchange rates
will affect the value of foreign securities or the U.S. dollar amount of income
or gain received on these securities. The Investment Adviser seeks to minimize
this risk by actively managing the currency exposure of the Fund.
- --------------------------------------------------------------------------------
[FN]
CURRENCY MANAGEMENT is used to offset investment risks ("hedging") and, where
possible, to add to investment returns. Currency management activities include
the use of forward contracts and may include the use of other instruments.
There is no guarantee that these currency management activities will work and
they could cause losses to the Fund.
</FN>

8
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<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

EMERGING MARKET RISK. To the extent that the Fund invests in emerging markets
to enhance overall returns, it may face higher political, information, and
stock market risks. In addition, profound social changes and business practices
that depart from norms in developed countries' economies have hindered the
orderly growth of emerging economies and their stock markets in the past. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. For all these reasons, the Fund
carefully limits and balances its commitment to these markets.

SECONDARY RISKS

SMALL COMPANY RISK. Although the Fund generally invests in the shares of large,
well-established companies, it may occasionally take advantage of exceptional
opportunities presented by smaller companies. Such opportunities pose unique
risks, which we take into account in considering an investment. Small company
stocks tend to experience steeper fluctuations in price -- down as well as up
- -- than the stocks of larger companies. A shortage of reliable information, the
same information gap that creates opportunity in small company investing, can
also pose added risk. Industrywide reversals have had a greater impact on small
companies, since they lack a large company's financial resources. Small company
managers typically have less experience coping with adversity or capitalizing
on opportunity than their counterparts at larger companies. Finally, small
company stocks are typically less liquid than large company stocks: when things
are going poorly, it is harder to find a buyer for a small company's shares.

PRICING RISK. When price quotations for securities are not readily available,
we determine their value by the method that most accurately reflects their
current worth in the judgement of the Board of Trustees. This procedure implies
an unavoidable risk, the risk that our prices are higher or lower than the
prices that the securities might actually command if we sold them. If we
have valued the securities too highly, you may end up paying too much for Fund
shares when you buy. If we underestimate their price, you may not receive the
full market value for your Fund shares when you sell.

FUTURES AND OPTIONS. Although not one of its principal investment strategies,
the Fund may invest in futures contracts and options on futures contracts. These
investments, when made, are for hedging purposes. If the Fund invests in FUTURES
CONTRACTS AND OPTIONS ON FUTURES CONTRACTS for non-hedging purposes, the margin
and premiums required to make those investments will not exceed 5% of the Fund's
net asset value after taking into account unrealized profits and losses on the
contracts. Futures contracts and options on futures contracts used for
non-hedging purposes involve greater risks than stock investments.

EURO RISK. On January 1, 1999, eleven countries of the European Economic and
Monetary Union (EMU) began implementing a plan to replace their national
currencies with a new currency, the euro. Full conversion to the euro is slated
to occur by July 1, 2002.

Although it is impossible to predict the impact of the conversion to the euro
on the Fund, the risks may include:
- - changes in the relative strength and value of the U.S. dollar or other major
currencies;
- - adverse effects on the business or financial condition of European issuers
that the Fund holds in its portfolio;
- - that the systems used to purchase and sell euro-denominated securities may
not work;
- - uncertainty about how existing financial contracts will be treated after euro
implementation; and
- - unpredictable effects on trade and commerce generally.

These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.

YEAR 2000 RISK. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or in which it invests will not accommodate the changeovers
necessary from dates in the year 1999 to dates in the year 2000. These risks
could adversely affect:
- - The companies in which the Fund invests, which could impact the value of the
Fund's investments;
- - Our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
- - Our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.

We are working both internally and with our business partners and service
providers to address this problem. If we -- or our business partners, service
providers, government agencies or other market participants -- do not succeed,
it could materially affect shareholder services or the value of the Fund's
shares.

TEMPORARY DEFENSIVE POSITION. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. We could place up to 100% of the Fund's assets in U.S. or
foreign government money market investments, or other short-term bonds that
offer comparable safety, if the situation warranted. To the extent we might
adopt such a position and over the course of its duration, the Fund may not
meet its goal of long-term capital appreciation.

- ------------------------------------------------------------------------------
[FN]
Futures contracts and options on futures contracts are used as a low cost
method of gaining exposure to a particular securities market without investing
directly in those securities.
</FN>

9
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<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

MANAGEMENT OF THE FUND

BOARD OF TRUSTEES. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.

INVESTMENT ADVISER. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006,
acts as the Fund's investment adviser. As investment adviser, Bankers Trust
makes the Fund's investment decisions and assumes responsibility for the
securities the Fund owns. It buys and sells securities for the Fund and
conducts the research that leads to the purchase and sale decisions. Bankers
Trust received a fee of 0.65% of the Fund's average daily net assets for its
services in the last fiscal year.

As of December 31, 1998, Bankers Trust was the eighth largest bank holding
company in the United States with total assets of approximately $156 billion.
Bankers Trust is a worldwide merchant bank dedicated to servicing the needs of
corporations, governments, financial institutions and private clients through a
global network of over 96 offices in more than 43 countries.

The Investment Adviser is a wholly owned subsidiary of Bankers Trust
Corporation. On November 30, 1998, Bankers Trust Corporation entered into an
Agreement and Plan of Merger with Deutsche Bank AG under which Bankers Trust
Corporation would merge with and into a subsidiary of Deutsche Bank AG.
Deutsche Bank AG is a major global banking institution that is engaged in a
wide range of financial services, including retail and commercial banking,
investment banking and insurance. The transaction is contingent upon various
regulatory approvals, as well as the approval of the Fund's Board of Trustees
and the Fund's shareholders. If the transaction is approved and completed,
Deutsche Bank AG, as the Investment Adviser's new parent company, will control
the operations of the Investment Adviser. The Investment Adviser believes that,
under this new arrangement, the services provided to the Fund will be
maintained at their current level.

PORTFOLIO MANAGERS. The following portfolio managers are responsible for the
day-to-day management of the master portfolio's investments:

MICHAEL LEVY, Managing Director of Bankers Trust and Co-Lead Manager of the
Fund.
- - Joined Bankers Trust and the Fund in 1993.

- - Bankers Trust's international equity strategist, overseeing the design and
implementation of the firm's proprietary stock selection process.

- - 27 years of business experience, 17 of them as an investment professional.
- - Degrees in mathematics and geophysics from the University of Michigan.

ROBERT REINER, Managing Director of Bankers Trust and Co-Lead Manager of the
Fund.
- - Joined Bankers Trust and the Fund in 1994.
- - Specializes in Japanese and European stock and market analysis.
- - Served as a Senior Financial Analyst at Scudder, Stevens & Clark from 1993
to 1994.
- - 17 years of investment industry experience.
- - Degrees from the University of Southern California and Harvard University.

JULIE WANG, Principal of Bankers Trust and Co-Manager of the Fund.
- - Joined Bankers Trust and the Fund in 1994.
- - Focuses on the Fund's Asia-Pacific investments and its emerging markets
exposure.
- - Former Investment Manager for American International Group's Southeast Asia
portfolio from 1991 to 1994.
- - 10 years of investment management experience.
- - Bachelor's degree in economics from Yale University, MBA from The Wharton
School, University of Pennsylvania.

OTHER SERVICES. Bankers Trust provides administrative services -- such as
portfolio accounting, legal services and others -- for the Fund. In addition,
Bankers Trust -- or your broker or financial advisor -- performs the functions
necessary to establish and maintain your account. In addition to setting up the
account and processing your purchase and sale orders, these functions include:
- - keeping accurate, up-to-date records for your individual Fund account;
- - implementing any changes you wish to make in your account information;
- - processing your requests for cash dividends and distributions from the Fund;
- - answering your questions on the Fund's investment performance or
administration;
- - sending proxy reports and updated prospectus information to you; and
- - collecting your executed proxies.

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the

10
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<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

Bankers Trust servicing agreement, such as cash management or special trust or
retirement-investment reporting.

ORGANIZATIONAL STRUCTURE. The Institutional International Equity Fund is a
"feeder fund" that invests all of its assets in a "master portfolio," the
International Equity Portfolio. The Fund and the Master Portfolio have the same
investment objective. The Master Portfolio is advised by Bankers Trust.

The Master Portfolio may accept investments from other feeder funds. The
feeders bear the Master Portfolio's expenses in proportion to their assets.
Each feeder can set its own transaction minimums, fund-specific expenses, and
other conditions. This arrangement allows the Fund's Trustees to withdraw the
Fund's assets from the Master Portfolio if they believe doing so is in the
shareholder's best interests. If the Trustees withdraw the Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio, or take other action.

CALCULATING THE FUND'S SHARE PRICE

We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual
fund shares at the close of regular trading on the New York Stock Exchange
every day THE EXCHANGE IS OPEN for business.

The formula calls for deducting all of the Fund's liabilities from the total
value of its assets -- the market value of the securities it holds, plus its
cash reserves -- and dividing the result by the number of shares outstanding.
(Note that prices for securities that trade on foreign exchanges can change
significantly on days when the New York Stock Exchange is closed and you cannot
buy or sell Fund shares. Price changes in the securities the Fund owns may
ultimately affect the price of Fund shares the next time the NAV is
calculated.)

We value the securities in the Fund at their stated market value if price
quotations are available. When price quotations for a particular security are
not readily available, we determine their value by the method that most
accurately reflects their current worth in the judgment of the Board of
Trustees. You can find the Fund's daily share price in the mutual fund listings
of most major newspapers.

PERFORMANCE INFORMATION
The Fund's performance can be used in advertisements that appear in various
publications. It may be compared to the performance of various indexes and
investments for which reliable performance data is available. The Fund's
performance may also be compared to averages, performance rankings, or other
information prepared by recognized mutual fund statistical services.

DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest all dividends and any capital gains, unless you elect to
receive your distributions in cash.

TAX CONSIDERATIONS

The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gains distributions and
dividends paid out by the Fund. You owe the taxes whether you receive cash or
choose to have distributions and dividends reinvested. Distributions and
dividends usually create the following tax liability:

<TABLE>
<CAPTION>
Transaction Tax Status
- ---------------------------------------- ----------------
<S> <C>
Income dividends Ordinary income
Short-term capital gains distributions Ordinary income
Long-term capital gains distributions Capital gains
</TABLE>

Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss.

<TABLE>
<CAPTION>
Transaction Tax Status
- ----------------------------------- ------------------
<S> <C>
Your sale of shares owned more Capital gains or
than one year losses

Your sale of shares owned for one Gains treated as
year or less ordinary income;
losses subject to
special rules.
</TABLE>

THE TAX CONSIDERATIONS FOR TAX DEFERRED ACCOUNTS OR NON-TAXABLE ENTITIES WILL
BE DIFFERENT.

BECAUSE EACH INVESTOR'S TAX CIRCUMSTANCES ARE UNIQUE AND BECAUSE THE TAX LAWS
ARE SUBJECT TO CHANGE, WE RECOMMEND THAT YOU CONSULT YOUR TAX ADVISOR ABOUT
YOUR INVESTMENT.

- --------------------------------------------------------------------------------
[FN]
The Exchange is open every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the
first Monday in September), Thanksgiving Day (the fourth Thursday in November)
and Christmas Day.
</FN>

11
----
<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

BUYING AND SELLING FUND SHARES

CONTACTING THE BT MUTUAL FUNDS

By Phone 1-800-368-4031
(between 9:00 a.m. and 6:00 p.m., Eastern time)

By Mail P.O. Box 419210
Kansas City, MO 64141-6210

By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

MINIMUM ACCOUNT INVESTMENTS
To open an account $5 million
To add to an account $1 million
Minimum account balance $1 million

HOW TO OPEN YOUR FUND ACCOUNT
By mail Complete and sign the account application that accompanies
this prospectus. (You may obtain additional applications by
calling the BT Service Center.) Mail the completed
application along with a check payable to Institutional
International Equity Fund Class I -- 499.

By wire Call the BT Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

TWO WAYS TO BUY AND SELL SHARES IN YOUR ACCOUNT
MAIL:

BUYING: Send your check, payable to the BT Fund you have selected, to the BT
Service Center. The addresses are shown above under "Contacting the BT Mutual
Funds." Be sure to include the fund number and your account number (see your
account statement) on your check. Please note that we cannot accept starter
checks or third-party checks. If you are investing in more than one fund, make
your check payable to "BT Funds" and include your account number and the names
and numbers of the funds you have selected.

SELLING: Send a signed letter to the Service Center with your name, your fund
number and account number, the fund's name, and either the number of shares you
wish to sell or the dollar amount you wish to receive. You must leave at least
$1 million worth of shares in your account to keep it open. Unless exchanging
into another BT Fund, you must submit a written authorization to sell shares in
a retirement account.

WIRE:

BUYING: You may only buy shares by wire if your account is authorized to do so.
Please note that you or your financial advisor must call the BT Service Center
at 1-800-368-4031 to notify us in advance of a wire transfer purchase. Inform
the BT Representative of the amount of your purchase and receive a trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day.

ROUTING NO: 021001033
ATTN: Bankers Trust/IFTC Deposit
DDA NO: 00-226-296
FBO: (Account name)
(Account number)
CREDIT: (Fund name and number)

See your account statement for the account name, number and fund number.

SELLING: You may only sell shares by wire if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your financial advisor or the BT Service
Center at 1-800-368-4031. Inform the BT Representative of the amount of your
redemption and receive a trade confirmation number. The minimum redemption by
wire is $1,000. We must receive your order by 4:00 p.m. Eastern time to wire
payment to your account the next business day.

IMPORTANT INFORMATION ABOUT BUYING AND
SELLING SHARES
- - After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
- - We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.
- - We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large it is made "in-kind").

- - You may place orders to buy and sell over the phone by calling your financial
advisor or the BT Service Center at 1-800-368-4031. If you pay for shares by
check and the check fails to clear, or if you order shares by phone and fail to
pay for them by 4:00 p.m. Eastern time the next business day, we have the right
to cancel your order, hold you liable or charge you or your account for any
losses or fees a fund or its agents have incurred. To sell shares, you must
state whether you would like to receive the proceeds by wire or check.

------
12
<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

- - Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and no
later than seven days.
- - We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in market
value.
- - If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your financial advisor or the BT Service Center for
more information.

- - Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your financial advisor or the
BT Service Center for more information.

- - During periods of heavy market activity, you may have trouble reaching the BT
Service Center by telephone. If this occurs, you should make your request by
mail.

EXCHANGE PRIVILEGE

Please note the following conditions:
- - The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.

- - You may make the exchange by phone, letter or wire, if your account has the
exchange by phone feature.

- - If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
- - You will receive a written confirmation of each transaction from the BT
Service Center or your investment professional.

------
13
<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL EQUITY FUND -- CLASS I

The table below provides a picture of the Fund's financial performance since
inception. The information selected reflects financial results for a single
Fund share. The total returns in the table represent the rate of return that an
investor would have earned on an investment in the Fund, assuming reinvestment
of all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. The annual report is
available free of charge by calling the BT Service Center at 1-800-368-4031.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE PERIOD APRIL 1, 1997(1)
SEPTEMBER 30, 1998 THROUGH SEPTEMBER 30, 1997
-------------------- ------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.24 $ 10.00
- -------------------------------------------------------------------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.10 0.00(2)
- -------------------------------------------------------------------- ------- -------
Net Realized and Unrealized Gain (Loss) on Investment, Option,
Foreign Currency, Forward Foreign Currency and Foreign Futures
Contracts (0.45) 2.24
- -------------------------------------------------------------------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS (0.35) 2.24
- -------------------------------------------------------------------- ------- -------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income -- --
- -------------------------------------------------------------------- ------- -------
Net Realized Gains -- --
- -------------------------------------------------------------------- ------- -------
TOTAL DISTRIBUTIONS -- --
- -------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 11.89 $ 12.24
- -------------------------------------------------------------------- ------- -------
TOTAL INVESTMENT RETURN (2.86)% 22.40 %
- -------------------------------------------------------------------- ------- -------
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s omitted) $556,180 $ 42,566
- -------------------------------------------------------------------- -------- --------
Ratios to Average Net Assets:
Net Investment Income 1.40% 0.20%(3)
- -------------------------------------------------------------------- -------- ----------
Expenses, Including Expenses of the International Equity Portfolio 0.95% 0.95%(3)
Decrease Reflected in Above Expense Ratio Due to Absorption of
Expenses by Bankers Trust 0.32% 0.67%(3)
- -------------------------------------------------------------------- -------- ----------
Portfolio Turnover Rate(4) 65% 63%(5)
- -------------------------------------------------------------------- -------- ----------
</TABLE>

(1) Commencement of operations
(2) Less than $.01
(3) Annualized
(4) The portfolio's turnover rate is the rate for the master fund in which the
Fund invests its assets.
(5) For the fiscal year ended September 30, 1997

---
14
<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

[BANKERS TRUST LOGO APPEARS HERE]

[Additional information about the Fund's investments and performance is
available in the Fund's annual and semi-annual reports to shareholders. In the
Fund's annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.

You can find more detailed information about the Fund in the current Statement
of Additional Information, dated January 31, 1999, which we have filed
electronically with the Securities and Exchange Commission (SEC) and which is
incorporated by reference into this Prospectus. To receive your free copy of the
Statement of Additional Information, the annual or semi-annual report, or if you
have questions about investing in the Fund, write to us at:

BT SERVICE CENTER
P.O. BOX 419210
KANSAS CITY, MO 64141-6210
or call our toll-free number: 1-800-368-4031

You can find reports and other information about the Fund on the SEC website
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. For information on the Public Reference Room,
call the SEC at 1-800-SEC-0330.]

Institutional International Equity Fund -- Class I CUSIP #055924856
BT INSTITUTIONAL FUNDS STA499300 (1/99)
811-6071

Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101

<PAGE>

PROSPECTUS: JANUARY 31, 1999

[BT MUTUAL FUNDS LOGO APPEARS HERE]

BT Mutual Funds
Institutional
International
Equity Fund - Class II

With the goal of achieving long-term capital appreciation
primarily through investment in the stocks and other equity
securities of companies in developed countries
outside the United States

TRUST: BT INSTITUTIONAL FUNDS

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>
Overview
of the Institutional International Equity Fund -- Class II

[Goal: The Fund invests for long-term capital appreciation.
Core Strategy: The Fund invests primarily in the stocks and
other equity securities of companies in developed countries
outside the United States.]

Institutional International Equity
Fund -- Class II

Overview of the Institutional International Equity
Fund -- Class II

A Detailed Look at the Institutional International
Equity Fund -- Class II

------
3

<PAGE>

Overview of the Institutional International Equity Fund -- Class II

WHO SHOULD CONSIDER INVESTING IN THE FUND

The Institutional International Equity Fund -- Class II requires a minimum
investment of $250,000. You should consider investing in the Fund if you are
seeking long-term capital appreciation. There is, of course, no guarantee that
the Fund will realize its goal. Moreover, you should be willing to accept
greater short-term fluctuation in the value of your investment than you would
typically experience investing in bond or money market funds.

An investment in the Institutional International Equity Fund is not a deposit
of Bankers Trust Company or any other bank, and is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.

------
4

<PAGE>

Overview of the Institutional International Equity Fund -- Class II

Initial Fund Performance

[GRAPHIC APPEARS BELOW WITH THE FOLLOWING INFORMATION:]

1998
----
O - 22.90%

Since inception, the Fund's highest return in any calendar quarter was 19.72%
and its lowest quarterly return was - 15.54%. Past performance offers no
indication of how the Fund will perform in the future.

TOTAL RETURNS, AFTER FEES AND EXPENSES

- --------------------------------------

The MSCI EAFE Index of major markets in Europe, Australia and the Far East
(EAFE) is a widely accepted benchmark of international stock performance. It is
a model, not an actual portfolio. It tracks stocks in Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom.

Average Annual Returns
(as of December 31, 1998)

<TABLE>
<CAPTION>
Since Inception
1 year (April 1, 1997)1
----------- -----------------
<S> <C> <C>
Institutional International Equity Fund -- Class II 22.90% 21.66%
- ----------------------------------------------------- ----- -----
EAFE Index 20.00% 13.12%
- ----------------------------------------------------- ----- -----
Lipper International Fund Universe2 13.02% 9.72%
- ----------------------------------------------------- ----- -----
</TABLE>

---
5
<PAGE>

Overview of the Institutional International Equity Fund -- Class II

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and estimated
expenses that you may pay if you buy and hold shares of the Institutional
International Equity Fund -- Class II.

Expense Example. The example below illustrates the expenses you would incur on a
$10,000 investment in the Fund. The numbers assume that the Fund earned an
annual return of 5% over the periods shown, the Fund's operating expenses
remained the same and you sold your shares at the end of the period.

You may use this hypothetical example to compare the Fund's expense history
with other funds.(1) Your actual costs may be higher or lower.

(1) Information on the annual operating expenses reflects the estimated expenses
of both the Fund and the International Equity Portfolio, the master fund in
which the Institutional International Equity Fund invests its assets. (A further
discussion of the relationship between the Fund and the Portfolio appears in the
"Organizational Structure" section of this prospectus.)

(2) Total Fund Operating Expenses have been adjusted to reflect fees expected in
the current fiscal year. For the fiscal year ended September 30, 1998, actual
Total Fund Operating Expenses were 1.11% of the Fund's average daily net assets.

(3) Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of September 30, 1998, to waive its fees and reimburse expenses so that
total expenses will not exceed 1.25%. For the fiscal year ended September 30,
1998, Bankers Trust waived fees and reimbursed expenses so that Total Fund
Operating Expenses were reduced to 0.75% of the Fund's average daily net assets.
During the last fiscal year, the Fund lowered its minimum initial investment
from $50 million to $250,000.

(4) Based on estimated expenses, after fee waivers and reimbursements for the
first 16 months only.

Annual Fees and Expenses

<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets(1)
---------------------------
<S> <C>
Management Fees 0.65%
- ---------------------------------------- ----
Distribution and Service (12b-1) Fees none
- ---------------------------------------- ----
Other Fund Operating Expenses 0.96%
- ---------------------------------------- ----
Total Fund Operating Expenses 1.61%(2)
- ---------------------------------------- ----
Less: Fee Waiver or Expense
Reimbursement (0.36)%
- ---------------------------------------- ----
Net Expenses 1.25%(3)
- ---------------------------------------- ----
</TABLE>

[Expense Example(4)
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
$127 $471 $854 $1,932]

------
6
<PAGE>

A detailed look
at the Institutional International Equity Fund -- Class II

OBJECTIVE

STRATEGY

The Fund invests for the long term. We employ a strategy of growth at a
reasonable price. We seek to identify companies outside the United States that
combine strong potential for earnings growth with reasonable investment value.
Such companies typically exhibit increasing rates of profitability and cash
flow, yet their prices compare favorably to other stocks in a given market and
to their global peers. In evaluating stocks, we consider factors such as sales,
earnings, cash flow and enterprise value. Enterprise value is a company's
market capitalization plus the value of its net debt. We further consider the
relationship between these and other quantitative factors. Together, these
indicators of growth and value may identify companies with improving prospects
before the market in general has taken notice.

PRINCIPAL INVESTMENTS

Almost all the companies in which the Fund invests are based in the developed
foreign countries that make up the EAFE Index, plus Canada. The Fund may also
invest a portion of its assets in companies based in the emerging markets of
Latin America, the Middle East, Asia and Africa if we believe that their return
potential more than compensates for the extra risks associated with these
markets. While we have invested in emerging markets in the past, under normal
market conditions we do not consider this a central element of the Fund's
strategy. Typically, we would not hold more than 15% of net assets in emerging
markets.

Best/Worst Performing Stock Markets

[BAR CHART APPEARS BELOW DEPICTING THE BEST/WORST PERFORMING STOCK MARKETS]

Returns in U.S. dollars

1988 1994
New Zealand -12% Hong Kong -5%
Belgium 55% Finland 52%

1989 1995
Finland -9% Austria -4%
Austria 104% Switzerland 45%

1990 1996
New Zealand -37% Japan -15%
United Kingdom 10% Spain 41%

1991 1997
Finland -17% Malaysia -68%
Hong Kong 50% Switzerland 45%

1992 1998
Denmark -28% Norway -30%
Hong Kong 32% Finland 123%

1993
US 10%
Hong Kong 116%

- --------------------------------------------------------------------------------
This chart does not represent the performance of any of the BT Mutual Funds.
Past performance is not a guarantee of future results.

From 1988 to 1998, the difference in annual returns between the strongest
performing markets and the weakest averaged 81%, according to Factset. And the
United States, notwithstanding some outstanding years during this period, never
posted the best annual return. Thus, by maintaining a presence across the
developed markets, investors can potentially improve their returns compared to
investing solely in U.S. stocks.

------
7

<PAGE>

A Detailed Look at the Institutional International Equity Fund -- Class II

RISKS
Below we set forth some of the prominent risks associated with international
investing, as well as investing in general, and we detail our approaches to
containing them. Although we attempt to assess the likelihood that these risks
may actually occur and to limit them, we make no guarantee that we will
succeed.

Primary Risks

Market Risk. Although individual stocks can outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

Stock Selection Risk. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. To
minimize this risk, we monitor each of the stocks in the Fund according to
three basic quantitative criteria. We subject a stock to intensive review if:

In this review, we seek to learn if the deteriorating performance accurately
reflects deteriorating prospects or if, in our view, it merely reflects
investor overreaction to temporary circumstances.

Political Risk. Some foreign governments have limited the outflow of profits to
investors abroad, extended diplomatic disputes to include trade and financial
relations, and imposed high taxes on corporate profits. While these political
risks have not occurred recently in the major countries in which the Fund
invests, we analyze countries and regions to try to anticipate these risks.

- --------------------------------------------------------------------------------
Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Portfolio sells and replaces the securities it holds within a given period.
Historically, this Fund has had a low portfolio turnover rate.

Information Risk. Financial reporting standards for companies based in foreign
markets differ from those in the United States. Since the "numbers" themselves
sometimes mean different things, the Investment Adviser devotes much of its
research effort to understanding and assessing the impact of these differences
upon a company's financial conditions and prospects.

Foreign Stock Market Risk. From time to time, foreign capital markets have
exhibited more volatility than those in the United States. Trading stocks on
some foreign exchanges is inherently more difficult than trading in the United
States for reasons including:
- - Liquidity Risk. Stocks that trade less can be more difficult or more costly
to buy, or to sell, than more liquid or active stocks. This liquidity risk is a
factor of the trading volume of a particular stock, as well as the size and
liquidity of the entire local market. On the whole, foreign exchanges are
smaller and less liquid than the U.S. market. This can make buying and selling
certain shares more difficult and costly. Relatively small transactions in some
instances can have a disproportionately large effect on the price and supply of
shares. In certain situations, it may become virtually impossible to sell a
stock in an orderly fashion at a price that approaches our estimate of its
value.

- - Regulatory Risk. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.

The management of certain foreign companies may be less focused on short-term
earnings than some U.S. companies. For example, they may pay lower dividends.

Currency Risk. The Fund invests in foreign securities denominated in foreign
currencies. This creates the possibility that changes in foreign exchange rates
will affect the value of foreign securities or the U.S. dollar amount of income
or gain received on these securities. The Investment Adviser seeks to minimize
this risk by actively managing the currency exposure of the Fund.

- --------------------------------------------------------------------------------

Currency management is used to offset investment risk ("hedging") and, where
possible, to add to investment returns. Currency management activities include
the use of forward contracts and may include the use of other instruments.
There is no guarantee that these currency management activities will work and
they could cause losses to the Fund.

------
8

<PAGE>

A Detailed Look at the Institutional International Equity Fund -- Class II

Emerging Market Risk. To the extent that the Fund invests in emerging markets
to enhance overall returns, it may face higher political, information, and
stock market risks. In addition, profound social changes and business practices
that depart from norms in developed countries' economies have hindered the
orderly growth of emerging economies and their stock markets in the past. High
levels of debt tend to make emerging economies heavily reliant on foreign
capital and vulnerable to capital flight. For all these reasons, the Fund
carefully limits and balances its commitment to these markets.

Secondary Risks

Small Company Risk. Although the Fund generally invests in the shares of large,
well-established companies, it may occasionally take advantage of exceptional
opportunities presented by smaller companies. Such opportunities pose unique
risks, which we take into account in considering an investment. Small company
stocks tend to experience steeper fluctuations in price -- down as well as up
- -- than the stocks of larger companies. A shortage of reliable information, the
same information gap that creates opportunity in small company investing, can
also pose added risk. Industry wide reversals have had a greater impact on
small companies, since they lack a large company's financial resources. Small
company managers typically have less experience coping with adversity or
capitalizing on opportunity than their counterparts at larger companies.
Finally, small company stocks are typically less liquid than large company
stocks: when things are going poorly, it is harder to find a buyer for a small
company's shares.

Pricing Risk. When price quotations for securities are not readily available,
we determine their value by the method that most accurately reflects their
current worth in the judgement of the Board of Trustees. This procedure implies
an unavoidable risk, the risk that our prices are higher or lower than the
prices that the securities might actually command if we sold them. If we have
valued the securities too highly, you may end up paying too much for Fund
shares when you buy. If we underestimate their price, you may not receive the
full market value for your Fund shares when you sell.

Futures and Options. Although not one of its principal investment strategies,
the Fund may invest in futures contracts and options on futures contracts.
These investments, when made, are for hedging purposes. If the Fund invests in
futures contracts and options on futures contracts for non-hedging purposes,
the margin and premiums required to make those investments will not exceed 5%
of the Fund's net asset value after taking into
- --------------------------------------------------------------------------------
Futures contracts and options on futures contracts are used as a low cost
method of gaining exposure to a particular securities market without investing
directly in those securities.

account unrealized profits and losses on the contracts. Futures contracts and
options on futures contracts used for non-hedging purposes involve greater
risks than stock investments.

Euro Risk. On January 1, 1999, eleven countries of the European Economic and
Monetary Union (EMU) began implementing a plan to replace their national
currencies with a new currency, the euro. Full conversion to the euro is slated
to occur by July 1, 2002.

Although it is impossible to predict the impact of the conversion to the euro
on the Fund, the risks may include:

- - changes in the relative strength and value of the U.S. dollar or other major
currencies;
- - adverse effects on the business or financial condition of European issuers
that the Fund holds in its portfolio;
- - that the systems used to purchase and sell euro-denominated securities may
not work;
- - uncertainty about how existing financial contracts will be treated after euro
implementation; and
- - unpredictable effects on trade and commerce generally.

These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.

Year 2000 Risk. As with most businesses, the Fund faces the risk that the
computer systems of its Investment Adviser and other companies on which it
relies for service or in which it invests will not accommodate the changeovers
necessary from dates in the year 1999 to dates in the year 2000. These risks
could adversely affect:
- - The companies in which the Fund invests, which could impact the value of the
Fund's investments;
- - Our ability to service your Fund account, including our ability to meet your
requests to buy and sell Fund shares; and
- - Our ability to trade securities held by the Fund or to accurately price
securities held by the Fund.

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. We could place up to 100% of the Fund's assets in U.S. or
foreign government money market investments, or other short-term bonds that
offer comparable safety, if the situation warranted. To the extent we might
adopt such a position and over the course of its duration, the Fund may not
meet its goal of long-term capital appreciation.

------
9

<PAGE>

A Detailed Look at the Institutional International Equity Fund -- Class II

MANAGEMENT OF THE FUND

Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.

Investment Adviser. Under the supervision of the Board of Trustees, Bankers
Trust Company, with headquarters at 130 Liberty Street, New York, NY 10006,
acts as the Fund's investment adviser. As investment adviser, Bankers Trust
makes the Fund's investment decisions and assumes responsibility for the
securities the Fund owns. It buys and sells securities for the Fund and
conducts the research that leads to the purchase and sale decisions. Bankers
Trust received a fee of 0.65% of the Fund's average daily net assets for its
services in the last fiscal year.

Portfolio Managers. The following portfolio managers are responsible for the
day-to-day management of the master portfolio's investments:

Michael Levy, Managing Director of Bankers Trust and Co-Lead Manager of the
Fund.
- - Joined Bankers Trust and the Fund in 1993.

- - Bankers Trust's international equity strategist, overseeing the design and
implementation of the firm's proprietary stock selection process.

- - 27 years of business experience, 17 of them as an investment professional.
- - Degrees in mathematics and geophysics from the University of Michigan.

Robert Reiner, Managing Director of Bankers Trust and Co-Lead Manager of the
Fund.
- - Joined Bankers Trust and the Fund in 1994.
- - Specializes in Japanese and European stock and market analysis.
- - Served as a Senior Financial Analyst at Scudder, Stevens & Clark from 1993
to 1994.
- - 17 years of investment industry experience.
- - Degrees from the University of Southern California and Harvard University.

Julie Wang, Principal of Bankers Trust and Co-Manager of the Fund.
- - Joined Bankers Trust and the Fund in 1994.
- - Focuses on the Fund's Asia-Pacific investments and its emerging markets
exposure.
- - Former Investment Manager for American International Group's Southeast Asia
portfolio from 1991 to 1994.
- - 10 years of investment management experience.
- - Bachelor's degree in economics from Yale University, MBA from The Wharton
School, University of Pennsylvania.

Other Services. Bankers Trust provides administrative services -- such as
portfolio accounting, legal services and others -- for the Fund. In addition,
Bankers Trust -- or your broker or financial advisor -- performs the functions
necessary to establish and maintain your account. In addition to setting up the
account and processing your purchase and sale orders, these functions include:
- - keeping accurate, up-to-date records for your individual Fund account;
- - implementing any changes you wish to make in your account information;
- - processing your requests for cash dividends and distributions from the Fund;
- - answering your questions on the Fund's investment performance or
administration;
- - sending proxy reports and updated prospectus information to you; and
- - collecting your executed proxies.

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the

------
10

<PAGE>

A Detailed Look at the Institutional International Equity Fund -- Class II

Bankers Trust servicing agreement, such as cash management or special trust or
retirement-investment reporting.

Organizational Structure. The Institutional International Equity Fund is a
"feeder fund" that invests all of its assets in a "master portfolio," the
International Equity Portfolio. The Fund and the Master Portfolio have the same
investment objective. The Master Portfolio is advised by Bankers Trust.

CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual
fund shares at the close of regular trading on the New York Stock Exchange
every day the Exchange is open for business.

- --------------------------------------------------------------------------------
The Exchange is open every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the
first Monday in September), Thanksgiving Day (the fourth Thursday in November)
and Christmas Day.

TAX CONSIDERATIONS

Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss.

<TABLE>
<CAPTION>
Transaction Tax Status
- --------------------------- ------------------
<S> <C>
Your sale of shares owned Capital gains or
more than one year losses
Your sale of shares owned Gains treated as
for one year or less ordinary income;
losses subject to
special rules.
</TABLE>

The tax considerations for tax deferred accounts or non-taxable entities will
be different.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about
your investment.

------
11

<PAGE>

A Detailed Look at the Institutional International Equity Fund -- Class II

BUYING AND SELLING FUND SHARES

Contacting the BT Mutual Funds

By Phone 1-800-368-4031
(between 9:00 a.m. and 6:00 p.m., Eastern time)

By Mail P.O. Box 419210
Kansas City, MO 64141-6210

By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

Minimum Account Investments
To open an account $250,000
To add to an account $250,000
Minimum account balance $100,000

How to Open Your Fund Account
By mail Complete and sign the account application that accompanies
this prospectus. (You may obtain additional applications by
calling the BT Service Center.) Mail the completed
application along with a check payable to Institutional
International Equity Fund Class II -- 500.

By wire Call the BT Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

Two Ways to Buy and Sell Shares in Your Account

MAIL:
Buying: Send your check, payable to the BT Fund you have selected, to the BT
Service Center. The addresses are shown above under "Contacting the BT Mutual
Funds." Be sure to include the fund number and your account number (see your
account statement) on your check. Please note that we cannot accept starter
checks or third-party checks. If you are investing in more than one fund, make
your check payable to "BT Funds" and include your account number and the names
and numbers of the Funds you have selected.

Selling: Send a signed letter to the BT Service Center with your name, your
fund number and account number, the fund's name, and either the number of
shares you wish to sell or the dollar amount you wish to receive. You must
leave at least $100,000 worth of shares in your account to keep it open. Unless
exchanging into another BT Fund, you must submit a written authorization to
sell shares in a retirement account.

WIRE:

Buying: You may only buy shares by wire if your account is authorized to do so.
Please note that you or your financial advisor must call the BT Service Center
at 1-800-368-4031 to notify us in advance of a wire transfer purchase. Inform
the BT Representative of the amount of your purchase and receive a trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day.

Routing No: 021001033
Attn: Bankers Trust/IFTC Deposit
DDA No: 00-226-296
FBO: (Account name)
(Account number)
Credit: (Fund name and number)

See your account statement for the account name, number and fund number.

Selling: You may only sell shares by wire if your account is authorized to do
so. For your protection, you may not change the destination bank account over
the phone. To sell by wire, contact your financial advisor or the BT Service
Center at 1-800-368-4031. Inform the BT Representative of the amount of your
redemption and receive a trade confirmation number. The minimum redemption by
wire is $1,000. We must receive your order by 4:00 p.m. Eastern time to wire
payment to your account the next business day.

Important Information About Buying and Selling Shares
- - After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
- - We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.
- - We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").

------
12

<PAGE>

A Detailed Look at the Institutional International Equity Fund -- Class II

- - We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in market
value.
- - If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your financial advisor or the BT Service Center for
more information.

- - Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your financial advisor or the
BT Service Center for more information.

- - During periods of heavy market activity, you may have trouble reaching the BT
Service Center by telephone. If this occurs, you should make your request by
mail.

Exchange Privilege

Please note the following conditions:
- - The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.

- - You may make the exchange by phone, letter or wire, if your account has the
exchange by phone feature.

- - If you are maintaining a taxable account, you may have to pay taxes on the
exchange.

You will receive a written confirmation of each transaction from the BT Service
Center or your investment professional.

------
13

<PAGE>

A Detailed Look at the Institutional International Equity Fund -- Class II

Financial Highlights

<TABLE>
<CAPTION>
For the period
For the year ended April 1, 1997(1) through
September 30, 1998 September 30, 1997
-------------------- -----------------------
<S> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 12.25 $ 10.00
- ----------------------------------------------------------------------- ------- -------
Income From Investment Operations
Net Investment Income 0.14 0.04
- ----------------------------------------------------------------------- ------- -------
Net Realized and Unrealized Gain (Loss) on Investment, Option, Foreign
Currency, Forward Foreign Currency and Foreign Futures Contracts ( 0.38) 2.21
- ----------------------------------------------------------------------- ------- -------
Total from Investment Operations ( 0.24) 2.25
- ----------------------------------------------------------------------- ------- -------
Distributions to Shareholders
Net Investment Income -- --
- ----------------------------------------------------------------------- ------- -------
Net Realized Gains -- --
- ----------------------------------------------------------------------- ------- -------
Total Distributions -- --
- ----------------------------------------------------------------------- ------- -------
Net Asset Value, End of Period $ 12.01 $ 12.25
- ----------------------------------------------------------------------- ------- -------
Total Investment Return ( 1.96)% 22.50 %
- ----------------------------------------------------------------------- ------- -------
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $ 8,733 $ 8,211
- ----------------------------------------------------------------------- ------- --------
Ratios to Average Net Assets:
Net Investment Income 1.89% 0.85%(2)
- ----------------------------------------------------------------------- ------- ----------
Expenses, Including Expenses of the International Equity Portfolio 0.75% 0.80%(2)
Decrease Reflected in Above Expense Ratio Due to Absorption of
Expenses by Bankers Trust 0.36% 0.64%(2)
- ----------------------------------------------------------------------- ------- ----------
Portfolio Turnover Rate*** 65% 63%(4)
- ----------------------------------------------------------------------- ------- ----------
</TABLE>

1 Commencement of Operations
2 Annualized
3 The portfolio turnover rate is the rate for the master fund in which the Fund
invests its assets.
4 For the fiscal year ended September 30, 1997.

---
14

<PAGE>

(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>
[BANKERS TRUST LOGO APPEARS HERE]

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number: 1-800-368-4031

Institutional International Equity Fund -- Class II CUSIP #055924849
BT Institutional Funds STA500300 (1/99)
811-6071

Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101

<PAGE>

PROSPECTUS: JANUARY 31, 1999

[BT MUTUAL FUNDS GRAPHIC HERE]

BT MUTUAL FUNDS

INSTITUTIONAL

INTERNATIONAL
SMALL COMPANY
EQUITY FUND

WITH THE GOAL OF ACHIEVING

LONG-TERM CAPITAL APPRECIATION

THROUGH INVESTMENT PRIMARILY

IN STOCKS AND OTHER EQUITY

SECURITIES OF SMALL COMPANIES

IN DEVELOPED COUNTRIES

OUTSIDE THE UNITED STATES

TRUST: BT INSTITUTIONAL FUNDS
INVESTMENT ADVISER: BANKERS TRUST COMPANY

[Like shares of all mutual funds, these securities have not
been approved or disapproved by the Securities and Exchange
Commission nor has the Securities and Exchange Commission
passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.]

<PAGE>

OVERVIEW
OF THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

[GOAL: THE FUND INVESTS FOR LONG-TERM CAPITAL APPRECIATION.
CORE STRATEGY: THE FUND INVESTS PRIMARILY IN THE STOCKS AND OTHER
SECURITIES WITH EQUITY CHARACTERISTICS OF SMALL COMPANIES IN
DEVELOPED COUNTRIES OUTSIDE THE UNITED STATES.]
</TABLE>

<TABLE>
<S> <C>
INSTITUTIONAL INTERNATIONAL SMALL COMPANY
EQUITY FUND
OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL SMALL
COMPANY EQUITY FUND
2 Goal
2 Core Strategy
2 Investment Policies and Strategies
3 Principal Risks of Investing in the Fund
3 Who Should Consider Investing in the Fund
4 Total Returns, After Fees and Expenses
4 Annual Fund Operating Expenses
A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL
SMALL COMPANY EQUITY FUND
5 Objective
5 Strategy
5 Principal Investments
5 Investment Process
5 Risks
7 Management of the Fund
8 Calculating the Fund's Share Price
8 Performance Information
8 Dividends and Distributions
9 Tax Considerations
9 Buying and Selling Fund Shares
11 Financial Highlights
</TABLE>

INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing principally in roughly 50 to 80 small
companies in developed countries outside the United States. The companies are
selected by combining an extensive tracking system, direct contact with the
company, its management, and its competitors, and a look at the market on which
the company is trading.

<PAGE>

OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

PRINCIPAL RISKS OF INVESTING IN THE FUND

An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:
- - Stocks that the Investment Adviser has selected could perform poorly;
- - The stock market could perform poorly in one or more of the countries in
which the Fund has invested; or
- - Small company stock returns trail stock market returns generally because of
risks specific to small company investing: greater share-price volatility and
fewer buyers for shares in periods of economic or stock market stress.

- - Adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full value;
- - Accounting and financial reporting standards differ from those in the U.S.
and could convey incomplete information when compared to information typically
provided by U.S. companies; or
- - The currency of a country in which the Fund invests may decrease
in value relative to the U.S. dollar, which could affect the value of the
investment itself to U.S. investors.

WHO SHOULD CONSIDER INVESTING IN THE FUND
The Institutional International Small Company Equity Fund requires a minimum
investment of $5 million. You should consider investing in the Fund if you are
seeking long-term capital appreciation. There is, of course, no guarantee that
the Fund will realize its goal. Moreover, you should be willing to accept
greater short-term fluctuation in the value of your investment than you would
typically experience investing in certain stocks, bonds or money market funds.

You should not consider investing in the Institutional International Small
Company Equity Fund if you are pursuing a short-term financial goal, if you seek
regular income or if you cannot tolerate fluctuations in the value of your
investments.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not available to someone
who invests in U.S. securities alone or in established large company stocks or
medium-sized company stocks.

AN INVESTMENT IN THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND IS
NOT A DEPOSIT OF BANKERS TRUST COMPANY OR ANY OTHER BANK AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.

<PAGE>

OVERVIEW OF THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

TOTAL RETURNS, AFTER FEES AND EXPENSES
The Fund first opened to investors on June 30, 1998. Therefore, it does not have
a full calendar year of annual operating performance to report.

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and estimated
expenses that you may pay if you buy and hold shares of the Institutional
International Small Company Equity Fund.

EXPENSE EXAMPLE. The example on this page illustrates the expenses you would
have incurred on a $10,000 investment in the Fund. The numbers assume the Fund
earned an annual return of 5% over the periods shown, the Fund's operating
expenses remained the same and you sold your shares at the end of the period.

You may use this hypothetical example to compare the Fund's expense ratio with
other funds.(1) Your actual costs may be higher or lower.

(1)Information on the annual operating expenses reflects the expenses of both
the Fund and the International Small Company Equity Portfolio, the master fund
in which Institutional International Small Company Equity Fund invests. (A
further discussion of the relationship between the Fund and the Portfolio
appears in the "Organizational Structure" section of this prospectus.)

(2)Generally, when a fund begins operations, its expenses are relatively high
and its assets are relatively small, which makes its total fund operating
expenses (expressed as a percentage of average daily net assets) relatively high
compared to funds with longer operating histories and greater assets.

(3)Bankers Trust has agreed, for the 16-month period from the Fund's fiscal year
end of September 30, 1998, to waive its fees and reimburse expenses, so that
total expenses will not exceed 1.20%.

(4)Based on expenses, after fee waivers and reimbursements for the first 16
months only.

ANNUAL FEES AND EXPENSES

<TABLE>
<CAPTION>
Percentage of Average
Daily Net Assets(1)
----------------------
<S> <C>
- ----------------------------------------------------------------
Management Fees 1.10%
- ----------------------------------------------------------------
Distribution and Service (12b-1) Fees none
- ----------------------------------------------------------------
Other Fund Operating Expenses 8.70%
- ----------------------------------------------------------------
Total Fund Operating Expenses 9.80%(2)
- ----------------------------------------------------------------
Less: Fee Waivers and Expense
Reimbursement (8.60)%(3)
- ----------------------------------------------------------------
NET EXPENSES 1.20%
================================================================
</TABLE>

<TABLE>
<CAPTION>
[EXPENSE EXAMPLE(4)
1 year 3 years
-------- ---------
<S> <C> <C> <C> <C>
$122 $1,833]
</TABLE>

<PAGE>

A DETAILED LOOK
AT THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

OBJECTIVE
The Fund seeks long-term capital appreciation. Under normal circumstances, it
invests at least 65% of its total assets in stock and other securities with
equity characteristics of SMALL COMPANIES in developed countries outside the
United States.

The Fund invests for long-term capital appreciation, not income; any dividend
and interest income is incidental to the pursuit of its objective. While we give
priority to capital appreciation, we cannot offer any assurance of achieving
this objective. The Fund's objective is not a fundamental policy. We must notify
shareholders before we change it, but we do not require their approval to do so.

STRATEGY

The Fund seeks first to identify global industries with strong prospects. The
companies in the industry as a whole will be reporting improving cash flow or
revenues. Or their stock prices, measured by factors such as earnings or
REPLACEMENT VALUE per share, may seem low compared to companies in other
industries.

Once we have identified the industry, the search begins for smaller enterprises
that combine significant potential for earnings growth with reasonable
investment value. Such companies have secured a solid competitive position.
Their earnings per share and cash flow are increasing at rates comparable to the
industry as a whole. But the local stock market may have overlooked these solid
fundamentals because of misperception or, as is often the case with small
companies, a simple lack of information. Investors in the local market may not
have fully understood the impact of legislative, demographic, or technological
change that should work in a company's favor, or they may have failed to take
into account the impact of a restructuring on the company's profitability.

PRINCIPAL INVESTMENTS
When the Fund is fully invested, it intends to hold the shares of roughly 50 to
80 small companies. It focuses principally on companies with publicly traded
shares with a market capitalization within the market capitalization range of
THE SALOMON SMITH BARNEY EXTENDED MARKET INDEX - EXCLUDING U.S. (TOTAL).

Small companies remain under-researched both in the United States and to an even
greater extent abroad, so they may offer fertile ground for finding
substantially undervalued stocks. Moreover, the Fund offers an opportunity to
invest in companies that often slip beneath the screens of the "large-cap"
mutual funds.

While the Fund may invest throughout the world, it intends to invest primarily
in Canada, Japan, the United Kingdom, Germany, France, Switzerland, the
Netherlands, Sweden, Hong Kong, Italy, Norway, Denmark, Spain, Ireland,
Singapore, Portugal, Sweden, Finland, and Austria.

INVESTMENT PROCESS

Company research lies at the heart of our investment process, as it does with
many stock mutual funds. We track several hundred companies to arrive at the 50
to 80 stocks the Fund intends to normally hold. This effort relies on the
analytical and forecasting tools that the Investment Adviser has applied and
refined in international investing over the last quarter-century. Applying these
tools to small company investing calls for face-to-face contact, visits to the
company's plants and frequent contact with its management, suppliers, customers
and competitors. It also requires the investment team to place their global
industry findings in the context of national stock markets: a strong small
company might well fail as an investment if its shares trade in a weak stock
market.

RISKS
BELOW WE SET FORTH SOME OF THE PROMINENT RISKS ASSOCIATED WITH SMALL COMPANY
INVESTING AND INVESTING OUTSIDE THE UNITED STATES, ALONG WITH THOSE OF INVESTING
IN GENERAL. WE ALSO DETAIL OUR METHODS FOR DEALING WITH THESE RISKS. ALTHOUGH WE
ATTEMPT TO ASSESS THE LIKELIHOOD THAT THESE RISKS MAY ACTUALLY OCCUR AND TO
LIMIT THEM, WE MAKE NO GUARANTEE THAT WE WILL SUCCEED.

- --------------------------------------------------------------------------------

We define a "SMALL COMPANY" as, at the time of purchase, having publicly traded
shares with a market capitalization within the market capitalization range of
The Salomon Smith Barney Extended Market Index - excluding U.S. (Total).

REPLACEMENT VALUE measures the cost per share of replacing all the physical
assets of a business at current prices.

- --------------------------------------------------------------------------------
THE SALOMON SMITH BARNEY EXTENDED MARKET INDEX - EXCLUDING U.S. (TOTAL), one of
the principal global small company stock benchmarks, includes 4,500 companies
representing an estimated 20% of the total value of the world's stocks.

PORTFOLIO TURNOVER. The portfolio turnover rate measures the frequency that the
Portfolio sells and replaces the securities it holds within a given period. We
expect that this Fund will not have a high portfolio turnover rate.

<PAGE>
A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

PRIMARY RISKS

MARKET RISK. Although individual stocks can outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

STOCK SELECTION RISK. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. The Fund
seeks to limit this risk with a strict evaluation process. Before it takes a
position in a stock, the Fund's investment team typically establishes a target
sell price, at which point they will reevaluate the company's situation to
determine whether the deterioration in price mirrors a fundamental deterioration
in the business, or whether the reversal is merely temporary.

SMALL COMPANY RISK. Small company stocks tend to experience steeper fluctuations
in price -- down as well as up -- than the stocks of larger companies. A
shortage of reliable information -- the same information gap that creates
opportunity in small company investing -- can also pose added risk.
Industry-wide reversals have had a greater impact on small companies, since they
lack a large company's financial resources. Small company managers typically
have less experience coping with adversity or capitalizing on opportunity than
their counterparts at larger companies. Finally, small company stocks are
typically less liquid than large company stocks: when things are going poorly,
it is harder to find a buyer for a small company's shares.

- - LIQUIDITY RISK. Stocks that trade less can be more difficult or more costly to
buy, or to sell, than more liquid or active stocks. This liquidity risk is a
factor of the trading volume of a particular stock, as well as the size and
liquidity of the entire local market. On the whole, foreign exchanges are
smaller and less liquid than the U.S. market. This can make buying and selling
certain shares more difficult and costly. Relatively small transactions in some
instances can have a disproportionately large effect on the price and supply of
shares. In certain situations, it may become virtually impossible to sell a
stock in an orderly fashion at a price that approaches our estimate of its
value.
- - REGULATORY RISK. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.

The management of certain foreign companies may be less focused on short-term
earnings than some U.S. companies. For example, they may pay lower dividends.

In an effort to reduce these foreign stock-market risks, the Fund diversifies
its investments, just as you may spread your investments among a range of
securities so that a setback in one need not overwhelm your entire strategy. In
this way, a reversal in one market or stock need not undermine the pursuit of
long-term capital appreciation.

SECONDARY RISKS

EMERGING MARKETS RISK. To the extent that the Fund invests in emerging markets
to enhance overall returns, it may face higher stock market, information and
political risks. Therefore, the Fund carefully limits and balances its
commitment to these markets.

PRICING RISK. When price quotations for securities are not readily available, we
determine their value by the method that most accurately reflects their current
worth in the judgement of the Board of Trustees. This procedure implies an
unavoidable risk, the risk that our prices are higher or lower than the prices
that the securities might actually command if we sold them. If we have valued
the securities too highly, you may end up paying too much for Fund shares when
you buy. If we underestimate their price, you may not receive the full market
value for your Fund shares when you sell.

- --------------------------------------------------------------------------------

CURRENCY MANAGEMENT is used to offset investment risks ("hedging") and, where
possible, to add to investment returns. Currency management activities include
the use of forward contracts and may include the use of other instruments. There
is no guarantee that these currency management activities will work and they
could cause losses to the Fund.

<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

Although it is impossible to predict the impact of the conversion to the euro on
the Fund, the risks may include:
- - changes in the relative strength and value of the U.S. dollar or other major
currencies;
- - adverse effects on the business or financial condition of European issuers
that the Fund holds in its portfolio;
- - that the systems used to purchase and sell euro-denominated securities may not
work;
- - uncertainty about how existing financial contracts will be treated after euro
implementation; and
- - unpredictable effects on trade and commerce generally.

These and other factors could increase volatility in financial markets worldwide
and could adversely affect the value of securities held by the Fund.

TEMPORARY DEFENSIVE POSITION. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. We could place up to 100% of the Fund's assets in U.S. or
foreign government money market investments, or other short-term bonds that
offer comparable safety, if the situation warranted. To the extent that we might
adopt such a position, and over the course of its duration, the Fund may not
meet its goal of long-term capital appreciation.

MANAGEMENT OF THE FUND

BOARD OF TRUSTEES. The Fund's shareholders, voting in proportion to the amount
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.

INVESTMENT ADVISER AND SUB-ADVISER. Under the supervision of the Board of
Trustees, Bankers Trust Company, with headquarters at 130 Liberty Street, New
York, N.Y. 10006, acts as the Fund's investment adviser, exercises day-to-day
investment oversight and assumes responsibility for the securities the Fund
owns. Bankers Trust has, in turn, vested day-to-day investment decision-making
and implementation in a sub-adviser, the wholly owned entity BT Fund Managers
(International) Limited. Bankers Trust's and BTFMI's fee for these services is
1.10%, of the Fund's average daily net assets. Responsibilities and advisory
fees can be reallocated between the Investment Adviser and Sub-Adviser without
obtaining shareholder approval.

Bankers Trust's officers bring wide experience to managing both the Fund and its
Portfolio. The firm's own record dates back to its founding as a trust company
in 1903. It has invested retirement assets on behalf of the nation's largest
corporations and institutions for more than 50 years. Today, the assets under
its global management exceed $338 billion. The scope of the firm's capability is
broad: It is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
BTFMI, a subsidiary of Bankers Trust with headquarters at Level 15, The Chifley
Tower, 2 Chifley Square, Sydney, N.S.W. 2000 Australia, offers a decade of
research and investing experience in small companies worldwide to a number of
private clients. It has developed a team dedicated exclusively to the small
company discipline.

7
------

<PAGE>
A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

completed,Deutsche Bank AG, as the Investment Adviser's new parent company, will
control the operations of the Investment Adviser. The Investment Adviser
believes that, under this new arrangement, the services provided to the Fund
will be maintained at their current level.

PORTFOLIO MANAGER. The portfolio manager is responsible for the day-to-day
management of the master portfolio's investments:

MONIK KOTECHA, Head Portfolio Manager and Senior Vice President, BT Funds
Management (International) Limited ("BTFMI") and lead Portfolio Manager of the
Fund since its inception.

- - Joined Bankers Trust in 1994 as analyst for European small company
investments.
- - Head of BTFMI's Global Small Company Investments and head of Global Small Cap
Equity since 1996.
- - Eight years of investment management and research experience with Abu Dhabi
Investment Authority in London, U.K.
- - BSc. honors degree in law and accountancy from University College, Cardiff;
MSc. from City University Business School, London, U.K.

OTHER SERVICES. Bankers Trust provides administrative services -- such as
portfolio accounting, legal services and others -- for the Fund. In addition,
Bankers Trust, or your broker or financial adviser, performs the functions
necessary to establish and maintain your account. In addition to setting up the
account and processing your purchase and sale orders, these functions include:
- - keeping accurate, up-to-date records for your individual Fund account;
- - implementing any changes you wish to make in your account information;
- - processing your requests for cash dividends and distributions from the Fund;
- - answering your questions on the Fund's investment performance or
administration;
- - sending proxy reports and updated prospectus information to you; and
- - collecting your executed proxies.

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management reporting.

ORGANIZATIONAL STRUCTURE. The Institutional International Small Company Equity
Fund is a "feeder fund" that invests all of its assets in a "master portfolio,"
the International Small Company Equity Portfolio. The Fund and the Master
Portfolio have the same investment objective. The Master Portfolio is advised
by Bankers Trust.

The Master Portfolio may accept investments from other feeder funds. The feeders
bear the Master Portfolio's expenses in proportion to their assets. Each feeder
can set its own transaction minimums, fund-specific expenses, and other
conditions. This arrangement allows the Fund's Trustees to withdraw the Fund's
assets from the Master Portfolio if they believe doing so is in the
shareholder's best interests. If the Trustees withdraw the Fund's assets, they
would then consider whether the Fund should hire its own investment adviser,
invest in a different master portfolio, or take other action.

CALCULATING THE FUND'S SHARE PRICE
We calculate the daily price of the Fund's shares (also known as the "Net Asset
Value" or "NAV") in accordance with the standard formula for valuing mutual fund
shares at the close of regular trading on the New York Stock Exchange every day
the Exchange is open for business.

DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest dividends and any capital gains, unless you tell us
otherwise.
- --------------------------------------------------------------------------------
THE EXCHANGE IS OPEN every week, Monday through Friday, except when the
following holidays are celebrated: New Year's Day, Martin Luther King, Jr. Day
(the third Monday in January), Presidents' Day (the third Monday in February),
Good Friday, Memorial Day (the last Monday in May), July 4th, Labor Day (the
first Monday in September), Thanksgiving Day (the fourth Thursday in November)
and Christmas Day.

8
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<PAGE>
A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

TAX CONSIDERATIONS

Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss.

<TABLE>
<CAPTION>
Transaction Tax Status
- ----------------------------------- ---------------
<S> <C>
Your sale of shares owned more Capital gains
than one year or losses
Your sale of shares owned for one Gains treated
year or less as ordinary
income; losses
subject to
special rules.
</TABLE>

The tax considerations for tax deferred accounts or non-taxable entities will be
different.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about your
investment.

BUYING AND SELLING FUND SHARES

CONTACTING THE BT MUTUAL FUNDS

By Phone 1-800-368-4031
(between 9:00 a.m. and 6:00 p.m., Eastern time)

By Mail P.O. Box 419210
Kansas City, MO 64141-6210

By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716

Minimum Account Investments
To open an account $5 million
To add to an account $100,000
Minimum account balance $500,000

How to Open Your Fund Account
By mail Complete and sign the account application that
accompanies this prospectus. (You may obtain additional
applications by calling the BT Service Center.) Mail the
completed application along with a check payable to
Institutional International Small Company Equity Fund --
810.

By wire Call the BT Service Center to set up a wire account.

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

TWO WAYS TO BUY AND SELL SHARES IN YOUR ACCOUNT
MAIL:

BUYING: Send your check, payable to the BT Fund you have selected to the BT
Service Center. The addresses are shown above under "Contacting the BT Mutual
Funds." Be sure to include the fund number and your account number (see your
account statement) on your check. Please note that we cannot accept starter
checks or third-party checks. If you are investing in more than one fund, make
your check payable to "BT Funds" and include your account number and the names
and numbers of the funds you selected.

SELLING: Send a signed letter to the BT Service Center with your name, your fund
number and account number, the fund's name, and either the number of shares you
wish to sell or the dollar amount you wish to receive. You must leave at least
$500,000 worth of shares in your account to keep it open. Unless exchanging into
another BT Fund, you must submit a written authorization to sell shares in a
retirement account.

WIRE:

Routing No: 021001033
Attn: Bankers Trust/IFTC Deposit
DDA No: 00-226-296
FBO: (Account name)
(Account number)
Credit: (Fund name and number)

See your account statement for the account name, number and fund number.

9
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<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

IMPORTANT INFORMATION ABOUT BUYING AND SELLING SHARES
- - After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.
- - We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.
- - We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").

- - You may place orders to buy and sell over the phone by calling
your financial advisor or the BT Service Center at 1-800-368-4031. If you pay
for shares by check and the check fails to clear, or if you order shares by
phone and fail to pay for them by 4:00 p.m. Eastern time the next business day,
we have the right to cancel your order, hold you liable or charge you or your
account for any losses or fees a fund or its agents have incurred. To sell
shares, you must state whether you would like to receive the proceeds by wire or
check.

- - You may buy and sell shares of a fund through authorized brokers and financial
advisors as well as from BT Mutual Funds directly. The same terms and conditions
apply. Specifically, once you place your order with a broker or financial
advisor, it is considered received by the BT Service Center. It is then your
broker or financial advisor's responsibility to transmit the order to the BT
Service Center by the next business day. You should contact your broker or
financial advisor if you have a dispute as to when your order was placed with
the fund.
- - We do not issue share certificates.
- - We process all sales orders free of charge.
- - Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and no
later than seven days.
- - We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in market
value.
- - If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your financial advisor or the BT Service Center for
more information.
- - Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your financial advisor or the
BT Service Center for more information.
- - During periods of heavy market activity, you may have trouble reaching the BT
Service Center by telephone. If this occurs, you should make your request by
mail.

EXCHANGE PRIVILEGE

You can exchange all or part of your shares for shares of another BT Mutual Fund
up to four times a year without paying a fee. When you exchange shares, you are
selling shares in one fund to purchase shares in another. Before buying shares
through an exchange, you should be sure to get a copy of that fund's prospectus
and read it carefully. You may only order exchanges over the phone if your
account is authorized to do so.
Please note the following conditions:
- - The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.
- - You may make the exchange by phone, letter or wire, if your account has the
exchange by phone feature.
- - If you are maintaining a taxable account, you may have to pay taxes on the
exchange.
- - You will receive a written confirmation of each transaction from the BT
Service Center or your investment professional.

10
------

<PAGE>

A DETAILED LOOK AT THE INSTITUTIONAL INTERNATIONAL SMALL COMPANY EQUITY FUND

The table below provides a picture of the Fund's financial performance since
inception. The information selected reflects financial results for a single Fund
share. The total returns in the table represent the rate of return that an
investor would have earned on an investment in the Fund, assuming reinvestment
of all dividends and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. The annual report is
available free of charge by calling the BT Service Center at 1-800-368-4031.

Financial Highlights

<TABLE>
<CAPTION>
FOR THE PERIOD JUNE 30, 19981
THROUGH SEPTEMBER 30, 1998
------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ------------------------------------------------------------------------------------ -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.05
- ------------------------------------------------------------------------------------ -------
Net Realized and Unrealized Gain (Loss) on Investment, Foreign Currency and Forward
Foreign Currency Contracts (2.01)
- ------------------------------------------------------------------------------------ --------
TOTAL LOSS FROM INVESTMENT OPERATIONS (1.96)
- ------------------------------------------------------------------------------------ --------
NET ASSET VALUE, END OF PERIOD $ 8.04
- ------------------------------------------------------------------------------------ --------
TOTAL INVESTMENT RETURN (19.60)%
- ------------------------------------------------------------------------------------ --------
SUPPLEMENTAL DATA AND RATIOS:
Net Asset, End of Period (000s omitted) $ 364
- ------------------------------------------------------------------------------------ --------
Ratios to average net assets:
Net Investment Income 2.80%(2)
- ------------------------------------------------------------------------------------ ----------
Expenses, Including Expenses of the Institutional Small Company Equity Portfolio 1.20%(2)
Decrease Reflected in Above Expense Ratio Due to Absorption of Expenses by
Bankers Trust 44.72%(2)
- ------------------------------------------------------------------------------------ ----------
Portfolio Turnover Rate(3) 11%
- ------------------------------------------------------------------------------------ ----------
</TABLE>

(1)Commencement of operations.
(2)Annualized.
(3)The Portfolio turnover rate is the rate for the master fund in which the Fund
invests its assets.

11
------

<PAGE>

[BANKERS TRUST ARCHITECTS OF VALUE LOGO HERE]

<TABLE>
<S> <C>
Additional information about the Fund's investments and performance is available
in the Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fundis performance during
its last fiscal year.

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number: 1-800-368-4031

You can find reports and other information about the Fund on the SEC website
(http://www.sec.gov), or you can get copies of this information, after payment
of a duplicating fee, by writing to the Public Reference Section of the SEC,
Washington, DC 20549-6009. Information about the Fund, including its Statement
of Additional Information, can be reviewed and copied at the SEC is Public
Reference Room in Washington, DC. For information on the Public Reference Room,
call the SEC at 1-800-SEC-0330.
</TABLE>

Institutional International Small Company Equity Fund CUSIP #055924831
BT Institutional Funds STA810300 (1/99)
811-6071
Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101

<PAGE>

PROSPECTUS: JANUARY 31, 1999

[BT MUTUAL FUNDS LOGO APPEARS HERE] BT Mutual Funds

Institutional
Global Emerging

Markets Equity Fund

With the goal of achieving long-term capital growth
primarily through investment in the stocks and other equity
securities of companies in the
world's emerging markets

TRUST: BT INSTITUTIONAL FUNDS

INVESTMENT ADVISER: BANKERS TRUST COMPANY

<PAGE>

Overview
of the Institutional Global Emerging Markets Equity Fund

Goal: The Fund invests for long-term capital growth.

Core Strategy: The Fund invests in stocks and other equity
securities of companies in the world's emerging markets.

Institutional Global Emerging Markets Equity
Fund

Overview of the Institutional Global Emerging
Markets Equity Fund

2 Goal
2 Core Strategy
2 Investment Strategies and Policies
3 Principal Risks of Investing in the Fund
3 Who Should Consider Investing in the Fund
4 Total Returns, After Fees and Expenses
4 Annual Fund Operating Expenses

A Detailed Look at the Institutional Global
Emerging Markets Equity Fund

5 Objective
5 The Case for Emerging Markets
5 Strategy
5 Principal Investments
5 Investment Process
6 Risks
7 Management of the Fund
9 Calculating the Fund's Share Price
9 Performance Information
9 Dividends and Distributions
9 Tax Considerations
9 Buying and Selling Fund Shares
11 Financial Highlights

INVESTMENT POLICIES AND STRATEGIES
The Fund invests all of its assets in a master portfolio with the same
investment objective as the Fund. The Fund, through the master portfolio, seeks
to achieve that objective by investing primarily in companies based in emerging
markets meeting specific investment criteria. The Fund may also invest a
portion of its assets in emerging market bonds or other debt securities. The
companies are selected by an extensive tracking system plus the input of
experts from various financial disciplines.

2
------

<PAGE>

Overview of the Institutional Global Emerging Markets Equity Fund

PRINCIPAL RISKS OF INVESTING IN THE FUND
An investment in the Fund could lose money, or the Fund's performance could
trail that of other investments. For example:

- - Stocks that the Investment Adviser has selected could perform poorly; or
- - The stock market could perform poorly or could underperform other investments
in one or more of the countries in which the Fund has invested.

- - Economies in emerging markets are more volatile than developed countries'
and are subject to sudden reversals;

- - Adverse political, economic or social developments could undermine the value
of the Fund's investments or prevent the Fund from realizing their full value;
- - Accounting and financial reporting standards differ from those in the U.S.
and could convey incomplete information when compared to information typically
provided by U.S. companies; or
- - The currency of a country in which the Fund invests may decline in value
relative to the U.S. dollar, which could affect the value of the investment
itself to U.S. investors.

WHO SHOULD CONSIDER INVESTING IN THE FUND

The Institutional Global Emerging Markets Equity Fund requires a minimum
investment of $5 million. You should consider investing in the Fund if you are
seeking long-term capital growth. There is, of course, no guarantee that the
Fund will realize its goal. The Fund is designed for investors who are willing
to accept the extreme fluctuation in short-term investment values that have
often accompanied this long-term capital growth.

You should not consider investing in the Institutional Global Emerging Markets
Equity Fund if you are pursuing a short-term financial goal, if you seek
regular income or if you cannot tolerate fluctuations in the value of your
investments.

The Fund by itself does not constitute a balanced investment program. It can,
however, afford exposure to investment opportunities not otherwise available to
someone who invests in developed market securities alone.

An investment in the Institutional Global Emerging Markets Equity Fund is not a
deposit of Bankers Trust Company or any other bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.

3
------

<PAGE>

Overview of the Institutional Global Emerging Markets Equity Fund

TOTAL RETURNS, AFTER FEES AND EXPENSES
The Fund first opened to investors on June 30, 1998. Therefore, it does not
have a full calendar year of performance to report.

ANNUAL FUND OPERATING EXPENSES
(expenses paid from Fund assets)

The Annual Fees and Expenses table to the right describes the fees and
estimated expenses you may pay if you buy and hold shares of the Institutional
Global Emerging Markets Equity Fund.

You may use this hypothetical example to compare the Fund's expense ratio with
other funds.1 Your actual costs may be higher or lower.

(1) Information on the annual operating expenses reflects the expenses of both
the Fund and the Global Emerging Markets Equity Portfolio, the master fund in
which the Institutional Global Emerging Markets Equities Fund invests its
assets. (A further discussion of the relationship between the Fund and the
Portfolio appears in the "Organizational Structure" section of this prospectus.)

(2) Generally, when a fund begins operations, its expenses are relatively high
and its assets are relatively small, which makes its total fund operating
expenses (expressed as a percentage of average daily net assets) relatively high
compared to funds with longer operating histories and greater assets.

(3) Bankers Trust has agreed, for the 16-month period from the Fund's fiscal
year end of September 30, 1998, to waive its fees and reimburse expenses so that
expenses will not exceed 1.45%.

(4) Based on expenses, after fee waivers and reimbursements for the first 16
months only.

Annual Fees and Expenses

percentage of average
daily net assets(1)
---------------------------
Management Fees 1.10%
- --------------------------------------- ----------
Distribution and Service (12b-1) Fees None
- --------------------------------------- ----------
Other Fund Operating Expenses 53.98%
- --------------------------------------- ----------
Total Fund Operating Expenses 55.08%(2)
- --------------------------------------- ----------
Less: Fee Waivers or Expense
Reimbursement (53.63)%(3)
- --------------------------------------- -----------
Net Expenses 1.45%
- --------------------------------------- -----------

Expense Example(4)
1 year 3 years
-------- --------
$148 $5,360

4
------

<PAGE>

A detailed look

at the Institutional Global Emerging Markets Equity Fund

OBJECTIVE
The Fund seeks long-term capital growth. Under normal circumstances, the Fund
invests at least 65% of its total assets in the stock and other securities with
equity characteristics of companies in the world's emerging markets.
The Fund invests for growth, not income; any dividend and interest income is
incidental to the pursuit of its objective. While we give priority to long-term
capital growth, we cannot offer any assurance of achieving this objective. The
Fund's objective is not a fundamental policy. We must notify shareholders
before we change it, but we do not require their approval to do so.

THE CASE FOR EMERGING MARKETS

Emerging markets offer the potential for long-term growth. An emerging market
is commonly defined as one that has experienced comparatively little
industrialization. The world's two most populous nations -- China and India --
are emerging markets, and they alone account for almost 40% of the world's
population. As consumers in these markets rapidly improve their standards of
living and as their governments promote capitalism through deregulation and
privatization, companies serving these markets stand to gain substantially
through increased sales and profits. Thus, while emerging markets are
considerably more volatile than developed markets, they have substantial
long-term growth potential.

STRATEGY

The Fund invests for the long term. We employ a strategy of growth at a
reasonable price. We seek to identify companies in the emerging markets that
combine strong potential for earnings growth with reasonable investment value.
Such companies typically exhibit increasing rates of profitability and cash
flow, yet their share prices compare favorably to other stocks in a given
market and to their global peers. In evaluating stocks, we consider factors
such as sales, earnings, cash flow and enterprise value. Enterprise value is a
company's market capitalization plus the value of its net debt. We further
consider the relationship between these and other quantitative factors.
Together, these indicators of growth and value may identify companies with
improving prospects before the market in general has taken notice.

- --------------------------------------------------------------------------------
The emerging markets include Argentina, Bolivia, Brazil, Bulgaria, Chile,
China, Colombia, Costa Rica, the Czech Republic, Ecuador, Egypt, Greece,
Hungary, India, Indonesia, Israel, the Ivory Coast, Jordan, Malaysia, Mexico,
Morocco, Nicaragua, Nigeria, Pakistan, Peru, the Philippines, Poland, Romania,
Russia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.

PRINCIPAL INVESTMENTS
The Fund invests in companies across the full geographic spectrum of emerging
markets: Asia, Latin America, Eastern Europe, the Mediterranean basin and
Africa. It looks for businesses that meet critical "investable" criteria:
- - solid management and finances that, according to our research, show signs of
being able to withstand any turmoil affecting the emerging markets;
- - exporters able to take advantage of a favorable cost structure compared to
developed-world competition; and
- - domestic providers of goods and services positioned to benefit from the
emerging markets' opportunity for long-term growth.

The Fund may also invest up to 35% of its assets in emerging market bonds and
other debt securities.

Bonds and other debt securities must have earned a rating of C or better from
Standard & Poor's Corporation or Moody's Investors Service. If they have no
rating, they must be at least comparable to a C-rated security in the opinion
of Bankers Trust. As an operating policy (which may be changed by the Fund's
Board of Trustees), the Fund will not invest more than 5% of its assets in
bonds or other debt securities rated BBB or lower by S&P or Baa or lower by
Moody's.

INVESTMENT PROCESS

Company research lies at the heart of our investment process, as it does with
many stock mutual funds. We track several hundred companies to arrive at the
approximately 50 stocks the Fund intends to normally hold when fully invested.
But our process brings an added dimension to this fundamental research. It
draws on the insight of experts from a range of financial disciplines --
regional stock market specialists, global industry specialists, economists and
quantitative analysts. They challenge, refine and amplify each other's ideas.
Their close collaboration is a critical element of our investment process.

- --------------------------------------------------------------------------------
Bonds may generate capital appreciation through decreases in interest rates
resulting from economic and market conditions or improvements in the bond
issuer's finances. There is corresponding risk in investing in bonds to seek
capital appreciation. If interest rates increase or if the bond issuer's
finances deteriorate, the price of the bond may go down.

Portfolio Turnover. The portfolio turnover rate measures the frequency that the
Portfolio sells and replaces the securities it holds within a given period. We
expect that the Fund will not have a high portfolio turnover rate.

5
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<PAGE>

A Detailed Look at the Institutional Global Emerging Markets Equity Fund

RISKS
Below we set forth some of the prominent risks associated with emerging markets
investing, as well as investing in general, and we detail our approaches to
containing them. Although we attempt to assess the likelihood that these risks
may actually occur and to limit them, we make no guarantee that we will
succeed.

Primary Risks

Market Risk. Although individual stocks can outperform their local markets,
deteriorating market conditions might cause an overall weakness in the stock
prices of the entire market.

Stock Selection Risk. A risk that pervades all investing is the risk that the
securities an investor has selected will not perform to expectations. The Fund
seeks to limit this risk with a strict evaluation process. Before it takes a
position in a stock, the Fund's investment team typically establishes a target
sell price at which point they will reevaluate the company's situation to
determine whether the deterioration in performance mirrors a fundamental
deterioration in the business, or whether, in our view, the reversal is merely
temporary.

Emerging Market Risk. Emerging market investing entails heightened risks
compared to those posed in developed market investing. We outline those risks
below. While the Fund relies on the specific strategies to deal with each of
the risks, it employs one general approach in an attempt to reduce risk across
the board: diversification. Just as individual investors should spread their
investments among a range of securities so that a setback in one need not
overwhelm their entire strategy, the Fund seeks to spread its investments. In
this way, a reversal in one market need not undermine the pursuit of long-term
capital growth.

Political Risk. Profound social changes and business practices that depart from
developed stock market norms have hindered the growth of emerging stock markets
in the past. High levels of debt tend to make them overly reliant on foreign
capital investment and vulnerable to capital flight. Governments have limited
foreign investors' access to capital markets and restricted the flow of profits
overseas. They have resorted to high taxes, expropriation and nationalization.
In many countries, particularly in Eastern Europe and Asia, stock exchanges
have operated largely without regulation and in the absence of laws or
precedents protecting the rights of private ownership and foreign investors.
All these threats remain a part of emerging-market investing today. The Fund
attempts to avoid them in large part through intensive, ongoing economic and
political research.

Information Risk. Emerging market accounting, auditing, and financial reporting
and disclosure standards tend to be far less stringent than those of developed
markets. And the risks of investors acting on incomplete, inaccurate or
deliberately misleading information are correspondingly greater. Compounding
the problem, local investment research often lacks the sophistication to spot
potential pitfalls. Thus, a linchpin in the Fund's investment process is
independently assessing the impact of these differences upon a company's
financial conditions and prospects.

- - Liquidity Risk. Stocks that trade less can be more difficult or more costly
to buy, or to sell, than more liquid or active stocks. This liquidity risk is a
factor of the trading volume of a particular stock, as well as the size and
liquidity of the entire local market. On the whole, foreign exchanges are
smaller and less liquid than the U.S. market. This can make buying and selling
certain shares more difficult and costly. Relatively small transactions in some
instances can have a disproportionately large effect on the price and supply of
shares. In certain situations, it may become virtually impossible to sell a
stock in an orderly fashion at a price that approaches our estimate of its
value.

- - Regulatory Risk. Some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.

The management of certain foreign companies may be less focused on short-term
earnings than some U.S. companies. For example, they may pay lower dividends.

In an effort to reduce these foreign stock market risks, the Fund diversifies
its investments, just as you may spread your investments among a range of
securities so that a setback in one need not overwhelm your entire strategy. In
this way, a reversal in one market or stock need not undermine the pursuit of
long-term capital appreciation.

- --------------------------------------------------------------------------------
Currency management is used to offset investment risks ("hedging") and, where
possible, to add to investment returns. Currency management activities include
the use of forward contracts and may include the use of other instruments.
There is no guarantee that these currency management activities will work and
they could cause losses to the Fund.

6
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<PAGE>

A Detailed Look at the Institutional Global Emerging Markets Equity Fund

Secondary Risks

Small Company Risk. To the extent that the Institutional Global Emerging Market
Equity Fund invests in the stocks of smaller companies, it will encounter the
risks associated with such investing. Small company stocks tend to experience
steeper price fluctuations -- down as well as up -- than the stocks of larger
companies. Industrywide reversals have had a greater impact on small companies,
since they lack a large company's financial resources. Small company managers
typically have less experience coping with adversity or capitalizing on
opportunity than their counterparts at larger companies. Finally, small company
stocks are typically less liquid than large company stocks: when things are
going poorly, it is harder to find a buyer for a small company's shares.

Risks Associated with Debt Securities. To the extent that the Fund invests in
bonds and other debt securities, it faces the risk of rising interest rates,
which tend to reduce the value of these investments. The high levels of debt
carried by many emerging market countries and the concentration of their
economies on a few global industries also makes the investments particularly
vulnerable to local and worldwide economic slowdowns. Such slowdowns may affect
the ability of bond issuers to meet their repayment obligation and could even
result in a default that would render their bonds worthless.

Risks Associated with Lower Quality Debt Securities ("Junk Bonds"). The Fund
can invest up to 5% of its net assets in bonds or other debt securities rated
BBB or lower by S&P or Baa or lower by Moody's. These securities are riskier
than higher rated securities because their issuers are less creditworthy, and
there is an increased risk that the issuers will default on their repayments.
Junk bonds are also more sensitive to increases in interest rates, economic
downturns or adverse market conditions.

Pricing Risk.When price quotations for securities are not readily available, we
determine their value by the method that most accurately reflects their current
worth in the judgement of the Board of Trustees. This procedure implies an
unavoidable risk, the risk that our prices are higher or lower than the prices
that the securities might actually command if we sold them. If we have valued
the securities too highly, you may end up paying too much for Fund shares when
you buy. If we underestimate their price, you may not receive the full market
value for your Fund shares when you sell.

These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.

Temporary Defensive Position. We may from time to time adopt a temporary
defensive position in response to extraordinary adverse political, economic or
stock market events. We could place up to 100% of the Fund's assets in U.S. or
foreign-government money-market investments, or other short-term bonds that
offer comparable safety, if the situation warranted. To the extent we might
adopt such a position and over the course of its duration, the Fund may have to
forego its goal of long-term capital growth.

MANAGEMENT OF THE FUND

Board of Trustees. The Fund's shareholders, voting in proportion to the number
of shares each owns, elect a Board of Trustees, and the Trustees supervise all
the Fund's activities on their behalf.

Investment Adviser and Sub-Adviser. Under the supervision of the Board of
Trustees, Bankers Trust Company, with headquarters at 130 Liberty Street, New
York, NY 10006, acts as the Fund's investment adviser, exercises day-to-day
investment

7
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<PAGE>

A Detailed Look at the Institutional Global Emerging Markets Equity Fund

oversight and assumes responsibility for the securities the Fund owns. It buys
and sells securities for the Fund and conducts the research that leads to
purchase and sale decisions. Bankers Trust has, in turn, vested day-to-day
investment decision-making and implementation in a Sub-Adviser, the wholly
owned entity BT Funds Management (International) Limited. Bankers Trust's and
BTFMI's fee for these services is 1.10% of the Fund's average daily net assets.
Responsibilities and advisory fees can be reallocated between the Investment
Adviser and Sub-Adviser without obtaining shareholder approval.

As of December 31, 1998, Bankers Trust was the eighth largest bank holding
company in the United States with total assets of approximately $156 billion.
Bankers Trust is a worldwide merchant bank dedicated to servicing the needs of
corporations, government, financial institutions and private clients through a
global network of over 96 offices in more than 43 countries.

Bankers Trust's officers bring wide experience to managing both the Fund and
its Portfolio. The firm's own record dates back to its founding as a trust
company in 1903. It has invested retirement assets on behalf of the nation's
largest corporations and institutions for more than 50 years. Today, the assets
under its global management exceed $338 billion. The scope of the firm's
capability is broad: It is a leader in both the active and passive quantitative
investment disciplines and maintains a major presence in stock and bond markets
worldwide. BTFMI, a subsidiary of Bankers Trust with headquarters at Level 15,
The Chifley Tower, 2 Chifley Square, Sydney, N.S.W. 2000 Australia, offers a
decade of research and investing experience in emerging markets worldwide to a
number of private clients. It has developed a team dedicated exclusively to
emerging markets research.

Portfolio Manager. The portfolio manager is responsible for the day-to-day
management of the master portfolio's investments:

Paul Durham, Managing Director of BT Funds Management (International) Limited
("BTFMI") and Lead Portfolio Manager of the Fund since its inception.
- - Joined Bankers Trust in 1988 and served as a stock analyst in Australia and
the U.S.
- - Head of BTFMI's global emerging markets investing since 1996.
- - 11 years of investment management experience.

- - First-class honors degree in accounting and finance from University of
Sydney, Australia.

- - implementing any changes you wish to make in your account information;
- - processing your requests for cash dividends and distributions from the Fund;
- - answering your questions on the Fund's investment performance or
administration;
- - sending proxy reports and updated prospectus information to you; and
- - collecting your executed proxies.

Brokers and financial advisors may charge additional fees to investors only for
those services not otherwise included in the Bankers Trust servicing agreement,
such as cash management or special trust reporting.

Organizational Structure. The Institutional Global Emerging Markets Equity Fund
is a "feeder fund" that invests all of its assets in a "master portfolio,"the
Global Emerging Markets Equity Portfolio. The Fund and the Master Portfolio
have the same investment objective. The Master Portfolio is advised by Bankers
Trust.

8
------

<PAGE>

A Detailed Look at the Institutional Global Emerging Markets Equity Fund

hire its own investment adviser, invest in a different master portfolio, or
take other action.

CALCULATING THE FUND'S SHARE PRICE

Trustees. You can find the Fund's daily share price in the mutual fund listing
of most major newspapers.

DIVIDENDS AND DISTRIBUTIONS
Dividends and capital gains distributions, if any, are paid annually. We
automatically reinvest dividends and any capital gains, unless you tell us
otherwise.

TAX CONSIDERATIONS
The Fund does not ordinarily pay income taxes. You and other shareholders pay
taxes on the income or capital gains from the Fund's holdings. Your taxes will
vary from year to year, based on the amount of capital gains distributions and
dividends paid out by the Fund. You owe the taxes whether you receive cash or
choose to have distributions and dividends reinvested. Distributions and
dividends usually create the following tax liability:

Every year the Fund will send you information on the distributions for the
previous year. In addition, if you sell your Fund shares you may have a capital
gain or loss.

<TABLE>
<CAPTION>
Transaction Tax Status
- ------------------------------------- -----------------
<S> <C>
Your sale of shares owned more than Capital gains or
one year losses
Your sale of shares owned for one Gains treated as
year or less ordinary income;
losses subject
to specialrules.
</TABLE>

The tax considerations for tax deferred accounts or non-taxable entities will
be different.

Because each investor's tax circumstances are unique and because the tax laws
are subject to change, we recommend that you consult your tax advisor about
your investment.

BUYING AND SELLING FUND SHARES

Contacting the BT Mutual Funds

<TABLE>
<S> <C>
By Phone 1-800-368-4031
(between 9:00 a.m. and 6:00 p.m.,
Eastern time)
By Mail P.O. Box 419210
Kansas City, MO 64141-6210
By Overnight Mail 210 West 10th Street, 8th floor
Kansas City, MO 64105-1716
</TABLE>

Minimum Account Investments

<TABLE>
<S> <C>
To open an account $5 million
To add to an account $100,000
Minimum account balance $500,000
</TABLE>

How to Open Your Fund Account

<TABLE>
<S> <C>
By mail Complete and sign the account application that
accompanies this prospectus. (You may obtain
additional applications by calling the BT Service
Center.) Mail the completed application along with
a check payable to Institutional Global Emerging
Markets Equity Fund -- 811.
By wire Call the BT Service Center to set up a wire
account.
</TABLE>

Please note that your account cannot become activated until we receive a
completed application via mail or fax.

9
------

<PAGE>

A Detailed Look at the Institutional Global Emerging Markets Equity Fund

Two Ways to Buy and Sell Shares in Your Account

Selling: Send a signed letter to the BT Service Center with your name, your
fund number and account number, the fund's name, and either the number of
shares you wish to sell or the dollar amount you wish to receive. You must
leave at least $500,000 worth of shares in your account to keep it open. Unless
exchanging into another BT Fund, you must submit a written authorization to
sell shares in a retirement account.

WIRE:

Buying: You may only buy shares by wire if your account is authorized to do so.
Please note that either you or your financial advisor must call the BT Service
Center at 1-800-368-4031 to notify us in advance of a wire transfer purchase.
Inform the BT Representative of the amount of your purchase and receive a trade
confirmation number. Instruct your bank to send payment by wire using the wire
instructions noted below. All wires must be received by 4:00 p.m. Eastern time
the next business day.

Routing No: 021001033
Attn: Bankers Trust/IFTC Deposit
DDA No: 00-226-296
FBO: (Account name)
(Account number)
Credit: (Fund name and number)

See your account statement for the account name, number and fund number.

Selling: You may only sell shares by wire if your account is authorized to do
so. For your protection, you may not change the wire instructions relating to
the destination bank account over the phone. To sell by wire, contact your
financial advisor or the BT Service Center at 1-800-368-4031. Inform the BT
Representative of the amount of your redemption and receive a trade
confirmation number. The minimum redemption by wire is $1,000. We must receive
your order by 4:00 p.m. Eastern time to wire payment to your account the next
business day.

Important Information about Buying and Selling Shares
- - After receiving your order, we buy or sell your shares at the next price
calculated on a day the New York Stock Exchange is open for business.

- - We accept payment for shares only in U.S. dollars by check, bank or Federal
Funds wire transfer, or by electronic bank transfer.
- - We remit proceeds from the sale of shares in U.S. dollars (unless the
redemption is so large that it is made "in-kind").

- - You may buy and sell shares of a fund through authorized brokers and
financial advisors as well as from BT Mutual Funds directly. The same terms and
conditions apply. Specifically, once you place your order with a broker or
financial advisor, it is considered received by the BT Service Center. It is
then your broker or financial advisor's responsibility to transmit the order to
the BT Service Center by the next business day. You should contact your broker
or financial advisor if you have a dispute as to when your order was placed
with the fund.
- - We do not issue share certificates.
- - We process all sales orders free of charge.
- - Unless otherwise instructed, we normally mail a check for the proceeds from
the sale of your shares to your account address the next business day and no
later than seven days.
- - We reserve the right to close your account on 30 days' notice if it fails to
meet minimum balance requirements for any reason other than a change in market
value.
- - If you sell shares by mail or wire, you may be required to obtain a signature
guarantee. Please contact your financial advisor or the BT Service Center for
more information.

- - Selling shares of trust accounts and business or organization accounts may
require additional documentation. Please contact your financial advisor or the
BT Service Center for more information.

- - During periods of heavy market activity, you may have trouble reaching the BT
Service Center by telephone. If this occurs, you should make your request by
mail.

Exchange Privilege

10
------

<PAGE>

A Detailed Look at the Institutional Global Emerging Markets Equity Fund

Please note the following conditions:
- - The accounts between which the exchange is taking place must have the same
name, address and taxpayer ID number.

- - You may make the exchange by phone, letter or wire, if your account has the
exchange by phone feature.

- - If you are maintaining a taxable account, you may have to pay taxes on the
exchange.

- - You will receive a written confirmation of each transaction from the BT
Service Center or your investment professional.

The table below provides a picture of the Fund's financial performance since
inception. The information selected reflects financial results for a single
Fund share. The total returns in the table represent the rate of return that an
investor would have earned on an investment in the Fund (assuming reinvestment
of all interest income and distributions). This information has been audited by
PriceWaterhouseCoopers LLP, whose report, along with the Fund's financial
statements, is included in the Fund's annual report. The annual report is
available free of charge by calling the BT Service Center at 1-800-368-4031.

Financial Highlights

<TABLE>
<CAPTION>
For the period
June 30, 19981
through
September 30, 1998
-------------------
<S> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $ 10.00
- ------------------------------------------------------------------- --------
Income From Investment Operations
Net Investment Income 0.01
- ------------------------------------------------------------------- --------
Net Realized and Unrealized Loss on Investment, Foreign Currency
and Forward Foreign Currency Contracts ( 1.97)
- ------------------------------------------------------------------- --------
Total Loss from Investment Operations ( 1.96)
- ------------------------------------------------------------------- --------
Net Asset Value, End of Period $ 8.04
- ------------------------------------------------------------------- --------
Total Investment Return (19.60)%
- ------------------------------------------------------------------- --------
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $ 28
- ------------------------------------------------------------------- --------
Ratios to Average Net Assets:
Net Investment Income(2) 1.29%
- ------------------------------------------------------------------- --------
Expenses, Including Expenses of the Global Emerging Markets Equity
Portfolio(2) 1.45%
Decrease Reflected in Above Expense Ratio Due to Absorption of
Expenses by Bankers Trust(2) 868.56%
- ------------------------------------------------------------------- --------
Portfolio Turnover Rate(3) 38%
- ------------------------------------------------------------------- --------
</TABLE>

1 Commencement of operations
2 Annualized
3 The portfolio turnover rate is for the master fund in which the Fund invests
its assets.

11
------

<PAGE>

[BANKERS TRUST LOGO APPEARS HERE] BANKERS TRUST
ARCHITECTS OF VALUE

Additional information about the Fund's investments and performance is available
in the Fund's annual and semi-annual reports to shareholders. In the Fund's
annual report, you will find a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year.

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210
or call our toll-free number: 1-800-368-4031

Institutional Global Emerging Markets Equity Fund CUSIP #055924823
BT Institutional Funds STA811300 (1/99)
811-6071

Distributed by:
ICC Distributors, Inc.
Two Portland Square
Portland, ME 04101

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

January 31, 1999

BT INSTITUTIONAL FUNDS

o International Equity Fund
Class I
Class II

BT Institutional Funds (the "Trust") is an open-end management investment
company comprised of several funds. The International Equity Fund (the "Fund")
is a separate series of the Trust that offers two classes of shares. The Class I
shares and Class II shares (individually and collectively referred to as
"Shares" as the context may require) of the Fund are described herein.

The investment objective of the Fund is long-term capital appreciation. Under
normal circumstances, the Fund invests at least 65% of its assets in stocks and
other securities with equity characteristics of companies primarily based in
developed countries outside the United States. The production of income is
incidental to this objective. The Trust seeks to achieve the investment
objective of the Fund by investing all the investable assets ("Assets") of the
Fund in International Equity Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objectives as the Fund.

Shares of the Fund are sold by ICC Distributors, Inc. (" ICC Distributors"), the
Trust's Distributor, to clients and customers (including affiliates and
correspondents) of Bankers Trust Company ("Bankers Trust"), the Portfolio's
investment adviser ("Adviser"), and to clients and customers of other
organizations. As appropriate, references to the Adviser herein apply to any
sub-adviser which may have day-to-day investment management responsibility for
the Portfolio.

The Shares' respective Prospectuses dated January 31, 1999, provide the basic
information investors should know before investing. This Statement of Additional
Information ("SAI"), which is not a Prospectus, is intended to provide
additional information regarding the activities and operations of the Trust and
should be read in conjunction with the Shares' respective Prospectuses. You may
request a copy of a prospectus or a paper copy of this SAI, if you have received
it electronically, free of charge by calling the Trust at the telephone number
listed below or by contacting any Bankers Trust service agent ("Service Agent").
Capitalized terms not otherwise defined in this SAI have the meanings accorded
to them in the Shares' respective Prospectuses. The financial statements for the
Fund and the Portfolio for the fiscal period ended September 30, 1998, are
incorporated herein by reference to the Annual Report to shareholders for the
Fund and Portfolio dated September 30, 1998. A copy of a Fund's and the
Portfolio's Annual Report may be obtained without charge by calling the Fund at
the telephone number listed below.

BANKERS TRUST COMPANY

Investment Adviser of The Portfolio and Administrator

ICC DISTRIBUTORS, INC.

Distributor

Two Portland Square
Portland, Maine 04101
1-800-368-4031

<PAGE>

TABLE OF CONTENTS
<TABLE>
<S> <C>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...............................3

Investment Objective.......................................................3
Investment Policies........................................................3
Additional Risk Factors....................................................17
Investment Restrictions....................................................21
Portfolio Transactions and Brokerage Commissions...........................24

PERFORMANCE INFORMATION.........................................................25

Standard Performance Information...........................................25
Comparison of Fund Performance.............................................26
Economic and Market Information............................................28

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES..............................28

Valuation of Securities....................................................28
Purchase of Shares.........................................................29
Redemption of Shares.......................................................31
Additional Information About Selling Shares................................33
Redemptions and Purchases in Kind..........................................34
Trading in Foreign Securities..............................................34

MANAGEMENT OF THE TRUST AND THE PORTFOLIO.......................................34

Trustees of the Trust......................................................35
Trustees of the Portfolio..................................................35
Officers of the Trust......................................................36
Investment Adviser.........................................................37
Administrator..............................................................38
Distributor................................................................39
Service Agent..............................................................40
Custodian and Transfer Agent...............................................40
Use of Name................................................................40
Banking Regulatory Matters.................................................41
Counsel and Independent Accountants........................................41

ORGANIZATION OF THE TRUST.......................................................41

TAXATION........................................................................43

Dividends and Distributions................................................44
Taxation of the Fund.......................................................43
Taxation of the Portfolio..................................................44
Sale of Shares.............................................................45
Foreign Withholding Taxes..................................................45
Backup Withholding.........................................................45
Foreign Shareholders.......................................................45
Other Taxation.............................................................46

FINANCIAL STATEMENTS............................................................46

APPENDIX........................................................................47

</TABLE>

2
<PAGE>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

"Investment Objective"

Investment Policies

The Fund seeks to achieve its investment objective by investing all of its
assets in the Portfolio. The Trust may withdraw the Fund's investment from the
Portfolio at any time if the Board of Trustees of the Trust determines that it
is in the best interests of the Fund to do so. Since the investment
characteristics of the Fund will correspond directly to those of the Portfolio,
the following is a discussion of the various investments of and techniques
employed by the Portfolio.

Under normal circumstances, the Portfolio invests at least 65% of the value of
its total assets in stocks and other securities with equity characteristics of
companies primarily based in developed countries outside the United States.
However, the Portfolio may also invest in emerging market securities and
securities of issuers in underdeveloped countries. Investments in these
countries will be based on what the Adviser believes to be an acceptable degree
of risk in anticipation of superior returns. The Portfolio will at all times be
invested in the securities of issuers based in at least three countries other
than the United States.

The Portfolio's investments will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships and the range of alternative opportunities available to
international investors.

In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual

3
<PAGE>

investments for the Portfolio. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Portfolio may invest in securities of companies
having various levels of net worth, including smaller companies whose securities
may be more volatile than securities offered by larger companies with higher
levels of net worth.

In other countries and regions where capital markets are underdeveloped or not
easily accessed and information is difficult to obtain, the Portfolio may choose
to invest only at the market level. Here, the Portfolio may seek to achieve
country exposure through use of options or futures based on an established local
index. Similarly, country exposure may also be achieved through investments in
other registered investment companies.

The remainder of the Portfolio's assets will be invested in dollar and
non-dollar denominated short-term instruments. These investments are subject to
the conditions described in "Short-Term Instruments" below.

Equity Investments. The Portfolio invests primarily in common stocks and other
securities with equity characteristics. For purposes of the Portfolio's policy
of investing at least 65% of the value of its total assets in the equity
securities of foreign issuers, "equity securities" are defined as common stock,
preferred stock, trust or limited partnership interests, rights and warrants,
and convertible securities (consisting of debt securities or preferred stock
that may be converted into common stock or that carry the right to purchase
common stock). The Portfolio invests in securities listed on foreign or domestic
securities exchanges and securities traded in foreign or domestic
over-the-counter markets, in addition to investment in restricted or unlisted
securities.

ADRs, GDRs and EDRs. American Depositary Receipts ("ADRs"), Global Depositary
Receipts ("GDRs"), and European Depositary Receipts ("EDRs") are certificates
evidencing ownership of shares of a foreign-based issuer held in trust by a bank
or similar financial institution. Designed for use in U.S., international and
European securities markets, respectively, ADRs, GDRs and EDRs are alternatives
to the purchase of the underlying securities in their national markets and
currencies. ADRs, GDRs and EDRs are subject to the same risks as the foreign
securities to which they relate.

4
<PAGE>

of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.

Commercial Paper. Commercial paper consists of short-term (usually from 1 to 270
days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.

For a description of commercial paper ratings, see the Appendix.

Short-Term Instruments. The Portfolio intends to stay invested in equity
securities to the extent practical in light of its objective and long-term
investment perspective. However, up to 35% of the Portfolio's assets may be
invested in short-term instruments with remaining maturities of 397 days or less
or in money market mutual funds: to meet anticipated redemptions and expenses;
for day-to-day operating purposes; and when the Portfolio experiences large cash
inflows through the sale of securities and desirable equity securities that are
consistent with the Portfolio's investment objective are unavailable in
sufficient quantities or at attractive prices, the Portfolio may hold short-term
investments for a limited time pending availability of such equity securities.
In addition, when in Bankers Trust's opinion, it is advisable to adopt a
temporary defensive position because of unusual and adverse conditions affecting
the equity markets, up to 100% of the Portfolio's assets may be invested in such
short-term instruments. Short-term instruments consist of U.S. and non U.S.: (i)
short-term obligations of sovereign governments, their agencies,
instrumentalities, authorities or political subdivisions; (ii) other short-term
debt securities rated AA or higher by Standard & Poor's Ratings Group ("S&P") or
Aa or higher by Moody's Investors Service, Inc. ("Moody's") or, if unrated, are
of comparable quality in the opinion of Bankers Trust; (iii) commercial paper;

5
<PAGE>

(iv) bank obligations, including negotiable certificates of deposit, time
deposits and bankers' acceptances; and (v) repurchase agreements. At the time
the Portfolio invests in commercial paper, bank obligations or repurchase
agreements, the issuer or the issuer's parent must have outstanding debt rated
AA or higher by S&P or Aa or higher by Moody's or outstanding commercial paper
or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or, if no such
ratings are available, the instrument must be of comparable quality in the
opinion of Bankers Trust. These instruments may be denominated in U.S. dollars
or in foreign currencies.

Derivatives. The Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There is also a range of risks associated with those uses. Futures and
options are commonly used for traditional hedging purposes to attempt to protect
a fund from exposure to changing interest rates, securities prices or currency
exchange rates and for cash management purposes as a low cost method of gaining
exposure to a particular securities market without investing directly in those
securities. However, some derivatives are used for leverage, which tends to
magnify the effects of an instrument's price changes as market conditions
change. Leverage involves the use of a small amount of money to control a large
amount of financial assets and can, in some circumstances, lead to significant
losses. Bankers Trust, as the Portfolio's Adviser will use derivatives only in
circumstances where the Adviser believes they offer the most economic means of
improving the risk/reward profile of the Portfolio. Derivatives will not be used
to increase portfolio risk above the level that could be achieved using only
traditional investment securities or to acquire exposure to changes in the value
of assets or indices that by themselves would not be purchased for the
Portfolio. The use of derivatives for non-hedging purposes may be considered
speculative.

Illiquid Securities. Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "1933 Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a remaining maturity of longer than seven days. Securities which have not
been registered under the 1933 Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

6
<PAGE>

In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.

The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which
allows a broader institutional trading market for securities otherwise subject
to restriction on their resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 1933 Act of resales of
certain securities to qualified institutional buyers. The Adviser anticipates
that the market for certain restricted securities such as institutional
commercial paper will expand further as a result of this regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.

The Portfolio may purchase securities in the United States that are not
registered for sale under federal securities laws but which can be resold to
institutions under the SEC Rule 144A. Provided that a dealer or institutional
trading market in such securities exists, these restricted securities are
treated as exempt from the Portfolio's 15% limit on illiquid securities.

Bankers Trust will monitor the liquidity of Rule 144A securities in the
Portfolio's holdings under the supervision of the Portfolio's Board of Trustees.
In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers or sellers of the
security; (3) dealer undertakings to make a market in the security and (4) the
nature of the security and of the marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.

When-Issued and Delayed Delivery Securities The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio identifies, as part of a segregated
account, cash or liquid securities in an amount at least equal to these
commitments. When entering into a when-issued or delayed delivery transaction,
the Portfolio will rely on the other party to consummate the transaction; if the
other party fails to do so, the Portfolio may be disadvantaged.

7
<PAGE>

Lending of Portfolio Securities. The Portfolio has the authority to lend up to
30% of the total value of its portfolio securities to brokers, dealers and other
financial organizations. These loans must be secured continuously by cash or
securities issued or guaranteed by the United States government, its agencies or
instrumentalities or by a letter of credit at least equal to the market value of
the securities loaned plus accrued income. The Portfolio will not lend
securities to Bankers Trust, ICC Distributors or their affiliates. By lending
its securities, the Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term securities or obtaining yield in the form of interest
paid by the borrower when U.S. government obligations are used as collateral.
During the term of the loan, the Portfolio continues to bear the risk of
fluctuations in the price of the loaned securities. There may be risks of delay
in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive at
least 100 % cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(iii) the Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities. Cash collateral may be
invested in a money market fund managed by Bankers Trust (or its affiliates) and
Bankers Trust may serve as the Portfolio's lending agent and may share in
revenue received from securities lending transactions as compensation for this
service.

Repurchase Agreements. In a repurchase agreement the Portfolio buys a security
and simultaneously agrees to sell it back at a higher price at a future date. In
the event of the bankruptcy of the other party to either a repurchase agreement
or a securities loan, the Portfolio could experience delays in recovering either
its cash or the securities it lent. To the extent that, in the meantime, the
value of the securities repurchased or lent had changed, the Portfolio could
experience a loss. In all cases, Bankers Trust must find the creditworthiness of
the other party to the transaction satisfactory. A repurchase agreement is
considered a collateralized loan under the Investment Company Act of 1940, as
amended ("1940 Act").

8
<PAGE>

Investment Companies. With respect to certain countries in which capital markets
are either less developed or not easily accessed, investments by the Portfolio
may be made through investment in other investment companies that in turn are
authorized to invest in the securities of such countries. Investment in other
investment companies may also be made for other purposes, such as noted herein
under "Short-Term Instruments", and are limited in amount by the 1940 Act,
(unless permitted to exceed these limitations by an exemptive order of the SEC,
will involve the indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.

Options on Securities. The Portfolio may write (sell) covered call and put
options to a limited extent on its portfolio securities ("covered options") in
an attempt to increase income. However, the Portfolio may forgo the benefits of
appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.

When the Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the security at the price specified in the option (the
"exercise price") by exercising the option at any time during the option period.
If the option expires unexercised, the Portfolio will realize income in an
amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Portfolio has no control, the Portfolio
must sell the security to the option holder at the exercise price. By writing a
covered call option, the Portfolio forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price. In addition the Portfolio may continue to hold a stock which
might otherwise have been sold to protect against depreciation in the market
price of the stock.

A put option sold by the Portfolio is covered when, among other things, cash or
securities acceptable to the broker are placed in a segregated account to
fulfill the obligations undertaken. When the Portfolio writes a covered put
option, it gives the purchaser of the option the right to sell the underlying
security to the Portfolio at the specified exercise price at any time during the
option period. If the option expires unexercised, the Portfolio will realize
income in the amount of the premium received for writing the option. If the put
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must purchase the underlying security from the option holder at the
exercise price. By writing a covered put option, the Portfolio, in exchange for
the net premium received, accepts the risk of a decline in the market value of
the underlying security below the exercise price. The Portfolio will only write
put options involving securities for which a determination is made at the time
the option is written that the Portfolio wishes to acquire the securities at the
exercise price.

9
<PAGE>

The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss from a closing
purchase transaction if the amount paid to purchase an option is less or more,
as the case may be, than the amount received from the sale thereof. To close out
a position as a purchaser of an option, the Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.

When the Portfolio writes an option, an amount equal to the net premium received
by the Portfolio is included in the liability section of the Portfolio's
Statement of Assets and Liabilities as a deferred credit. The amount of the
deferred credit will be subsequently marked to market to reflect the current
market value of the option written. The current market value of a traded option
is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.

The Portfolio may purchase call and put options on any securities in which it
may invest. The Portfolio would normally purchase a call option in anticipation
of an increase in the market value of such securities. The purchase of a call
option would entitle the Portfolio, in exchange for the premium paid, to
purchase a security at a specified price during the option period. The Portfolio
would ordinarily have a gain if the value of the securities increased above the
exercise price sufficiently to cover the premium and would have a loss if the
value of the securities remained at or below the exercise price during the
option period.

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<PAGE>

The Portfolio would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or
securities of the type in which it is permitted to invest. The purchase of a put
option would entitle the Portfolio, in exchange for the premium paid, to sell a
security, which may or may not be held in the Portfolio's holdings, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's holdings. Put options also may be purchased by the Portfolio for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Portfolio does not own. The Portfolio would ordinarily recognize a
gain if the value of the securities decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value of the
securities remained at or above the exercise price. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities.

The hours of trading for options on securities may not conform to the hours
during which the underlying securities are traded. To the extent that the option
markets close before the markets for the underlying securities, significant
price and rate movements can take place in the underlying securities markets
that cannot be reflected in the option markets. It is impossible to predict the
volume of trading that may exist in such options, and there can be no assurance
that viable exchange markets will develop or continue.

The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with which the Portfolio enters into such
options transactions under the general supervision of the Portfolio's Trustees.
The Portfolio intends to treat OTC Options purchased and the assets used to
"cover" OTC Options written as not readily marketable and therefore subject to
the limitations described in "Investment Restrictions." Unless the Trustees
conclude otherwise, each Portfolio intends to treat OTC options as not readily
marketable and therefore subject to each Portfolio's 15% limitation on
investment in illiquid securities.

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<PAGE>

Options on Securities Indices. In addition to options on securities, the
Portfolio may also purchase and write (sell) call and put options on securities
indices. Such options give the holder the right to receive a cash settlement
during the term of the option based upon the difference between the exercise
price and the value of the index. Such options will be used for the purposes
described above under "Options on Securities."

The Portfolio may, to the extent allowed by Federal and state securities laws,
invest in securities indices instead of investing directly in individual foreign
securities.

Options on securities indices entail risks in addition to the risks of options
on securities. The absence of a liquid secondary market to close out options
positions on securities indices is more likely to occur, although the Portfolio
generally will only purchase or write such an option if the Adviser believes the
option can be closed out.

Use of options on securities indices also entails the risk that trading in such
options may be interrupted if trading in certain securities included in the
index is interrupted. The Portfolio will not purchase such options unless the
Adviser believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.

Price movements in the Portfolio's holdings may not correlate precisely with
movements in the level of an index and, therefore, the use of options on indices
cannot serve as a complete hedge. Because options on securities indices require
settlement in cash, the Adviser may be forced to liquidate portfolio securities
to meet settlement obligations.

Options on Foreign Securities Indices. The Portfolio may purchase and write put
and call options on foreign stock indices listed on domestic and foreign stock
exchanges. The Portfolio may also purchase and write OTC Options on foreign
stock indices. These OTC Options would be subject to the same liquidity and
credit risks noted above with respect to OTC Options on foreign currencies. A
stock index fluctuates with changes in the market values of the stocks included
in the index.

OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term, exercise price,
premium, guaranties and security, are set by negotiation of the parties.

12
<PAGE>

Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC Option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC Option
it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Thus, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC Option will be met.

Options on stock indices are generally similar to options on stock except that
the delivery requirements are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option on a stock index gives
the holder the right to receive a cash "exercise settlement amount" equal to (a)
the amount, if any, by which the fixed exercise price of the option exceeds (in
the case of a put) or is less than (in the case of a call) the closing value of
the underlying index on the date of exercise, multiplied by (b) a fixed "index
multiplier." Receipt of this cash amount will depend upon the closing level of
the stock index upon which the option is based being greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the option.
The amount of cash received will be equal to such difference between the closing
price of the index and the exercise price of the option expressed in dollars or
a foreign currency, as the case may be, times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. The writer may offset its position in stock index options prior
to expiration by entering into a closing transaction on an exchange or the
option may expire unexercised.

To the extent permitted by U.S. federal or state securities laws, the Portfolio
may invest in options on foreign stock indices in lieu of direct investment in
foreign securities. The Portfolio may also use foreign stock index options for
hedging purposes.

Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Portfolio of options on stock indices will be subject to
the Adviser's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.

13
<PAGE>

Currency Exchange Transactions. Because the Portfolio buys and sells securities
denominated in currencies other than the U.S. dollar and receives interest,
dividends and sale proceeds in currencies other than the U.S. dollar, the
Portfolio from time to time may enter into currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.

Forward Currency Exchange Contracts. A forward currency exchange contract is an
obligation by the Portfolio to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks and
brokerages) and their customers. A forward currency exchange contract may not
have a deposit requirement and may be traded at a net price without commission.
The Portfolio maintains with its custodian a segregated account of cash or
liquid securities in an amount at least equal to its obligations under each
forward foreign currency exchange contract. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of the Portfolio's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.

The Portfolio may enter into currency hedging transactions in an attempt to
protect against changes in currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into currency hedging
transactions with respect to security transactions; however, the Adviser
believes that it is important to have the flexibility to enter into currency
hedging transactions when it determines that the transactions would be in the
Portfolio's best interest. Although these transactions tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.

14
<PAGE>

While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC,") the CFTC may in the future assert authority to
regulate forward contracts. In such event the Portfolio's ability to utilize
forward contracts may be restricted. Forward contracts may reduce the potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Portfolio than if it had not entered into
such contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject the Portfolio to certain
risks.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the
Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Portfolio's ability to
use such contracts to hedge or cross-hedge its assets. Also, with regard to the
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time a poor correlation may exist
between movements in the exchange rates of the foreign currencies underlying the
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

Options on Foreign Currencies. The Portfolio may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that in which
futures contracts on foreign currencies, or forward contracts, will be utilized.
For example, a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, the Portfolio will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.

15
<PAGE>

Conversely, where a rise in the dollar value of a currency in which securities
to be acquired are denominated is projected, thereby increasing the cost of such
securities, the Portfolio may purchase call options thereon. The purchase of
such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to the Portfolio deriving from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, the Portfolio could sustain losses on transactions in
foreign currency options which would require it to forego a portion or all of
the benefits of advantageous changes in such rates.

The purchase of an option on foreign currency may be used to hedge against
fluctuations in exchange rates although, in the event of exchange rate movements
adverse to the Portfolio's position, it may forfeit the entire amount of the
premium plus related transaction costs. In addition, the Portfolio may purchase
call options on a foreign currency when the Adviser anticipates that the
currency will appreciate in value.

The Portfolio may write options on foreign currencies for the same types of
hedging purposes. For example, where the Portfolio anticipates a decline in the
dollar value of foreign currency denominated securities due to adverse
fluctuations in exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the options will most likely not be exercised, and the diminution in value of
portfolio securities will be offset by the amount of the premium received.

Similarly, instead of purchasing a call option to hedge against an anticipated
increase in the dollar cost of securities to be acquired, the Portfolio could
write a put option on the relevant currency which, if rates move in the manner
projected, will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Portfolio would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through the writing
of options on foreign currencies, the Portfolio also may be required to forego
all or a portion of the benefits which might otherwise have been obtained from
favorable movements in exchange rates.

16
<PAGE>

The Portfolio may write covered call options on foreign currencies. A call
option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash or
liquid securities in a segregated account with its custodian.

The Portfolio also may write call options on foreign currencies that are not
covered for cross-hedging purposes. A call option on a foreign currency is for
cross-hedging purposes if it is not covered, but is designed to provide a hedge
against a decline in the U.S. dollar value of a security which the Portfolio
owns or has the right to acquire and which is denominated in the currency
underlying the option due to an adverse change in the exchange rate. In such
circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or liquid securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked to market daily.

There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Portfolio is unable to
effect a closing purchase transaction with respect to covered options it has
written, the Portfolio will not be able to sell the underlying currency or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.

As in the case of forward contracts, certain options on foreign currencies are
traded over-the-counter and involve liquidity and credit risks which may not be
present in the case of exchange-traded currency options. In some circumstances,
the Portfolio's ability to terminate over-the-counter options ("OTC Options")
may be more limited than with exchange-traded options. It is also possible that
broker-dealers participating in OTC Options transactions will not fulfill their
obligations. The Portfolio intends to treat OTC Options as not readily
marketable and therefore subject to the Portfolio's 15% limit on illiquid
securities.

17
<PAGE>

Futures Contracts and Options on Futures Contracts.

General. The successful use of futures contracts and options thereon draws upon
the Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, the Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.

Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchanges, and
clear through their clearing corporations. The Portfolio may enter into
contracts for the purchase or sale for future delivery of fixed-income
securities, foreign currencies, or financial indices including any index of U.S.
government securities, foreign government securities or corporate debt
securities. The Portfolio may enter into futures contracts which are based on
debt securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through mortgage-backed securities
and three-month U.S. Treasury Bills. The Portfolio may also enter into futures
contracts which are based on bonds issued by governments other than the U.S.
government. Futures contracts on foreign currencies may be used to hedge against
securities that are denominated in foreign currencies.

At the same time a futures contract is entered into, a Portfolio must allocate
cash or securities as a deposit payment ("initial margin"). The initial margin
deposits are set by exchanges and may range between 1% and 10% of a contract's
face value. Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Portfolio would provide
or receive cash that reflects any decline or increase in the contract's value.

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<PAGE>

Although futures contracts (other than those that settle in cash such as index
futures) by their terms call for the actual delivery or acquisition of the
instrument underlying the contract, in most cases the contractual obligation is
fulfilled by offset before the date of the contract without having to make or
take delivery of the instrument underlying the contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position in
the identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange). Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the instrument underlying the contract. Since all transactions in
the futures market are made, offset or fulfilled through a clearinghouse
associated with the exchange on which the contracts are traded, the Portfolio
will incur brokerage fees when it enters into futures contracts.

The assets in the segregated asset account maintained to cover the Portfolio's
obligations with respect to such futures contracts will consist of cash or
securities acceptable to the broker from its portfolio in an amount equal to the
difference between the fluctuating market value of such futures contracts and
the aggregate value of the initial and variation margin payments made by the
Portfolio with respect to such futures contracts.

The ordinary spreads between prices in the cash and futures market, due to
differences in the nature of those markets, are subject to distortions. First,
all participants in the futures market are subject to initial and variation
margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin lending requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest rate or currency exchange
rate trends by the Adviser may still not result in a successful transaction.

19
<PAGE>

In addition, futures contracts entail risks. Although the Adviser believes that
use of such contracts will benefit the Portfolio, if the Adviser's investment
judgment about the general direction of interest rates is incorrect, the
Portfolio's overall performance would be poorer than if it had not entered into
any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.

Options on Futures Contracts. Each Portfolio may purchase and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. For example, when a Portfolio is not fully invested it
may purchase a call option on an interest rate sensitive futures contract to
hedge against a potential price increase on debt securities due to declining
interest rates. The purchase of a put option on a futures contract is similar in
some respects to the purchase of protective put options on portfolio securities.
For example, a Portfolio may purchase a put option on an interest rate sensitive
futures contract to hedge its portfolio against the risk of a decline in the
prices of debt securities due to rising interest rates.

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of portfolio securities which are the same as or
correlate with the security or currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is below
the exercise price, a Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Portfolio's portfolio holdings. The writing of a put option on a
futures contract may constitute a partial hedge against increasing prices of the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option a Portfolio has
written is exercised, the Portfolio will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.

20
<PAGE>

The amount of risk a Portfolio assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

Futures Contracts on Domestic and Foreign Securities Indices. Each Portfolio may
enter into futures contracts providing for cash settlement based upon changes in
the value of an index of domestic or foreign securities. This investment
technique may be used as a low-cost method of gaining exposure to a particular
securities market without investing directly in those securities or to hedge
against anticipated future change in general market prices which otherwise might
either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be purchased at
a later date for the Portfolio.

When used for hedging purposes, each transaction in futures contracts on a
securities index involves the establishment of a position which the Adviser
believes will move in a direction opposite to that of the investment being
hedged. If these hedging transactions are successful, the futures positions
taken for the Portfolio will rise in value by an amount which approximately
offsets the decline in value of the portion of the Portfolio's investments that
are being hedged. Should general market prices move in an unexpected manner, the
full anticipated benefits of Futures Contracts may not be achieved or a loss may
be realized.

Although futures contracts on securities indices would be entered into for
hedging purposes only, such transactions do involve certain risks. These risks
include a lack of correlation between the futures contract and the foreign
equity market being hedged, and incorrect assessments of market trends which may
result in poorer overall performance than if a futures contract had not been
entered into.

Asset Coverage. To assure that a Portfolio's use of futures and related options,
as well as when-issued and delayed-delivery securities and foreign currency
exchange transactions, are not used to achieve investment leverage, a Portfolio
will cover such transactions, as required under applicable interpretations of
the SEC, either by owning the underlying securities or by segregating with the
Portfolio's Custodian or futures commission merchant liquid securities in an
amount at all times equal to or exceeding the Portfolio's commitment with
respect to these instruments or contracts.

21
<PAGE>

Investment Restrictions on Futures Transactions. The Portfolio will not enter
into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Portfolio and premiums paid on outstanding options on futures contracts owned by
the Portfolio (other than those entered into for bona fide hedging purposes)
would exceed 5% of the Portfolio's net asset value, after taking into account
unrealized profits and unrealized losses on any such contracts.

Additional Risk Factors

In addition to the risks discussed above, the Portfolio's investments may be
subject to the following risk factors:

Foreign Securities. The Portfolio will, under normal market conditions, invest a
significant portion of its assets in foreign securities. Although the Portfolio
intends to invest primarily in securities of established companies based in
developed countries, investors should realize that the value of the Portfolio's
investments may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. Any foreign investments
made by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.

22
<PAGE>

be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange, the Portfolio is
authorized to enter into certain foreign currency exchange transactions.

In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange, Inc. (the "NYSE"). Accordingly, the
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies. Moreover,
the settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, the Portfolio normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.

Emerging Markets. The world's industrialized markets generally include but are
not limited to the following: Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States; the world's emerging
markets generally include but are not limited to the following: Argentina,
Botswana, Bolivia, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, the
Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the
Ivory Coast, Jordan, Korea, Malaysia, Mexico, Morocco, Nicaragua, Nigeria,
Pakistan, Peru, Philippines, Poland, Romania, Russia, Slovakia, Slovenia, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and Zimbabwe.

23
<PAGE>

In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Portfolio to make intended securities purchases due to
settlement problems could cause the Portfolio to miss attractive investment
opportunities. Inability to dispose of a security due to settlement problems
could result either in losses to the Portfolio due to subsequent declines in the
value of the security or, if the Portfolio has entered into a contract to sell
the security, could result in possible liability to the purchaser.

Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by the Portfolio in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as principals, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.

Forward Contracts and options on foreign currencies traded over-the-counter
involve liquidity and credit risks which may not be present in the case of
exchange-traded currency options. The Portfolio's ability to terminate
over-the-counter options will be more limited than with exchange-traded options.
It is also possible that broker-dealers participating in over-the-counter
options transactions will not fulfill their obligations. Until such time as the
staff of the SEC changes its position, the Portfolio will treat purchased
over-the-counter options and assets used to cover written over-the-counter
options as illiquid securities.

24
<PAGE>

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation (the "OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

The purchase and sale of exchange-traded foreign currency options, however, is
subject to the risks of the availability of a liquid secondary market described
above, as well as the risks regarding adverse market movements, margining of
options written, the nature of the foreign currency market, possible
intervention by governmental authorities and the effects of other political and
economic events. In addition, exchange-traded options on foreign currencies
involve certain risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions on exercise.

In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.

25
<PAGE>

Special Information Concerning Master-Feeder Fund Structure. Unlike other
open-end management investment companies (mutual funds) which directly acquire
and manage their own portfolio securities, the Fund seeks to achieve its
investment objective by investing all of its Assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund.
Therefore, an investor's interest in the Portfolio's securities is indirect. In
addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds, investment vehicles or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust at 1-800-368-4031.

Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns (however, this possibility
exists as well for traditionally structured funds which have large institutional
investors). Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk. Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Except as permitted by the SEC, whenever the Trust is requested to
vote on matters pertaining to the Portfolio, the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes in the same proportion
as the votes of the Fund's shareholders. Fund shareholders who do not vote will
not affect the Trust's votes at the Portfolio meeting. The percentage of the
Trust's votes representing the Fund's shareholders not voting will be voted by
the Trustees or officers of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote.

Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distrubution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.

26
<PAGE>

The Fund may withdraw its investment from the Portfolio at any time, if the
Board of Trustees of the Trust determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Trustees of the Trust would consider what action might be taken, including the
investment of all the Assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described herein with respect to the Portfolio.

The Fund's investment objective is not a fundamental policy and may be changed
upon notice to, but without the approval of, the Fund's shareholders. If there
is a change in the Fund's investment objective, the Fund's shareholders should
consider whether the Fund remains an appropriate investment in light of their
then-current needs. The investment objective of the Portfolio is also not a
fundamental policy. Shareholders of the Fund will receive 30 days prior written
notice with respect to any change in the investment objective of the Fund or the
Portfolio.

Rating Services. The ratings of rating services represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require a Fund to eliminate the obligation from its
portfolio, but the Adviser will consider such an event in its determination of
whether a Fund should continue to hold the obligation. A description of the
ratings used herein and in the Fund's Prospectuses is set forth in the Appendix
to this SAI.

Investment Restrictions

27
<PAGE>

more than 50% of the outstanding voting securities of the Fund or of the total
beneficial interests of the Portfolio) are present or represented by proxy or
(ii) more than 50% of the outstanding voting securities of the Fund (or of the
total beneficial interests of the Portfolio). Whenever the Trust is requested to
vote on a fundamental policy of the Portfolio, the Trust will hold a meeting of
the Fund's shareholders and will cast its vote as instructed by that Fund's
shareholders. Fund shareholders who do not vote will not affect the Trust's
votes at the Portfolio meeting. The percentage of the Trust's votes representing
Fund shareholders not voting will be voted by the Trustees of the Trust in the
same proportion as the Fund shareholders who do, in fact, vote.

<PAGE>

As a matter of fundamental policy, the Portfolio (or Fund) may not (except that
no investment restriction of the Fund shall prevent the Fund from investing all
of its Assets in an open-end investment company with substantially the same
investment objective):

(1) borrow money or mortgage or hypothecate assets of the Portfolio (Fund),
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's (Fund's) assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks and
only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation of
portfolio securities or to maintain liquidity in the event of an
unanticipated failure to complete the portfolio security transaction or
other similar situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction and except that assets may
be pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute; for additional related restrictions, see clause (i) under
the caption "Additional Restrictions" below (as an operating policy, the
Portfolio may not engage in dollar-roll transactions);

(2) underwrite securities issued by other persons except insofar as the
Portfolio (Trust or the Fund) may technically be deemed an underwriter under
the 1933 Act in selling a portfolio security;

28
<PAGE>

(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's (Fund's) total assets (taken at market
value); (b) through the use of repurchase agreements or the purchase of
short-term obligations; or (c) by purchasing a portion of an issue of debt
securities of types distributed publicly or privately;

(4) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity contracts
(except futures and option contracts) in the ordinary course of business
(except that the Portfolio (Fund) may hold and sell, for the Portfolio's
(Fund's) portfolio, real estate acquired as a result of the Portfolio's
(Fund's) ownership of securities);

(5) concentrate its investments in any particular industry (excluding U.S.
government securities), but if it is deemed appropriate for the achievement
of the Portfolio's (Fund's) investment objective(s), up to 25% of its total
assets may be invested in any one industry; and

(6) issue any senior security (as that term is defined in the 1940 Act) if
such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder, provided that collateral arrangements
with respect to options and futures, including deposits of initial deposit
and variation margin, are not considered to be the issuance of a senior
security for purposes of this restriction.

(7) with respect to 75% of the Portfolio's (Fund's) total assets, invest
more than 5% of its total assets in the securities of any one issuer
(excluding cash and cash equivalents, U.S. government securities and the
securities of other investments companies) or own more than 10% of the
voting securities of any issuer.

Additional Restrictions. These are non-fundamental policies. In order to
comply with certain statutes and policies, the Portfolio (or the Trust, on
behalf of the Fund) will not as a matter of operating policy (except that no
operating policy shall prevent the Fund from investing all of its Assets in
an open-end investment company with substantially the same investment
objective):

29
<PAGE>

(i) borrow money (including through reverse repurchase or forward roll
transactions) for any purpose in excess of 5% of the Portfolio's (Fund's)
total assets (taken at cost), except that the Portfolio (Fund) may borrow
for temporary or emergency purposes up to 1/3 of its total assets;

(ii) pledge, mortgage or hypothecate for any purpose in excess of 10% of the
Portfolio's (Fund's) total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, and reverse repurchase
agreements are not considered a pledge of assets for purposes of this
restriction;

(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance of
purchases and sales of securities may be obtained and except that deposits
of initial deposit and variation margin may be made in connection with the
purchase, ownership, holding or sale of futures;

(iv) invest for the purpose of exercising control or management of another
company;

(v) purchase securities issued by any investment company except by purchase
in the open market where no commission or profit to a sponsor or dealer
results from such purchase other than the customary broker's commission, or
except when such purchase, though not made in the open market, is part of a
plan of merger or consolidation; provided, however, that securities of any
investment company will not be purchased for the Portfolio (Fund) if such
purchase at the time thereof would cause: (a) more than 10% of the
Portfolio's (Fund's) total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers; (b) more than 5% of
the Portfolio's (Fund's) total assets (taken at the greater of cost or
market value) to be invested in any one investment company; or (c) more than
3% of the outstanding voting securities of any such issuer to be held for
the Portfolio (Fund) unless permitted to exceed these limitations by an
exemptive order of the SEC; provided further that, except in the case of a
merger or consolidation, the Portfolio (Fund) shall not purchase any
securities of any open-end investment company unless (1) the Portfolio's
investment adviser waives the investment advisory fee with respect to assets
invested in other open-end investment companies and (2) the Portfolio incurs
no sales charge in connection with the investment;

30
<PAGE>

(vi) invest more than 15% of the Portfolio's (Fund's) net assets (taken at
the greater of cost or market value) in securities that are illiquid or are
not readily marketable (excluding Rule 144A securities deemed by the Board
of Trustees of the Portfolio (Trust) to be liquid).

(vii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is within
the investment practices of the Portfolio (Fund) and the option is issued by
the OCC, except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b) the aggregate
value of the obligations underlying the puts determined as of the date the
options are sold shall not exceed 5% of the Portfolio's (Fund's) net assets;
(c) the securities subject to the exercise of the call written by the
Portfolio (Fund) must be owned by the Portfolio (Fund) at the time the call
is sold and must continue to be owned by the Portfolio (Fund) until the call
has been exercised, has lapsed, or the Portfolio (Fund) has purchased a
closing call, and such purchase has been confirmed, thereby extinguishing
the Portfolio's (Fund's) obligation to deliver securities pursuant to the
call it has sold; and (d) at the time a put is written, the Portfolio (Fund)
establishes a segregated account with its custodian consisting of cash or
liquid securities equal in value to the amount the Portfolio (Fund) will be
obligated to pay upon exercise of the put (this account must be maintained
until the put is exercised, has expired, or the Portfolio (Fund) has
purchased a closing put, which is a put of the same series as the one
previously written); and

(viii) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on financial
futures unless such options are written by other persons and: (a) the
options or futures are offered through the facilities of a national
securities association or are listed on a national securities or commodities
exchange, except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b) the aggregate
premiums paid on all such options which are held at any time do not exceed
20% of the Portfolio's (Fund's) total net assets; and (c) the aggregate
margin deposits required on all such futures or options thereon held at any
time do not exceed 5% of the Portfolio's (Fund's) total assets.

There will be no violation of any investment restriction (except with
respect to fundamental investment restriction (1) above) if that restriction
is complied with at the time the relevant action is taken, notwithstanding a
later change in the market value of an investment, in net or total assets,
or in the change of securities rating of the investment, or any other later
change.

31
<PAGE>

Portfolio Transactions and Brokerage Commissions

The Adviser is responsible for decisions to buy and sell securities, futures
contracts and options on such securities and futures for the Portfolio, the
selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of the Portfolio are frequently placed by the Adviser with the issuer
or a primary or secondary market-maker for these securities on a net basis,
without any brokerage commission being paid by the Portfolio. Trading does,
however, involve transaction costs. Transactions with dealers serving as
market-makers reflect the spread between the bid and asked prices. Transaction
costs may also include fees paid to third parties for information as to
potential purchasers or sellers of securities. Purchases of underwritten issues
may be made which will include an underwriting fee paid to the underwriter.

The Adviser seeks to evaluate the overall reasonableness of the brokerage
commissions paid (to the extent applicable) in placing orders for the purchase
and sale of securities for the Portfolio taking into account such factors as
price, commission (negotiable in the case of national securities exchange
transactions), if any, size of order, difficulty of execution and skill required
of the executing broker-dealer through familiarity with commissions charged on
comparable transactions, as well as by comparing commissions paid by the
Portfolio to reported commissions paid by others. The Adviser reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.

The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934 when placing portfolio transactions for the Portfolio with
a broker to pay a brokerage commission (to the extent applicable) in excess of
that which another broker might have charged for effecting the same transaction
on account of the receipt of research, market or statistical information. The
term "research, market or statistical information" includes advice as to the
value of securities; the advisability of investing in, purchasing or selling
securities; the availability of securities or purchasers or sellers of
securities; and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts.

32
<PAGE>

Consistent with the policy stated above, the Conduct Rules of the National
Association of Securities Dealers, Inc. and such other policies as the Trustees
of the Portfolio may determine, the Adviser may consider sales of shares of the
Trust and of other investment company clients of Bankers Trust as a factor in
the selection of broker-dealers to execute portfolio transactions. Bankers Trust
will make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.

Higher commissions may be paid to firms that provide research services to the
extent permitted by law. Bankers Trust may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.

Except for implementing the policies stated above, there is no intention to
place portfolio transactions with particular brokers or dealers or groups
thereof. In effecting transactions in over-the-counter securities, orders are
placed with the principal market-makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
otherwise.

Although certain research, market and statistical information from brokers and
dealers can be useful to the Portfolio and to the Adviser, it is the opinion of
the management of the Portfolio that such information is only supplementary to
the Adviser's own research effort, since the information must still be analyzed,
weighed and reviewed by the Adviser's staff. Such information may be useful to
the Adviser in providing services to clients other than the Portfolio, and not
all such information is used by the Adviser in connection with the Portfolio.
Conversely, such information provided to the Adviser by brokers and dealers
through whom other clients of the Adviser effect securities transactions may be
useful to the Adviser in providing services to the Portfolio.

In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Adviser's other clients. Investment
decisions for the Portfolio and for the Adviser's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment adviser,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio is concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.

33
<PAGE>

For the fiscal years ended September 30, 1998, 1997 and 1996, International
Equity Portfolio paid brokerage commissions in the amount of $6,083,270,
$1,733,727, and $603,995, respectively.

PERFORMANCE INFORMATION

Standard Performance Information

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature shareholder reports or other communications to
shareholders or prospective shareholders. For mutual funds, performance is
commonly measured as total return. A Fund's performance is affected by its
expenses. These performance figures are calculated in the following manner:

Total return: A Fund's average annual total return is calculated for certain
periods by determining the average annual compounded rates of return over those
periods that would cause an investment of $1,000 (made at the maximum public
offering price with all distributions reinvested) to reach the value of that
investment at the end of the periods. A Fund may also calculate total return
figures which represent aggregate performance over a period or year-by-year
performance.

ANNUALIZED TOTAL RETURN
CUMULATIVE TOTAL RETURN FOR THE PERIOD FROM
FOR THE PERIOD FROM APRIL ANNUALIZED TOTAL APRIL 1, 1997
1, 1997 (COMMENCEMENT OF RETURN FOR THE (COMMENCEMENT OF
OPERATIONS) THROUGH FISCAL YEAR ENDED OPERATIONS) THROUGH
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------ ------------------
Class I shares 18.9% -2.86% 12.28%
Class II shares 20.1% -1.96% 13.03%

</TABLE>

34
<PAGE>

Performance Results: Any total return quotation provided for a Fund should not
be considered as representative of the performance of the Fund in the future
since the net asset value and public offering price of shares of the Fund will
vary based not only on the type, quality and maturities of the securities held
in the corresponding Portfolio, but also on changes in the current value of such
securities and on changes in the expenses of the Fund and the corresponding
Portfolio. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total return of a
Fund to total returns published for other investment companies or other
investment vehicles. Total return reflects the performance of both principal and
income.

Performance information may include the Fund's investment results and/or
comparisons of its investment results to the Morgan Stanley Capital
International Europe, Australia, Far East ("MSCI EAFE") Index, the Morgan
Stanley Capital International Gross Domestic Product weighted EAFE Index, the
Lipper International Average, or various other unmanaged indices or results of
other mutual funds or investment or savings vehicles. The Fund's investment
results as used in such communications will be calculated on a total rate of
return basis in the manner set forth herein. From time to time, fund rankings
may be quoted from various sources, such as Lipper Analytical Services, Inc.,
Value Line, and Morningstar, Inc.

The Trust may provide period and average annualized "total return"
quotations for the Shares. The Shares' "total return" refers to the change
in the value of an investment in the Shares over a stated period based on
any change in net asset value per Share and including the value of any
Shares purchased with any dividends or capital gains distributed during such
period. Period total return may be annualized. An annualized total return is
a compounded total return which assumes that the period total return is
generated over a one-year period, and that all dividends and capital gains
distributions are reinvested. An annualized total return will be higher
than a period total return if the period is shorter than one year, because
of the compounding effect.

Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the total return of the Fund will vary depending upon
interest rates, the current market value of the securities held by the Portfolio
and changes in the Shares' expenses.

Comparison of Fund Performance

Comparison of the quoted nonstandardized performance of various investments is
valid only if performance is calculated in the same manner. Since there are
different methods of calculating performance, investors should consider the
effect of the methods used to calculate performance when comparing performance
of a Fund with performance quoted with respect to other investment companies or
types of investments.

35
<PAGE>

In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of other
mutual funds tracked by mutual fund rating services or to unmanaged indices
which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. A Fund's performance may be
compared to the performance of various indices and investments for which
reliable data is available. The Fund's performance may also be compared to
averages, performance rankings, or other information prepared by recognized
mutual fund statistical services. Evaluations of a Fund's performance made by
independent sources may also be used in advertisements concerning the Fund.
Sources for a Fund's performance could include the following:

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

36
<PAGE>

Investor's Daily, a daily newspaper that features financial, economic and
business news.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morningstar, Inc., a publisher of financial information and mutual fund
research.

New York Times, a nationally distributed newspaper which regularly covers
financial news.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

U.S. News and World Report, a national business weekly that periodically reports
mutual fund performance data.

Value Line, a biweekly publication that reports on the largest 15,000 mutual
funds.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Weisenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records, and price ranges.

Working Women, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

37
<PAGE>

Economic and Market Information

Advertising and sales literature of a Fund may include discussions of economic,
financial and political developments and their effect on the securities market.
Such discussions may take the form of commentary on these developments by Fund
portfolio managers and their views and analysis on how such developments could
affect the Funds. In addition, advertising and sales literature may quote
statistics and give general information about the mutual fund industry,
including the growth of the industry, from sources such as the Investment
Company Institute ("ICI").

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES

Valuation of Securities

The net asset value ("NAV") per Share is calculated once on each Valuation Day
as of the close of regular trading on the NYSE (the "Valuation Time"), which is
currently 4:00 p.m., Eastern time or in the event that the NYSE closes early, at
the time of such early closing. The NAV per Share is computed by dividing the
value of the Fund's assets (i.e., the value of its investment in the Portfolio
and other assets), less all liabilities attributable to the Shares, by the total
number of Shares outstanding as of the Valuation Time. The Portfolio's
securities and other assets are valued primarily on the basis of market
quotations or, if quotations are not readily available, by a method which the
Portfolio's Board of Trustees believes accurately reflects fair value.

Under procedures adopted by the Board, a NAV for a Fund later determined to have
been inaccurate for any reason will be recalculated. Purchases and redemptions
made at a NAV determined to have been inaccurate will be adjusted, although in
certain circumstances, such as where the difference between the original NAV and
the recalculated NAV divided by the recalculated is 0.005 (1/2 of 1%) or less or
shareholder transactions are otherwise insubstantially affected, further action
is not required.

38
<PAGE>

Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Portfolio's Board of
Trustees. It is generally agreed that securities for which market quotations are
not readily available should not be valued at the same value as that carried by
an equivalent security which is readily marketable.

The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:

type of security involved, financial statements, cost at date of
purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information as to
any transactions or offers with respect to the security,
existence of merger proposals or tender offers affecting the
security, price and extent of public trading in similar
securities of the issuer or comparable companies, and other
relevant matters.

To the extent that the Portfolio purchases securities which are
restricted as to resale or for which current market quotations
are not readily available, the Adviser of the Portfolio will
value such securities based upon all relevant factors as outlined
in FRR 1.

Purchase of Shares

The Trust accepts purchase orders for Shares of the Fund at the NAV per Share
next determined after the order is received on each Valuation Day. Shares may be
available through Investment Professionals, such as broker/dealers and
investment advisers (including Service Agents).

Purchase orders for Shares (including those purchased through a Service Agent)
that are transmitted to the Trust's Transfer Agent (the "Transfer Agent"), prior
to the Valuation Time on any Valuation Day will be effective at that day's
Valuation Time. The Trust and Transfer Agent reserve the right to reject any
purchase order.

39
<PAGE>

Shares must be purchased in accordance with procedures established by the
Transfer Agent and each Service Agent. It is the responsibility of each Service
Agent to transmit to the Transfer Agent purchase and redemption orders and to
transmit to Bankers Trust as the Trust's custodian (the "Custodian") purchase
payments by the following business day (trade date + 1) after an order for
shares is placed. A shareholder must settle with the Service Agent for his or
her entitlement to an effective purchase or redemption order as of a particular
time. Because Bankers Trust is the Custodian and Transfer Agent of the Trust,
funds may be transferred directly from or to a customer's account held with
Bankers Trust to settle transactions with the Fund without incurring the
additional costs or delays associated with the wiring of federal funds.

The Trust and Bankers Trust have authorized one or more brokers to accept on the
Trust's behalf purchase and redemption orders. Such brokers are authorized to
designate other intermediaries to accept purchase and redemption orders on the
Trust's behalf. The Transfer Agent will be deemed to have received a purchase or
redemption order when an authorized broker or, if applicable, a broker's
authorized designee, accepts the order. Customer orders will be priced at the
Fund's NAV next computed after they are accepted by an authorized broker or the
broker's authorized designee.

Certificates for Shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.

If orders are placed through an Investment Professional, it is the
responsibility of the Investment Professional to transmit the order to buy
Shares to the Transfer Agent before 4:00 p.m. Eastern time.

The Transfer Agent must receive payment within one business day after an order
for Shares is placed; otherwise, the purchase order may be canceled and the
investor could be held liable for resulting fees and/or losses.

Minimum Investments

To open an account $250,000

To add to an account $25,000

Minimum Account Balance $100,000

The Fund and its service providers reserve the right to, from time to time in
their discretion, waive or reduce the investment minimums.

40
<PAGE>

If you are new to BT Institutional Funds, complete and sign an account
application and mail it along with your check to the address listed below. For
an account application, call the BT Service Center at 1-800-368-4031.

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

If you have money invested in a fund in the BT Family of Funds, you can:

o Mail an account application with a check,

o Wire money into your account,

o Open an account by exchanging from another fund in the BT Family of
Funds, or

o Contact your Service Agent or Investment Professional.

41
<PAGE>

Additional Information About Buying Shares

TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
By Wire Call the BT Service Center at Call your Investment Professional
1-800-368-4031 to receive wire or wire additional investment to:
instructions for account Routing No.: 021001033
establishment. Attn: Bankers Trust/IFTC Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account Number)
Credit: (Fund name and number)
BT Institutional International
Equity Fund (II)-500

PLEASE NOTE THAT YOU MUST
CALL THE BT SERVICE CENTER
TO PLACE YOUR TRADE THE DAY
YOU WISH TO BUY SHARES TO
NOTIFY US OF THE WIRE TRANSFER
AND TO INDICATE THE FUND IN
WHICH YOU INTEND TO INVEST TO
RECEIVE THAT DAY'S PRICE.

By Phone Contact your Service Agent, Contact your Service Agent,
Investment Professional, or call Investment Professional, or call
BT's Service Center at BT's Service Center at
1-800-368-4031. If you are an 1-800-368-4031. If you are an
existing Shareholder, you may existing Shareholder, you may
exchange from another BT account exchange from another BT account
with the same registration, with the same registration,
including name, address, and including name, address, and
taxpayer ID number. You may taxpayer ID number.
only order exchanges over the
phone if your account is
authorized to do so.

By Mail Complete and sign the account Make your check payable to the
application. Make your check complete name of the Fund of your
payable to the complete name of the choice. Indicate your Fund account
Fund of your choice. Mail to the number on your check and mail to
appropriate address indicated on the the address printed on your account
application. statement.
</TABLE>

42
<PAGE>

Redemption of Shares

You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your Shares. Your Shares shall be sold at the next
NAV calculated after an order is received by the Transfer Agent. Redemption
requests should be transmitted by customers in accordance with procedures
established by the Transfer Agent and the shareholder's Service Agent.
Redemption requests for Shares received by the Service Agent and transmitted to
the Transfer Agent prior to the Valuation Time on each Valuation Day will be
effective at that day's Valuation Time and the redemption proceeds normally will
be delivered to the shareholder's account the next day, but in any event within
seven calendar days following receipt of the request.

Service Agents may allow redemptions or exchanges by telephone and may disclaim
liability for following instructions communicated by telephone that the Service
Agent reasonably believes to be genuine. The Service Agent must provide the
investor with an opportunity to choose whether or not to utilize the telephone
redemption or exchange privilege. The Transfer Agent and the Service Agent must
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Service Agent does not do so, it may be liable for
any losses due to unauthorized or fraudulent instructions. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions and/or tape recording of telephone instructions.

Redemption orders are processed without charge by the Trust. The Trust reserves
the right to close investor accounts via 30 day notice in writing if the Fund
account balance falls below $100,000.

To sell Shares in a retirement account, your request must be made in writing,
except for exchanges to other eligible funds in the BT Family of Funds, which
can be requested by phone or in writing. For information on retirement
distributions, contact your Service Agent or call the BT Service Center at
1-800-368-4031.

To sell Shares by bank wire you will need to sign up for these services in
advance when completing your account application.

Certain requests must include a signature guarantee to protect you and Bankers
Trust from fraud. Redemption requests in writing must include a signature
guarantee if any of the following situations apply:

43
<PAGE>

o Your account registration has changed within the last 30 days,

o The check is being mailed to a different address than the one on your
account (record address),

o The check is being made payable to someone other than the account owner,

o The redemption proceeds are being transferred to a BT account with a
different registration, or

o You wish to have redemption proceeds wired to a non-predesignated bank
account.

A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.

You should be able to obtain a signature guarantee from a bank, broker, dealer,
credit union (if authorized under state law), securities exchange or
association, clearing agency, or savings association. A notary public cannot
provide a signature guarantee.

Additional Information About Selling Shares

By Wire - You must sign up for the wire feature before using it. To verify that
it is in place, call 1-800-368-4031. Minimum wire: $1,000. Your wire redemption
request must be received by the Transfer Agent before 4:00 p.m. Eastern time for
money to be wired on the next business day.

In Writing - Write a signed "letter of instruction" with your name, the Fund's
name and Fund's number, your Fund account number, the dollar amount or number of
Shares to be redeemed, and mail to one of the following addresses:

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

44
<PAGE>

For Trust accounts, the trustee must sign the letter indicating capacity
as trustee. If the trustee's name is not on the account registration,
provide a copy of the trust document certified within the last 60 days.

For a Business or Organization account, at least one person authorized
by corporate resolution to act on the account must sign the letter.

Unless otherwise instructed, the Transfer Agent will send a check to the
account address of record.

Exchange Privilege

Shareholders may exchange their Shares for shares of certain other funds
in the BT Family of Funds registered in their state. To make an
exchange, follow the procedures indicated in "Purchase of Shares" and
"Redemption of Shares" herein. Before making an exchange, please note
the following:

o Call your Service Agent for information and a prospectus. Read the
prospectus before exchanging into a Fund.

o Complete and sign an application, taking care to register your new
account in the same name, address and taxpayer identification
number as your existing account(s).

o Each exchange represents the sale of shares of one fund and the
purchase of shares of another, which may produce a gain or loss
for tax purposes. Your Service Agent will receive a written
confirmation of each exchange transaction.

o Exchanges out of the Fund may be limited to four per calendar year and
any exchange may have tax consequences for you.

o The Fund reserves the right to terminate or modify the exchange
privilege in the future.

45
<PAGE>

Redemptions and Purchases in Kind

The Trust, on behalf of the Fund, and the Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or withdrawal by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, may incur
transaction expenses in converting these securities into cash. The Trust, on
behalf of the Fund, and the Portfolio have elected, however, to be governed by
Rule 18f-1 under the 1940 Act as a result of which the Fund and the Portfolio
are obligated to redeem shares or beneficial interests, as the case may be, with
respect to any one investor during any 90-day period, solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Fund or the Portfolio, as
the case may be, at the beginning of the period.

The Portfolio has agreed to make a redemption in kind to the Fund whenever the
Fund wishes to make a redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of the
Portfolio and in no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind or
unless requested by the Fund.

The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This may
be a taxable transaction to the shareholder. (Consult your tax adviser for
further tax guidance.) Securities may be accepted in payment for shares only if
they are, in the judgment of Bankers Trust, appropriate investments for the
Portfolio. In addition, securities accepted in payment for shares must: (i) meet
the investment objective and policies of the Portfolio; (ii) be acquired by the
Fund for investment and not for resale (other than for resale to the Portfolio);
(iii) be liquid securities which are not restricted as to transfer either by law
or liquidity of the market; and (iv) if stock, have a value which is readily
ascertainable as evidenced by a listing on a stock exchange, over-the-counter
market or by readily available market quotations from a dealer in such
securities. The Fund reserves the right to accept or reject at its own option
any and all securities offered in payment for its shares.

46
<PAGE>

Trading in Foreign Securities

Trading in foreign cities may be completed at times which vary from the closing
of the New York Stock Exchange ("NYSE"). In computing the net asset values, the
Funds value foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the NYSE. Similarly,
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the foreign exchanges.

Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.

MANAGEMENT OF THE TRUST AND THE PORTFOLIO

The affairs of the Trust and the Portfolio are managed under the supervision of
their respective Boards of Trustees. By virtue of the responsibilities assumed
by Bankers Trust, the administrator of the Trust and Portfolio, neither the
Trust nor the Portfolio requires employees other than its executive officers.
None of the executive officers of the Trust or the Portfolio devotes full time
to the affairs of the Trust or the Portfolio.

The Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) (the "Independent Trustees") of the Trust or of the Portfolio, as the
case may be, have adopted written procedures reasonably appropriate to deal with
potential conflicts of interest, up to and including creating separate boards of
trustees, arising from the fact that several of the same individuals are
trustees of the Trust and of the Portfolio.

The Board of Trustees is composed of persons experienced in financial matters
who meet throughout the year to oversee the activities of the Fund or Portfolio
they represent. In addition, the Trustees review contractual arrangements with
companies that provide services to the Fund/Portfolio and review the Fund's
performance.

The Trustees and officers of the Trust and Portfolio, their birthdate and their
principal occupations during the past five years are set forth below. Their
titles may have varied during that period. Unless otherwise indicated, the
address of each officer is Two Portland Square, Portland, Maine 04101.

47
<PAGE>

Trustees of the Trust

CHARLES P. BIGGAR (birthdate: October 13, 1930) -- Trustee; Retired; formerly
Vice President of International Business Machines ("IBM") and President of the
National Services and the Field Engineering Divisions of IBM. His address is 12
Hitching Post Lane, Chappaqua, New York 10514.

RICHARD J. HERRING (birthdate: February 18, 1946) -- Trustee; Professor, Finance
Department, The Wharton School, University of Pennsylvania. His address is The
Wharton School, University of Pennsylvania Finance Department, 3303 Steinberg
Hall /Dietrich Hall, Philadelphia, Pennsylvania 19104.

BRUCE E. LANGTON (birthdate: May 10, 1931) -- Trustee; Retired; Director, Adela
Investment Co. and University Patents, Inc.; formerly Assistant Treasurer of IBM
Corporation (until 1986). His address is 99 Jordan Lane, Stamford, Connecticut
06903.

Trustees of the Portfolio

CHARLES P. BIGGAR

S. LELAND DILL (birthdate: March 28, 1930) - Trustee; Retired; Director, Coutts
(U.S.A.) International; Coutts Trust Holdings Ltd.; Director, Zweig Series
Trust; formerly Partner of KPMG Peat Marwick; Director, Vinters International
Company Inc.; General Partner of Pemco (an investment company registered under
the 1940 Act). His address is 5070 North Ocean Drive, Singer Island, Florida
33404.

PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) - Trustee; Principal, Philip
Saunders Associates (Economic and Finance Consulting); former Director of
Financial Industry Consulting, Wolf & Company; President John Hancock Home
Mortgage Corporation; and Senior Vice President of Treasury and Financial
Services, John Hancock Mutual Life Insurance Company, Inc. His address is 445
Glen Road, Weston, Massachusetts 02193:

Officers of the Trust

Unless otherwise specified, each officer listed below holds the same position
with the Trust and the Portfolio.

48
<PAGE>

JOHN Y. KEFFER (birthdate: July 15, 1942) -- President and Chief Executive
Officer; President, Forum Financial Group.

JOSEPH A. FINELLI (birthdate: January 24, 1957) -- Treasurer; Vice President, BT
Alex. Brown Incorporated and Vice President, Investment Company Capital Corp.
(registered investment advisor), September 1995-Present; Formerly, Vice
President and Treasurer, The Delaware Group of Funds (registered investment
companies) and Vice President, Delaware Management Company Inc. (investments),
1980-August 1995.

DANIEL O. HIRSCH (birthdate: March 27, 1954) -- Secretary; Principal, BT Alex.
Brown since July 1998; Assistant General Counsel in the Office of the General
Councel at the United States Securities and Exchange Commission from 1993 to
1998. His address is 2901 Dorset Avenue, Chevy Chase, Maryland 20815.

No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust or the Portfolio. No director, officer or employee of ICC
Distributors or any of its affiliates will receive any compensation from the
Trust or the Portfolio for serving as an officer or Trustee of the Trust or the
Portfolio.

49
<PAGE>

Trustee Compensation Table
<TABLE>

AGGREGATE AGGREGATE TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION COMPENSATION FROM FROM FUND COMPLEX**
POSITION FROM TRUST*+ PORTFOLIO+ PAID TO TRUSTEES***
------------- ------------ ----------------- -------------------
<S> <C> <C> <C>

Richard J. Herring,
Trustee of Trust $23,625 $0 $35,000

Bruce B. Langton,
Trustee of Trust $23,625 $0 $35,000

Charles P. Biggar,
Trustee of Trust and
Portfolio $10,732 $1,106 $35,000

S. Leland Dill,
Trustee of Portfolio $0 $935 $35,000

Philip Saunders, Jr.,
Trustee of Portfolio $0 $942 $35,000

</TABLE>

* The information provided is for the BT Institutional Funds, which is comprised
of 10 funds, for the year ended September 30, 1998.

+ Information provided is for the Portfolio's most recent fiscal year ended
September 30, 1998.

** Aggregated information is furnished for the BT Family of Funds which consists
of the following: BT Investment Funds, BT Institutional Funds, BT Pyramid Funds,
BT Advisor Funds, BT Investment Portfolios, Cash Management Portfolio, Treasury
Money Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio,
International Equity Portfolio, Intermediate Tax Free Portfolio, Asset
Management Portfolio, Equity 500 Index Portfolio, and Capital Appreciation
Portfolio for the year ended September 30, 1998.

50
<PAGE>

Bankers Trust reimbursed the Fund and Portfolio for a portion of their Trustees
fees for the period above. See "Investment Adviser" and "Administrator" below.

As of December 31, 1998, the Trustees and Officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of any Fund or the
Trust (all series taken together).

As of December 31, 1998, the following shareholders of record owned 5% or more
of the outstanding Class I shares of the Fund: Fidelity Investments
Institutional Operations Co., Inc., Kovington, Kentucky, owned approximately
28,675299 shares (54%); and Citizens Bank c/o Trust Operation, Saginaw,
Michigan, owned approximately 4,644,756 shares (9%).

As of December 31, 1998, the following shareholder of record owned 5% or more of
the outstanding Class II shares of the Fund: Charles Schwab & Co., San
Francisco, California, owned approximately 2,771,199 shares (78%).

Investment Adviser

The Trust has not retained the services of an investment adviser since the Trust
seeks to achieve the investment objective of the Fund by investing all the
Assets of the Fund in the Portfolio. The Portfolio has retained the services of
Bankers Trust as Adviser.

Bankers Trust Company, a New York banking corporation, is a wholly owned
subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services to the international and domestic institutional markets. As
of December 31, 1998, Bankers Trust Corporation was the seventh largest bank
holding company in the United States with total assets of over $156 billion. The
scope of Bankers Trust's investment management capability is broad due to its
leadership positions in both active and passive quantitative management and its
presence in major equity and fixed income markets around the world. Bankers
Trust is one of the nation's largest and most experienced investment managers
with over $338 billion in assets under management globally.

51
<PAGE>

The Investment Adviser is a wholly owned subsidiary of Bankers Trust
Corporation. On November 30, 1998, Bankers Trust Corporation entered into an
Agreement and Plan of Merger with Deutsche Bank AG under which Bankers Trust
Corporation and all of its subsidiaries would merge with and into a subsidiary
of Deutsche Bank AG. Deutsche Bank AG is a major global banking institution that
is engaged in a wide range of financial services, including retail and
commercial banking, investment banking and insurance. The transaction is
contingent upon various regulatory approvals, as well as the approval of the
Fund's Board of Trustees and the Fund's shareholders. If the transaction is
approved and completed, Deutsche Bank, as the Investment Adviser's new parent
company, will control the operations of the Investment Adviser. Bankers Trust
believes that, under this new arrangement, the services provided to the Fund
will be maintained at their current level.

Bankers Trust bears all expenses in connection with the performance of services
under the Advisory Agreement. The Trust and the Portfolio bear certain other
expenses incurred in their operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust or the Portfolio who are
not officers, directors or employees of Bankers Trust, ICC Distributors or any
of their affiliates; SEC fees and state Blue Sky fees; charges of custodians and
transfer and dividend disbursing agents; certain insurance premiums; outside
auditing and legal expenses; costs of maintenance of corporate existence; costs
attributable to investor services, including, without limitation, telephone and
personnel expenses; costs of preparing and printing prospectuses and SAIs for
regulatory purposes and for distribution to existing shareholders; costs of
shareholders' reports and meetings of shareholders, officers and Trustees of the
Trust or the Portfolio; and any extraordinary expenses.

52
<PAGE>

Bankers Trust, subject to the supervision and direction of the Board of Trustees
of each Portfolio, manages each Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its world wide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of a Portfolio are placed by the
Adviser with broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust affiliate will be
used in connection with a purchase or sale of an investment for the Portfolio
only if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. The Portfolio will not invest in
obligations for which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. The Portfolio may, however, invest in the obligations
of correspondents and customers of Bankers Trust. Bankers Trust may perform the
above duties or it may delegate such responsibilities to the Sub-Investment
Adviser as defined herein.

For the fiscal years ended September 30, 1998, 1997 and 1996, Bankers Trust
aggregated $8,493,173, $2,060,310, and $759,552, respectively, in compensation
for investment advisory services provided to the Portfolio. During the same
periods, Bankers Trust reimbursed $1,959,180, $529,390, and $229,297,
respectively, to the Portfolio to cover expenses.

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Bankers Trust may have deposit, loan and other commercial banking relationships
with the issuers of securities which may be purchased on behalf of the
Portfolio, including outstanding loans to such issuers which could be repaid in
whole or in part with the proceeds of securities so purchased. Such persons
issue, deal, trade and invest in securities for their own accounts and are among
the leading market participants with respect to various types of such
securities. Bankers Trust has informed the Portfolio that, in making its
investment decisions, it does not obtain or use material inside information in
its possession or in the possession of any of its affiliates. In making
investment recommendations for the Portfolio, Bankers Trust will not inquire or
take into consideration whether an issuer of securities proposed for purchase or
sale by the Portfolio is a customer of Bankers Trust, its parent or its
subsidiaries or affiliates and, in dealing with its customers, Bankers Trust,
its parent, subsidiaries and affiliates will not inquire or take into
consideration whether securities of such customers are held by any fund managed
by Bankers Trust or any such affiliate.

Administrator

Under its Administration and Services Agreement with the Trust, Bankers Trust
calculates the net asset value of the Fund and generally assists the Board of
Trustees of the Trust in all aspects of the administration and operation of the
Trust. The Administration and Services Agreement provides for the Trust to pay
Bankers Trust a fee, computed daily and paid monthly based on a percentage of
the average daily net assets of the Class I shares and Class II shares,
respectively.

Under an Administration and Services Agreement with the Portfolio, Bankers Trust
calculates the value of the assets of the Portfolio and generally assists the
Board of Trustees of the Portfolio in all aspects of the administration and
operation of the Portfolio. The Administration and Services Agreement provides
for the Portfolio to pay Bankers Trust a fee, computed daily and paid monthly,
at the annual rate of 0.15% of the average daily net assets of the Portfolio.
Under each Administration and Services Agreement, Bankers Trust may delegate one
or more of its responsibilities to others, including affiliates of ICC
Distributors, at Bankers Trust's expense.

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Under the administration and services agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the proper
administration of the Trust or Portfolio. Bankers Trust will generally assist in
all aspects of the Fund's and Portfolio's operations; supply and maintain office
facilities (which may be in Bankers Trust's own offices), statistical and
research data, data processing services, clerical, accounting, bookkeeping and
recordkeeping services (including without limitation the maintenance of such
books and records as are required under the 1940 Act and the rules thereunder,
except as maintained by other agents), executive and administrative services,
and stationery and office supplies; prepare reports to shareholders or
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filings with the SEC and various state Blue
Sky authorities; supply supporting documentation for meetings of the Board of
Trustees; provide monitoring reports and assistance regarding compliance with
Declarations of Trust, by-laws, investment objectives and policies and with
Federal and state securities laws; arrange for appropriate insurance coverage;
calculate net asset values, net income and realized capital gains or losses; and
negotiate arrangements with, and supervise and coordinate the activities of,
agents and others to supply services.

Pursuant to a sub-administration agreement (the "Sub-Administration Agreement"),
Forum Financial ("Forum") performs such sub-administration duties for the Trust
and the Portfolio as from time to time may be agreed upon by Bankers Trust and
Forum. The Sub-Administration Agreement provides that Forum will receive such
compensation as from time to time may be agreed upon by Forum and Bankers Trust.
All such compensation will be paid by Bankers Trust.

For the fiscal year ended September 30, 1998, and for the period from April 1,
1997 (commencement of operations) to September 30, 1997, Bankers Trust received
$1,446,112 and $29,152, respectively, in compensation for administrative and
other services provided to Class I shares of the Fund. For the same period,
Bankers Trust reimbursed $611,813 and $36,426, respectively, to Class I shares
of the Fund to cover expenses.

For the fiscal year ended September 30, 1998, and for the period from April 1,
1997 (commencement of operations) to September 30, 1997, Bankers Trust received
$14,950 and $4,337, respectively, in compensation for administrative and other
services provided to Class II shares of the Fund. For the same period, Bankers
Trust reimbursed $16,556 and $13,648, respectively, to Class II shares of the
Fund to cover expenses.

For the fiscal years ended September 30, 1998, 1997 and 1996, Bankers Trust
received $1,959,963, $475,456, and $175,281, respectively, in compensation for
administrative and other services provided to the Portfolio.

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<PAGE>

Bankers Trust has agreed that if in any year the aggregate expenses of any Fund
and its respective Portfolio (including fees pursuant to the Advisory Agreement,
but excluding interest, taxes, brokerage and, if permitted by the relevant state
securities commissions, extraordinary expenses) exceed the expense limitation of
any state having jurisdiction over a Fund, Bankers Trust will reimburse the Fund
for the excess expense to the extent required by state law. As of the date of
this SAI, the most restrictive annual expense limitation applicable to any Fund
is 2.5% of the Fund's first $30 million of average annual net assets, 2.0% of
the next $70 million of average annual net assets and 1.5% of the remaining
average annual net assets.

Distributor

ICC Distributors is the principal distributor for shares of the Fund. ICC
Distributors is a registered broker/dealer and is unaffiliated with Bankers
Trust. The principal business address of ICC Distributors is Two Portland
Square, Portland, Maine 04101.

Service Agent

All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees. The services
provided by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, assisting clients in changing dividend options, account
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the Administration and
Services Agreement with Bankers Trust, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.

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Custodian and Transfer Agent

Bankers Trust, 130 Liberty Street, (One Bankers Trust Plaza), New York, New York
10006, serves as Custodian for the Trust and for the Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the Fund's and
the Portfolio's assets. Bankers Trust also serves as transfer agent of the Trust
and of the Portfolio pursuant to the respective administration and services
agreement. Under its transfer agency agreement with the Trust, Bankers Trust
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Trust and causes to be distributed
any dividends and distributions payable by the Trust. Bankers Trust may be
reimbursed by the Fund or the Portfolio for its out-of-pocket expenses. Bankers
Trust will comply with the self-custodian provisions of Rule 17f-2 under the
1940 Act.

Use of Name

The Trust and Bankers Trust have agreed that the Trust may use "BT" as part of
its name for so long as Bankers Trust serves as investment adviser to the
Portfolio. The Trust has acknowledged that the term "BT" is used by and is a
property right of certain subsidiaries of Bankers Trust and that those
subsidiaries and/or Bankers Trust may at any time permit others to use that
term.

The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of its name. If this were to occur, the
Trustees would select an appropriate new name for the Trust, but there would be
no other material effect on the Trust, its shareholders or activities.

Banking Regulatory Matters

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolio contemplated by the Advisory
Agreement and other activities for the Fund and the Portfolio described in the
Prospectus and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either Federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust and the Portfolio. State laws on this issue may
differ from the interpretations of relevant Federal law and banks and financial
institutions may be required to register as dealers pursuant to state securities
law. If the circumstances described above should change, the Boards of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.

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Counsel and Independent Accountants

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019, serves
as Counsel to the Trust and the Portfolio. PricewaterhouseCoopers LLP, 250 West
Pratt Street, Baltimore, Maryland 21201 acts as Independent Accountants of the
Trust and the Portfolio.

ORGANIZATION OF THE TRUST

The Trust was organized on March 26, 1990 under the laws of the Commonwealth of
Massachusetts. The Fund is a separate series of the Trust. The Trust offers
shares of beneficial interest of separate series, par value $0.001 per share.
The Trust currently consists of 10 series. Trustees of the Trust established and
designated two classes of shares of beneficial interest of the Fund--Class I
shares and Class II shares. The Trust reserves the right to add additional
series in the future. The Trust also reserves the right to issue additional
classes of shares of the Fund. No series of shares has any preference over any
other series.

Each Class represents an identical interest in the Fund's investment portfolio.
As a result, the Classes have the same rights, privileges and preferences,
except with respect to: (1) the designation of each Class; (2) the expenses
allocated exclusively to each Class; and (3) voting rights on matters
exclusively affecting a single Class. The Trustees of the Trust do not
anticipate that there will be any conflicts among the interests of the holders
of the different Classes and will take appropriate action if any such conflict
arises.

When matters are submitted for shareholder vote, shareholders of the Fund will
have one vote for each full share held and proportionate, fractional votes for
fractional shares held. A separate vote of the Fund or Class is required on any
matter affecting the Fund or Class on which shareholders are entitled to vote.
Shareholders of the Fund or Class are not entitled to vote on Trust matters that
do not affect the Fund or Class. There normally will be no meetings of
shareholders for the purpose of electing Trustees unless and until such time as
less than a majority of Trustees holding office have been elected by
shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares.

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The Declaration of Trust of BT Institutional Funds provides that the Fund and
other entities investing in the Portfolio (e.g., other investment companies,
insurance company separate accounts and common and commingled trust funds) will
each be liable for all obligations of the Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Trustees of the
Trust believe that neither the Fund nor its shareholders will be adversely
affected by reason of the Fund's investing in the corresponding Portfolio.

Each series in the Trust will not be involved in any vote involving the
Portfolio in which it does not invest its Assets. Shareholders of all of the
series of the Trust will, however, vote together to elect Trustees of the Trust
and for certain other matters. Under certain circumstances, the shareholders of
one or more series could control the outcome of these votes.

Shares of the Trust do not have cumulative voting rights, which means that
holders of more than 50% of the shares voting for the election of Trustees can
elect all Trustees. Shares are transferable but have no preemptive, conversion
or subscription rights. Shareholders generally vote by Fund, except with respect
to the election of Trustees and the ratification of the selection of independent
accountants.

The Trust is an entity commonly known as a "Massachusetts business trust."
Massachusetts law provides that shareholders could under certain circumstances
be held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims shareholder liability for acts or obligations of
the Trust and requires that notice of this disclaimer be given in each
agreement, obligation or instrument entered into or executed by the Trust or a
Trustee. The Declaration of Trust provides for indemnification from the Trust's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Trust. Thus, the risk of a shareholder's incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Trust itself would be unable to meet its obligations, a possibility
that the Trust believes is remote. Upon payment of any liability incurred by the
Trust, the shareholder paying the liability will be entitled to reimbursement
from the general assets of the Trust. The Trustees intend to conduct the
operations of the Trust in a manner so as to avoid, as far as possible, ultimate
liability of the shareholders for liabilities of the Trust.

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Except as described below, whenever the Trust is requested to vote on a
fundamental policy of the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast its vote as instructed by the Fund's shareholders.
Fund shareholders who do not vote will not affect the Trust's votes at the
Portfolio meeting. The percentage of the Trust's votes representing Fund
shareholders not voting will be voted by the Trustees of the Trust in the same
proportion as the Fund shareholders who do, in fact, vote.

Except as described below, whenever the Fund is requested to vote on matters
pertaining to the Portfolio, the Fund will hold a meeting of its shareholders
and will cast its votes proportionately as instructed by Fund shareholders.
However, subject to applicable statutory and regulatory requirements, the Fund
would not request a vote of its shareholders with respect to (a) any proposal
relating to the Portfolio, which proposal, if made with respect to the Fund,
would not require the vote of the shareholders of the Fund, or (b) any proposal
with respect to the Portfolio that is identical in all material respects to a
proposal that has previously been approved by shareholders of the Fund. Any
proposal submitted to holders in the Portfolio, and that is not required to be
voted on by shareholders of the Fund, would nonetheless be voted on by the
Trustees of the Trust.

TAXATION

Dividends and Distributions

Dividends paid out of the Fund's investment company taxable income will be
taxable to a U.S. shareholder as ordinary income. Distributions of net capital
gains, if any, designated as capital gain dividends are taxable as long-term
capital gains, regardless of how long the shareholder has held the Fund's
shares, and are not eligible for the dividends-received deduction. The
categories of gain and related rates will be passed through to shareholders in
capital gain dividends. Shareholders receiving distributions in the form of
additional shares, rather than cash, generally will have a cost basis in each
such share equal to the net asset value of a share of the Fund on the
reinvestment date. Shareholders will be notified annually as to the U.S. Federal
tax status of distributions.

Taxation of the Fund

The Trust intends to qualify as a regulated investment company under Subchapter
M of the Internal Revenue Code of 1986, as amended (the "Code").

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To qualify as a regulated investment company, the Fund must, among other things:
(a) derive in each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stock, securities or foreign currencies or other income
derived with respect to its business of investing in such stock, securities or
currencies; (b) diversify its holdings so that, at the end of each quarter of
the taxable year, (i) at least 50% of the market value of the Fund's assets is
represented by cash and cash items (including receivables), U.S. government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets and not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
government securities or the securities of other regulated investment
companies); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) and its net
tax-exempt interest income, if any, each taxable year.

As a regulated investment company, the Fund will not be subject to U.S. Federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year; (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses, as prescribed by
the Code) for the one-year period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

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If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions, including amounts derived from interest on tax-exempt
obligations, would be taxable to shareholders to the extent of current
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.

A Fund's investment in Section 1256 contracts, such as regulated futures
contracts, most forward currency forward contracts traded in the interbank
market and options on most stock indices, are subject to special tax rules. All
section 1256 contracts held by a Fund at the end of its taxable year are
required to be marked to their market value, and any unrealized gain or loss on
those positions will be included in the Fund's income as if each position had
been sold for its fair market value at the end of the taxable year. The
resulting gain or loss will be combined with any gain or loss realized by the
Fund from positions in section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets and were not part of a
"hedging transaction" nor part of a "straddle," 60% of the resulting net gain or
loss will be treated as long-term capital gain or loss, and 40% of such net gain
or loss will be treated as short-term capital gain or loss, regardless of the
period of time the positions were actually held by the Fund.

Each Fund shareholder will also receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the Federal income status
of his dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisers as to
any state and local taxes that may apply to these dividends and distributions.
The dollar amount of dividends excluded from Federal income taxation and the
dollar amount subject to such income taxation, if any, will vary for each
shareholder depending upon the size and duration of each shareholder's
investment in the Fund.

Foreign Securities

Income from investments in foreign stocks or securities may be subject to
foreign taxes. Tax conventions between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to determine the effective
rate of foreign tax in advance since the amount of the Portfolio's assets to be
invested in various countries will vary.

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If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations, the Fund may make an election
pursuant to which certain foreign taxes paid by the Portfolio would be treated
as having been paid directly by shareholders of the Fund. Pursuant to such
election, the amount of foreign taxes paid will be included in the income of the
Fund's shareholders, and such Fund shareholders (except tax-exempt shareholders)
may, subject to certain limitations, claim either a credit or deduction for the
taxes. Each such Fund shareholder will be notified after the close of the Fund's
taxable year whether the foreign taxes paid will "pass through" for that year
and, if so, such notification will designate (a) the shareholder's portion of
the foreign taxes paid to each such country and (b) the amount which represents
income derived from sources within each such country.

The amount of foreign taxes for which a shareholder may claim a credit in any
year will generally be subject to a separate limitation for "passive income,"
which includes, among other items of income, dividends, interest and certain
foreign currency gains. Because capital gains realized by the Portfolio on the
sale of foreign securities will be treated as U.S. source income, the available
credit of foreign taxes paid with respect to such gains may be restricted by
this limitation.

Taxation of the Portfolio

The Portfolio is not subject to Federal income taxation. Instead, the Fund and
other investors investing in the Portfolio must take into account, in computing
their Federal income tax liability, their share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether they have received any cash distributions from the Portfolio.

Distributions received by the Fund from the Portfolio generally will not result
in the Fund recognizing any gain or loss for Federal income tax purposes, except
that: (1) gain will be recognized to the extent that any cash distributed
exceeds the Fund's basis in its interest in the Portfolio prior to the
distribution; (2) income or gain may be realized if the distribution is made in
liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio; and
(3) loss may be recognized if the distribution is made in liquidation of the
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. The Fund's basis in its interest in the Portfolio
generally will equal the amount of cash and the basis of any property which the
Fund invests in the Portfolio, increased by the Fund's share of income from the
Portfolio, and decreased by the amount of any cash distributions and the basis
of any property distributed from the Portfolio.

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Sale of Shares

Any gain or loss realized by a shareholder upon the sale or other disposition of
Shares of the Fund, or upon receipt of a distribution in complete liquidation of
a Fund, generally will be a capital gain or loss which will be long-term or
short-term, generally depending upon the shareholder's holding period for the
Shares. Any loss realized on a sale or exchange will be disallowed to the extent
the Shares disposed of are replaced (including Shares acquired pursuant to a
dividend reinvestment plan) within a period of 61 days beginning 30 days before
and ending 30 days after disposition of the Shares. In such a case, the basis of
the Shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized by a shareholder on a disposition of Fund Shares held by the
shareholder for six months or less will be treated as a long-term capital loss
to the extent of any distributions of net capital gains received by the
shareholder with respect to such Shares.

Foreign Withholding Taxes

Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.

Backup Withholding

The Fund may be required to withhold U.S. Federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code generally are exempt from such backup
withholding. Backup withholding is not an additional tax. Any amounts withheld
may be credited against the shareholder's U.S. Federal income tax liability.

Foreign Shareholders

The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described herein. Foreign shareholders are advised to
consult their own tax advisers with respect to the particular tax consequences
to them of an investment in the Fund.

Other Taxation

The Trust is organized as a Massachusetts business trust and, under current law,
neither the Trust nor any Fund is liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that the Fund continues to qualify as a
regulated investment company under Subchapter M of the Code. The Portfolio is
organized as a New York trust. The investment by the Fund in the Portfolio does
not cause the Fund to be liable for any income or franchise tax in the State of
New York.

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Fund shareholders may be subject to state and local taxes on their Fund
distributions. Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund.

FINANCIAL STATEMENTS

The financial statements for the Fund and the Portfolio for the fiscal year
ended September 30, 1998, are incorporated herein by reference to the Annual
Report to shareholders for the Fund and Portfolio dated September 30, 1998. A
copy of a Fund's and the Portfolio's Annual Report may be obtained without
charge by contacting the Fund.

APPENDIX
COMMERCIAL PAPER RATINGS

S&P's Commercial Paper Ratings

A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1+, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt rating is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward trend.
Typically, the issuer is a strong company in a well-established industry and has
superior management.

Moody's Commercial Paper Ratings

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

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Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

Fitch Investors Service and Duff & Phelps Commercial Paper Ratings

Commercial paper rated "Fitch- 1" is considered to be the highest grade paper
and is regarded as having the strongest degree of assurance for timely payment.
"Fitch-2" is considered very good grade paper and reflects an assurance of
timely payment only slightly less in degree than the strongest issue.

Commercial paper issues rated "Duff 1" by Duff & Phelps, Inc. have the following
characteristics: very high certainty of timely payment, excellent liquidity
factors supported by strong fundamental protection factors, and risk factors
which are very small. Issues rated "Duff 2" have a good certainty of timely
payment, sound liquidity factors and company fundamentals, small risk factors,
and good access to capital markets.

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Investment Adviser and Administrator of the Portfolio
BANKERS TRUST COMPANY

Distributor

ICC DISTRIBUTORS, INC.

Custodian and Transfer Agent
BANKERS TRUST COMPANY

Independent Accountants

PRICEWATERHOUSECOOPERS LLP

Counsel
WILLKIE FARR & GALLAGHER

No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectuses, its
Statements of Additional Information or the Trust's official sales literature in
connection with the offering of the Trust's shares and, if given or made, such
other information or representations must not be relied on as having been
authorized by the Trust. Neither the Prospectuses nor this Statement of
Additional Information constitutes an offer in any state in which, or to any
person to whom, such offer may not lawfully be made.

CUSIP #055924856
CUSIP #055924849

BT0494 (1/98)

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION
January 31, 1999

BT INSTITUTIONAL FUNDS

o International Small Company Equity Fund

BT Institutional Funds (the "Trust") is an open-end management investment
company that offers investors a selection of investment portfolios, each having
distinct investment objectives and policies. This Statement of Additional
Information ("SAI") relates to the BT Institutional Funds International Small
Company Equity Fund (the "Fund").

The Fund's investment objective is to seek long-term capital appreciation. As
described in the Fund's Prospectus, the Trust seeks to achieve the investment
objective of the Fund by investing all the investable assets ("Assets") of the
Fund in the International Small Company Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objectives as the Fund. The Portfolio is a subtrust of the BT Investment
Portfolios.

Shares of the Fund are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's Distributor, to clients and customers (including affiliates and
correspondents) of Bankers Trust Company ("Bankers Trust"), the Portfolio's
investment adviser ("Adviser"), and to clients and customers of other
organizations. As appropriate, references to the Adviser herein apply to any
sub-adviser which may have day-to-day investment management responsibility for
the Portfolio.

The Fund's Prospectus is dated January 31, 1999, and provides the basic
information investors should know before investing. This SAI, which is not a
Prospectus, is intended to provide additional information regarding the
activities and operations of the Trust and should be read in conjunction with
the Fund's Prospectus. You may request a copy of a Prospectus or a paper copy of
this SAI, if you have received it electronically, free of charge by calling the
Trust at the telephone number listed below or by contacting any Service Agent.
This SAI is not an offer of any Fund for which an investor has not received a
prospectus. Capitalized terms not otherwise defined in this SAI have the
meanings accorded to them in the Fund's Prospectus.

BANKERS TRUST COMPANY

Investment Adviser of the Portfolio and Administrator

ICC DISTRIBUTORS, INC.

Distributor
Two Portland Square
Portland, Maine 04101
(800) 368-4031

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<TABLE>
TABLE OF CONTENTS
<S> <C>
Page

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS.................................3
Investment Objective.......................................................3
Investment Policies........................................................3
Additional Risk Factors....................................................17
Investment Restrictions....................................................25
Portfolio Transactions and Brokerage Commissions...........................28

PERFORMANCE INFORMATION.........................................................30
Standard Performance Information...........................................30
Comparison of Fund Performance.............................................31
Economic and Market Information............................................33

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND......................33
Valuation of Securities....................................................33
Purchase of Shares.........................................................34
Redemption of Shares.......................................................36
Redemptions and Purchases in Kind..........................................39
Trading in Foreign Securities..............................................40

MANAGEMENT OF THE TRUST AND THE PORTFOLIO.......................................40
Trustees of BT Institutional Funds.........................................40
Investment Adviser.........................................................43
Sub-Investment Adviser.....................................................44
Administrator..............................................................44
Distributor................................................................45
Service Agent..............................................................45
Custodian and Transfer Agent...............................................46
Use of Name................................................................46
Banking Regulatory Matters.................................................46
Counsel and Independent Accountants........................................47

ORGANIZATION OF THE TRUST.......................................................47

TAXATION........................................................................48
Taxation of the Fund.......................................................48
Distributions..............................................................49
Taxation of the Portfolio..................................................49
Sale of Shares.............................................................50
Foreign Withholding Taxes..................................................50
Backup Withholding.........................................................50
Foreign Shareholders.......................................................50
Other Taxation.............................................................51

FINANCIAL STATEMENTS............................................................51

APPENDIX........................................................................52

</TABLE>

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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

Investment Objective

The investment objective of the Fund is long-term capital appreciation. The Fund
will pursue this objective by investing primarily in stocks and other equity
securities of small companies in developed countries outside the United States.
The Fund focuses on countries domiciled in, or doing business in Canada, Japan,
the United Kingdom, Germany, France, Switzerland, the Netherlands, Sweden, Hong
Kong, Italy, Norway, Denmark and Spain. The Adviser considers "small" companies
to be those with market valuations at the time of investment generally below $1
billion in "free float" assets. Free float assets represent the portion of
uncommitted company stock that is freely traded and accessible to investors
(e.g., the company may have a market capitalization of greater than $1 billion,
but a portion of the company's shares are not tradable because of a strategic
holding by a holding company or significant family ownership). However, the
investment does not need to be sold if the free floating market capitalization
increases to more than $1 billion after purchase. There can, of course, be no
assurance that the Fund will achieve its investment objective.

Investment Policies

The Fund seeks to achieve its investment objective by investing all of its
respective assets in the Portfolio. The Trust may withdraw the Fund's investment
from the Portfolio at any time if the Board of Trustees of the Trust determines
that it is in the best interests of the Fund to do so.

Since the investment characteristics of the Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio. There can be no assurances that the
investment objective of either the Fund or the Portfolio will be achieved. The
investment objective of the Fund and the Portfolio is not a fundamental policy
and may be changed upon notice to but without the approval of the Fund's
shareholders or the Portfolio's investors, respectively.

Generally, the Fund will focus its investments in companies with market
capitalization around $500 million. Bankers Trust will seek to identify and
invest in low capitalization equities that will grow substantially over 3 to 5
years and to provide returns in excess of the Salomon Brothers Extended Market
Index of the World ex-U.S. (Total). It is expected under normal conditions that
at least 65% of the Portfolio's assets will be invested in the equity securities
of smaller companies based in at least three countries other than the United
States.

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In countries and regions where capital markets are underdeveloped or not easily
accessed and information is difficult to obtain, the Portfolio may choose to
invest only at the market level. Here, to the extent available and consistent
with applicable regulations, the Portfolio may seek to achieve country exposure
through the use of options on futures based on an established local index or
through investment in other registered investment companies.

The Portfolio invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter markets
and may invest in restricted unlisted securities.

The Portfolio may also utilize the following investments and investment
techniques and practices.

Equity Securities. As used herein, "equity securities" are defined as common
stock, preferred stock, trust or limited partnership interests, rights and
warrants to subscribe to or purchase such securities, sponsored or unsponsored
ADRs, EDRs, GDRs, and convertible securities, consisting of debt securities or
preferred stock that may be converted into common stock or that carry the right
to purchase common stock. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. Although equity securities have a
history of long-term growth in value, their prices fluctuate based on changes in
a company's financial condition and on overall market and economic conditions.
Smaller companies are especially sensitive to these factors.

Debt Securities. Although not a principal investment, the Portfolio may invest
in debt securities, bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. Debt securities, loans, and
other direct debt have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally more
sensitive to interest rate changes than short-term bonds.

Lower-quality foreign government debt securities are often considered to be
speculative and involve greater risk of default or price changes, or they may
already be in default. These risks are in addition to the general risks
associated with foreign securities. The Portfolio expects to invest in debt
securities in one of the top four rating categories by Standard & Poor's Ratings
Service ("S&P") or Moody's Investors Service, Inc. ("Moody's"), or comparably
rated by another nationally recognized statistical rating organization
("NRSRO"), or, if not rated by a NRSRO, of comparable quality as determined by
the Adviser at its sole discretion.

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Convertible Securities. A convertible security is a bond or preferred stock
which may be converted at a stated price within a specific period of time into a
specified number of shares of common stock of the same or different issuer.
Convertible securities are senior to common stock in a corporation's capital
structure, but usually are subordinated to non-convertible debt securities.
While providing a fixed income stream--generally higher in yield than in the
income derived from a common stock but lower than that afforded by a
non-convertible debt security--a convertible security also affords an investor
the opportunity, through its conversion feature, to participate in the capital
appreciation of common stock into which it is convertible.

In general, the market value of a convertible security is the higher of its
investment value (its value as a fixed income security) or its conversion value
(the value of the underlying shares of common stock if the security is
converted). As a fixed income security, the market value of a convertible
security generally increases when interest rates decline and generally decreases
when interest rates rise; however, the price of a convertible security generally
increases as the market value of the underlying stock increases, and generally
decreases as the market value of the underlying stock declines. Investments in
convertible securities generally entail less risk than investments in the common
stock of the same issuer.

Preferred Stock. Preferred stock has a preference in liquidation (and, generally
dividends) over common stock but is subordinated in liquidation to debt. As a
general rule the market value of preferred stocks with fixed dividend rates and
no conversion rights varies inversely with interest rates and perceived credit
risk, with the price determined by the dividend rate. Some preferred stocks are
convertible into other securities, for example common stock, at a fixed price
and ratio or upon the occurrence of certain events. The market price of
convertible preferred stocks generally reflects an element of conversion value.
Because many preferred stocks lack a fixed maturity date, these securities
generally fluctuate substantially in value when interest rates change; such
fluctuations often exceed those of long-term bonds of the same issuer. Some
preferred stocks pay an adjustable dividend that may be based on an index,
formula, auction procedure or other dividend rate reset mechanism. In the
absence of credit deterioration, adjustable rate preferred stocks tend to have
more stable market values than fixed rate preferred stocks.

5
<PAGE>

All preferred stocks are also subject to the same types of credit risks of the
issuer as corporate bonds. In addition, because preferred stock is junior to
debt securities and other obligations of an issuer, deterioration in the credit
rating of the issuer will cause greater changes in the value of a preferred
stock than in a more senior debt security with similar yield characteristics.
Preferred stocks may be rated by S&P and Moody's although there is no minimum
rating which a preferred stock must have (and a preferred stock may not be
rated) to be an eligible investment for the Portfolio. The Adviser expects,
however, that generally the preferred stocks in which the Portfolio invests will
be rated at least CCC by S&P or Caa by Moody's or, if unrated, of comparable
quality in the opinion of the Adviser. Preferred stocks rated CCC by S&P are
regarded as predominantly speculative with respect to the issuer's capacity to
pay preferred stock obligations and represent the highest degree of speculation
among securities rated between BB and CCC; preferred stocks rated Caa by Moody's
are likely to be in arrears on dividend payments. Moody's rating with respect to
preferred stocks does not purport to indicate the future status of payments of
dividends.

Warrants. Warrants are instruments which entitle the holder to buy underlying
equity securities at a specific price for a specific period of time. A warrant
tends to be more volatile than its underlying securities and ceases to have
value if it is not exercised prior to its expiration date. In addition, changes
in the value of a warrant do not necessarily correspond to changes in the value
of its underlying securities.

U.S. Government Securities. U.S. government securities are high-quality debt
securities issued or guaranteed by the U.S. Treasury or by an agency or
instrumentality of the U.S. government. Not all U.S. government securities are
backed by the full faith and credit of the United States. For example,
securities issued by the Farm Credit Banks or by the Federal National Mortgage
Association are supported by the instrumentality's right to borrow money from
the U.S. Treasury under certain circumstances. However, securities issued by
other agencies or instrumentalities are supported only by the credit of the
entity that issued them.

ADRs, GDRs and EDRs. American Depository Receipts ("ADRs"), Global Depository
Receipts ("GDRs"), and European Depository Receipts ("EDRs") are certificates
evidencing ownership of shares of a foreign-based issuer held in trust by a bank
or similar financial institution. Designed for use in U.S., international and
European securities markets, respectively, ADRs, GDRs and EDRs are alternatives
to the purchase of the underlying securities in their national markets and
currencies. ADRs, GDRs and EDRs are subject to the same risks as the foreign
securities to which they relate.

6
<PAGE>

Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.

7
<PAGE>

Rule 144A Securities. Rule 144A Securities are securities in the United States
that are not registered for sale under federal securities laws but which can be
resold to institutions under SEC Rule 144A. Provided that a dealer or
institutional trading market in such securities exists, these restricted
securities are treated as exempt from the 15% limit on illiquid securities.
Under the supervision of the Board of Trustees of the Portfolio, the Adviser
determines the liquidity of restricted securities and, through reports from the
Adviser, the Board will monitor trading activity in restricted securities. If
institutional trading in restricted securities were to decline, the liquidity of
the Portfolio could be adversely affected.

When-Issued and Delayed Delivery Securities. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuations during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio identifies, as part of a segregated
account, cash or liquid securities in an amount at least equal to these
commitments.

Repurchase Agreements. In a repurchase agreement, the Portfolio buys a security
at one price and simultaneously agrees to sell it back at a higher price at a
future date. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent.

8
<PAGE>

Investment Companies. With respect to certain countries in which capital markets
are either less developed or not easily accessed, investments by the Portfolio
may be made through investment in other registered investment companies that in
turn are authorized to invest in the securities of such countries. Investments
in other investment companies may also be made for other purposes, such as noted
below under "Short-Term Instruments," are limited in amount under the Investment
Company Act of 1940, as amended (the "1940 Act") (except the Portfolio may
exceed the applicable percentage limits to the extent permitted by an exemptive
order of the SEC), and will involve the indirect payment of a portion of the
expenses, including advisory fees, of such other investment companies and may
result in a duplication of fees and expenses.

9
<PAGE>

Derivatives. The Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.

Currency Exchange Transactions. Because the Portfolio may buy and sell
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio from time to time may enter into currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.

Forward Currency Exchange Contracts. A forward currency exchange contract is an
obligation by the Portfolio to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract.
Forward currency exchange contracts establish an exchange rate at a future date.
These contracts are transferable in the interbank market conducted directly
between currency traders (usually large commercial banks and brokerages) and
their customers. A forward currency exchange contract may not have a deposit
requirement and may be traded at a net price without commission. The Portfolio
maintains with its custodian a segregated account of cash or liquid securities
in an amount at least equal to its obligations under each forward currency
exchange contract. Neither spot transactions nor forward currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.

10
<PAGE>

The Portfolio may enter into currency hedging transactions in an attempt to
protect against changes in currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Adviser's long-term investment
decisions, the Portfolio will not routinely enter into currency hedging
transactions with respect to security transactions; however, the Adviser
believes that it is important to have the flexibility to enter into currency
hedging transactions when it determines that the transactions would be in the
Portfolio's best interest. Although these transactions tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.

11
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12
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Options on Securities. The Portfolio may write and purchase put and call options
on stocks. A call option gives the purchaser of the option the right to buy, and
obligates the writer to sell, the underlying stock at the exercise price at any
time during the option period. Similarly, a put option gives the purchaser of
the option the right to sell, and obligates the writer to buy, the underlying
stock at the exercise price at any time during the option period. A covered call
option, which is a call option with respect to the underlying Portfolio stock,
is sold by exposing the Portfolio during the term of the option to possible loss
of opportunity to realize appreciation in the market price of the underlying
stock or to possible continued holding of a stock which might otherwise have
been sold to protect against depreciation in the market price of the stock. The
Portfolio may also write (sell) covered call and put options to a limited extent
on its portfolio securities ("covered options") in an attempt to increase
income. However, the Portfolio may forgo the benefits of appreciation on
securities sold or may pay more than the market price on securities acquired
pursuant to call and put options written by the Portfolio.

13
<PAGE>

When the Portfolio writes a covered call option, it gives the purchaser of the
option the right to buy the underlying security at the price specified in the
option (the "exercise price") by exercising the option at any time during the
option period. If the option expires unexercised, the Portfolio will realize
income in an amount equal to the premium received for writing the option. If the
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must sell the underlying security to the option holder at the exercise
price. By writing a covered call option, the Portfolio forgoes, in exchange for
the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the underlying
security above the exercise price. In addition the Portfolio may continue to
hold a stock which might otherwise have been sold to protect against
depreciation in the market price of the stock.

The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.

14
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15
<PAGE>

The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with which the Portfolio enters into such
options transactions under the general supervision of the Portfolio's Trustees.
Unless the Trustees conclude otherwise, each Portfolio intends to treat OTC
options as not readily marketable and therefore subject to each Portfolio's 15%
limitation on investment in illiquid securities. The Portfolio intends to treat
OTC Options purchased and the assets used to "cover" OTC Options written as not
readily marketable and therefore subject to the limitations described in
"Investment Restrictions."

The Portfolio may, to the extent allowed by federal and state securities laws,
invest in securities indices instead of investing directly in individual foreign
securities.

16
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Options on Foreign Stock Indices. The Portfolio may purchase and write put and
call options on foreign stock indices listed on domestic and foreign stock
exchanges. The Portfolio may also purchase and write OTC Options on foreign
stock indices. These OTC Options would be subject to the same liquidity and
credit risks noted above with respect to OTC Options on foreign currencies. A
stock index fluctuates with changes in the market values of the stocks included
in the index.

Unless the parties provide for it, no central clearing or guaranty function is
involved in an OTC Option. As a result, if a Counterparty fails to make or take
delivery of the security, currency or other instrument underlying an OTC Option
it has entered into with the Portfolio or fails to make a cash settlement
payment due in accordance with the terms of that option, the Portfolio will lose
any premium it paid for the option as well as any anticipated benefit of the
transaction. Thus, Bankers Trust must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC Option will be met.

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Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Portfolio will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Portfolio of options on stock indices will be subject to
Bankers Trust's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.

Certificates of Deposit and Bankers' Acceptances. Certificates of deposit are
receipts issued by a depository institution in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate. The certificate usually
can be traded in the secondary market prior to maturity. Bankers' acceptances
typically arise from short-term credit arrangements designed to enable
businesses to obtain funds to finance commercial transactions. Generally, an
acceptance is a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise. The draft is
then "accepted" by a bank that, in effect, unconditionally guarantees to pay the
face value of the instrument on its maturity date. The acceptance may then be
held by the accepting bank as an earning asset or it may be sold in the
secondary market at the going rate of discount for a specific maturity. Although
maturities for acceptances can be as long as 270 days, most acceptances have
maturities of six months or less.

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For a description of commercial paper ratings see Appendix.

Futures Contracts and Options on Futures Contracts.

General. The successful use of futures contracts and options thereon draws upon
the Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.

Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchanges and
clear through their clearing corporations. A Portfolio may enter into contracts
for the purchase or sale for future delivery of fixed-income securities, foreign
currencies, or financial indices including any index of U.S. government
securities, foreign government securities or corporate debt securities. A
Portfolio may enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association ("GNMA") modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. A Portfolio may also enter into futures
contracts which are based on bonds issued by governments other than the U.S.
government. Futures contracts on foreign currencies may be used to hedge against
securities that are denominated in foreign currencies.

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At the same time a futures contract is entered into, a Portfolio must allocate
cash or securities as a deposit payment ("initial margin"). Initial margin
deposits are set by exchanges and may range between 1% and 10% of a contract's
face value. Daily thereafter, the futures contract is valued and the payment of
"variation margin" may be required, since each day the Portfolio would provide
or receive cash that reflects any decline or increase in the contract's value.

20
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Options on Futures Contracts. The Portfolio may purchase and write options on
futures contracts for hedging purposes.

The purchase of a call option on a futures contract is similar in some respects
to the purchase of a call option on an individual security. For example, when
the Portfolio is not fully invested it may purchase a call option on an interest
rate sensitive futures contract to hedge against a potential price increase on
debt securities due to declining interest rates. The purchase of a put option on
a futures contract is similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Portfolio may purchase a put
option on an interest rate sensitive futures contract to hedge its portfolio
against the risk of a decline in the prices of debt securities and to rising
interest rates.

The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of portfolio securities which are the same as or
correlate with the security or currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the option is below
the exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in the Portfolio's portfolio holdings. The writing of a put option on a
futures contract may constitute a partial hedge against increasing prices of the
security or foreign currency which is deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss which will be reduced
by the amount of the premium it receives. Depending on the degree of correlation
between changes in the value of its portfolio securities and changes in the
value of its futures positions, the Portfolio's losses from existing options on
futures may to some extent be reduced or increased by changes in the value of
portfolio securities.

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The amount of risk the Portfolio assumes when it purchases an option on a
futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.

Futures Contracts on Foreign Stock Indices. The Portfolio may enter into futures
contracts providing for a cash settlement based upon changes in the value of an
index of foreign securities. This investment technique is designed only to hedge
against anticipated future change in general market prices which otherwise might
either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be purchased at
a later date for the Portfolio.

In general, each transaction in futures contracts on a securities index involves
the establishment of a position which the Adviser believes will move in a
direction opposite to that of the investment being hedged. If these hedging
transactions are successful, the futures positions taken for the Portfolio will
rise in value by an amount which approximately offsets the decline in value of
the portion of the Portfolio's investments that are being hedged. Should general
market prices move in an unexpected manner, the full anticipated benefits of
futures contracts may not be achieved or a loss may be realized.

Although futures contracts on securities indices would be entered into for
hedging purposes only, such transactions do involve certain risks.

These risks could include a lack of correlation between the futures contract and
the foreign equity market being hedged, and incorrect assessments of market
trends which may result in poorer overall performance than if a futures contract
had not been entered into.

Asset Coverage. To assure that the Portfolio's use of futures and related
options, as well as when-issued and delayed-delivery securities and foreign
currency exchange transactions, are not used to achieve investment leverage, the
Portfolio will cover such transactions, as required under applicable
interpretations of the SEC, either by owning the underlying securities or by
segregating with the Portfolio's Custodian or futures commission merchant liquid
securities in an amount at all times equal to or exceeding the Portfolio's
commitment with respect to these instruments or contracts.

22
<PAGE>

Investment Restriction on Futures Transactions. A Portfolio will not enter into
any futures contracts or options on futures contracts if immediately thereafter
the amount of margin deposits on all the futures contracts of the Portfolio and
premiums paid on outstanding options on futures contracts owned by the Portfolio
(other than those entered into for bona fide hedging purposes) would exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts.

Additional Risk Factors

In addition to the risks discussed above, some of the Portfolio's investments
may be subject to the following risk factors:

Derivatives. The Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.

23
<PAGE>

Foreign Securities. The Portfolio will, under normal market conditions, invest
in a significant portion of its assets in foreign securities. Although the
Portfolio intends to invest primarily in securities of established companies
based in developed countries, investors should realize that the value of the
Portfolio's investments may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. Any foreign investments
made by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.

Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. Generally, the Portfolio's currency exchange transactions will
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange, the Portfolio is
authorized to enter into certain foreign currency exchange transactions.

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<PAGE>

Foreign Securities: Emerging Markets. The world's industrialized markets
generally include but are not limited to the following: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy,
Japan, Luxembourg, Malaysia, Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United
States; the world's emerging markets generally include but are not limited to
the following: Argentina, Botswana, Bolivia, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, the Czech Republic, Ecuador, Egypt, Greece, Hungary,
India, Indonesia, Israel, the Ivory Coast, Jordan, Korea, Mexico, Morocco,
Nicaragua, Nigeria, Pakistan, Peru, Philippines, Poland, Romania, Russia,
Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan, Thailand,
Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.

In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of a Portfolio to make intended securities purchases due to settlement
problems could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of a security due to settlement problems could result
either in losses to the Portfolio due to subsequent declines in the value of the
security or, if the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.

25
<PAGE>

Foreign Securities: Special Considerations Concerning Eastern Europe. The
Portfolio may invest in foreign securities issued by Eastern European countries.
Investments in companies domiciled in Eastern European countries may be subject
to potentially greater risks than those of other foreign issuers. These risks
include: (i) potentially less social, political and economic stability; (ii) the
small current size of the markets for such securities and the low volume of
trading, which result in less liquidity and in greater price volatility; (iii)
certain national policies which may restrict the Portfolio's investment
opportunities, including restrictions on investment in issuers or industries
deemed sensitive to national interests; (iv) foreign taxation; (v) the absence
of developed legal structures governing private or foreign investment or
allowing for judicial redress for injury to private property; (vi) the absence,
until recently in certain Eastern European countries, of a capital market
structure or market-oriented economy; and (vii) the possibility that recent
favorable economic developments in Eastern Europe may be slowed or reversed by
unanticipated political or social events in such countries, or in the
Commonwealth of Independent States (consisting of the Republics of the former
Union of Soviet Socialist Republics).

The economic situation remains difficult for Eastern European countries in
transition from central planning, following what has already been a sizable
decline in output. The contraction now appears to be bottoming out in parts of
Eastern Europe. Following three successive years of output declines, there are
preliminary indications of a turnaround in the former Czech and Slovak Federal
Republic, Hungary and Poland; growth in private sector activity and strong
exports now appear to have contained the fall in output. A number of their
governments, including those of Hungary and Poland, are currently implementing
or considering reforms directed at political and economic liberalization,
including efforts to foster multi-party political systems, decentralize economic
planning, and a move toward free-market economies. But key aspects of the reform
and stabilization efforts have not yet been fully implemented, and there remain
risks of policy slippage. At present, no Eastern European country has a
developed stock market, but Poland, Hungary and the Czech Republic have small
securities markets in operation.

In many other countries of the region, output losses have been even larger.
These declines reflect the adjustment difficulties during the early stages of
the transition, high rates of inflation, the compression of imports, disruption
in trade among the countries of the former Soviet Union, and uncertainties about
the reform process itself. Large-scale subsidies are delaying industrial
restructuring and are exacerbating the fiscal situation. A reversal of these
adverse factors is not anticipated in the near term, and output is expected to
decline further in most of these countries. In the Russian Federation and most
other countries of the former Soviet Union, economic conditions are of
particular concern because of economic instability due to political unrest and
armed conflicts in many regions. Further, no accounting standards exist in
Eastern European countries. Although certain Eastern European currencies may be
convertible into U.S. dollars, the conversion rates may be artificial to the
actual market values and may be adverse to each Fund's shareholders.

26
<PAGE>

Foreign Securities: Special Considerations Concerning Latin America. Investing
in securities of Latin American issuers may entail risks relating to the
potential political and economic instability of certain Latin American countries
and the risks of expropriation, nationalization, confiscation or the imposition
of restrictions on foreign investment and on repatriation of capital invested.
In the event of expropriation, nationalization or other confiscation by any
country, the Fund could lose its entire investment in any such country.

The securities markets of Latin American countries are substantially smaller,
less developed, less liquid and more volatile than the major securities markets
in the U.S. Disclosure and regulatory standards are in many respects less
stringent than U.S. standards. Furthermore, there is a lower level of monitoring
and regulation of the markets and the activities of investors in such markets.

The limited size of many Latin American securities markets and limited trading
volume in the securities of Latin American issuers compared to volume of trading
in the securities of U.S. issuers could cause prices to be erratic for reasons
apart from factors that affect the soundness and competitiveness of the
securities issuers. For example, limited market size may cause prices to be
unduly influenced by traders who control large positions. Adverse publicity and
investors' perceptions, whether or not based on in-depth fundamental analysis,
may decrease the value and liquidity of portfolio securities.

The economies of Latin American countries may be predominantly based in only a
few industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens or inflation
rates. Securities of issuers located in Latin America may have limited
marketability and may be subject to more abrupt or erratic price movements.

The Portfolio invests in securities denominated in currencies of Latin American
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Portfolio's assets denominated in those currencies.

Some Latin American countries also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, there is risk that certain
Latin American countries may restrict the free conversion of their currencies
into other currencies. Further, certain Latin American currencies may not be
internationally traded. Certain of these currencies have experienced a steep
devaluation relative to the U.S. dollar. Any devaluations in the currencies in
which the Portfolio's securities are denominated may have a detrimental impact
on the Fund's net asset value.

27
<PAGE>

The economies of individual Latin American countries may differ favorably or
unfavorably from the U.S. economy in such respects as the rate of growth of
gross domestic product, the rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Certain Latin American
countries have experienced high levels of inflation which can have a
debilitating effect on an economy. Furthermore, certain Latin American countries
may impose withholding taxes on dividends payable to the Portfolio at a higher
rate than those imposed by other foreign countries. This may reduce the Fund's
investment income available for distribution to shareholders.

Certain Latin American countries such as Argentina, Brazil and Mexico are among
the world's largest debtors to commercial banks and foreign governments. At
times, certain Latin American countries have declared moratoria on the payment
of principal and/or interest on outstanding debt. Investment in sovereign debt
can involve a high degree of risk. The governmental entity that controls the
repayment of sovereign debt may not be able or willing to repay the principal
and/or interest when due in accordance with the terms of such debt. A
governmental entity's willingness or ability to repay principal and interest due
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the governmental entity's policy
towards the International Monetary Fund, and the political constraints to which
a governmental entity may be subject. Governmental entities may also be
dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearage on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a governmental entity's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms, achieve
such levels of economic performance or repay principal or interest when due may
result in the cancellation of such third parties' commitments to lend funds to
the governmental entity, which may further impair such debtor's ability or
willingness to service its debts in a timely manner. Consequently, governmental
entities may default on their sovereign debt.

Holders of sovereign debt, including the Portfolio, may be requested to
participate in the rescheduling of such debt and to extend further loans to
governmental entities. There is no bankruptcy proceeding by which defaulted
sovereign debt may be collected in whole or in part.

28
<PAGE>

Foreign Securities: Special Considerations Concerning the Pacific Basin. Many
Asian countries may be subject to a greater degree of social, political and
economic instability than is the case in the United States and European
countries. Such instability may result from (i) authoritarian governments or
military involvement in political and economic decision-making; (ii) popular
unrest associated with demands for improved political, economic and social
conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring
countries; and (v) ethnic, religious and racial disaffection.

The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.

The securities markets in Asia are substantially smaller, less liquid and more
volatile than the major securities markets in the United States. A high
proportion of the shares of many issuers may be held by a limited number of
persons and financial institutions, which may limit the number of shares
available for investment by the Portfolio. Similarly, volume and liquidity in
the bond markets in Asia are less than in the United States and, at times, price
volatility can be greater than in the United States. A limited number of issuers
in Asian securities markets may represent a disproportionately large percentage
of market capitalization and trading value. The limited liquidity of securities
markets in Asia may also affect the Portfolio's ability to acquire or dispose of
securities at the price and time it wishes to do so. Accordingly, during periods
of rising securities prices in the more illiquid Asian securities markets, the
Portfolio's ability to participate fully in such price increases may be limited
by its investment policy of investing not more than 15% of its net assets in
illiquid securities. Conversely, the Portfolio's inability to dispose fully and
promptly of positions in declining markets will cause the Portfolio's net asset
value to decline as the value of the unsold positions is marked to lower prices.
In addition, the Asian securities markets are susceptible to being influenced by
large investors trading significant blocks of securities.

Many stock markets are undergoing a period of growth and change which may result
in trading volatility and difficulties in the settlement and recording of
transactions, and in interpreting and applying the relevant law and regulations.

The Portfolio invests in securities denominated in currencies of Asian
countries. Accordingly, changes in the value of these currencies against the
U.S. dollar will result in corresponding changes in the U.S. dollar value of the
Portfolio's assets denominated in those currencies.

29
<PAGE>

Foreign Securities: Special Considerations Concerning China and China Region.
China's economic reform plan was designed to bring in foreign investment capital
and technological skills. The result has been a move towards a more mixed
economy away from the previous centrally planned economy. The process of
devolving responsibility for all aspects of enterprise to local management and
authorities continues, even though the system of socialism with Chinese
characteristics involves considerable influence by the central government on
production and marketing.

In order to attract foreign investment, China has since 1978 designated certain
areas of the country where overseas investors can receive special investment
incentives and tax concessions. There are five Special Economic Zones (Shenzhen,
Shantou and Zhuhai in Guangdong Province, Xiamen in Fujian Province and Hainan
Island, which itself is a province). Fourteen coastal cities have been
designated as "open cities" and certain Open Economic Zones have been
established in coastal areas. Shanghai has established the Pudong New Area.
Twenty-seven High and New Technology Industrial Development Zones have been
approved where preferential treatment is given to enterprises which are
confirmed as technology intensive.

China has had for many centuries a well deserved reputation for being closed to
foreigners, with trade with the outside world being carried on under terms of
extreme restriction and under central control. Such conditions were maintained
in the first thirty years of the Communist regime which began in 1949; however,
there have been several stages of evolution, from the institution of an
industrialization program in the 1950s to a modernization policy commencing in
1978 which combined economic development with the beginnings of opening the
country.

China governmental actions can have a significant effect on the economic
conditions in China, which could adversely affect the value and liquidity of the
Portfolio's investments. Although the Chinese government has recently begun to
institute economic reform policies, there can be no assurances that it will
continue to pursue such policies or, if it does, that such policies will
succeed.

The securities industry in China is not well developed. China has no securities
laws of nationwide applicability. The municipal securities regulations adopted
by Shanghai and Shenzhen municipalities are very new, as are their respective
securities exchanges and other self-regulatory organizations. In addition,
Chinese stockbrokers and other intermediaries may not perform as well as their
counterparts in the United States and other more developed securities markets.
The prices at which the Portfolio may acquire investments may be affected by
trading by persons with material non-public information and by securities
transactions by brokers in anticipation of transactions by the Portfolio in
particular securities.

30
<PAGE>

China does not have a comprehensive system of laws, although substantial changes
have occurred in this regard in recent years. The corporate form of organization
has only recently been permitted in China and national regulations governing
corporations were introduced only in May 1992. Prior to the introduction of such
regulations, Shanghai had adopted a set of corporate regulations applicable to
corporations located or listed in Shanghai, and the relationship between the two
sets of regulations is not clear. Consequently, until a firmer legal basis is
provided, even such fundamental corporate law tenets as the limited liability
status of Chinese issuers and their authority to issue shares remain open to
question. Laws regarding fiduciary duties of officers and directors and the
protection of shareholders are not well developed. China's judiciary is
relatively inexperienced in enforcing the laws that exist, leading to a higher
than usual degree of uncertainty as to the outcome of any litigation. Even where
adequate law exists in China, it may be impossible to obtain swift and equitable
enforcement of such law, or to obtain enforcement of the judgment by a court of
another jurisdiction. The bankruptcy laws pertaining to state enterprises have
rarely been used and are untried in regard to an enterprise with foreign
shareholders, and there can be no assurance that such shareholders, including
the Portfolio, would be able to realize the value of the assets of the
enterprise or receive payment in convertible currency. As the Chinese legal
system develops, the promulgation of new laws, changes to existing laws and the
preemption of local laws by national laws may adversely affect foreign
investors, including the Portfolio. The uncertainties faced by foreign investors
in China are exacerbated by the fact that many laws, regulations and decrees of
China are not publicly available, but merely circulated internally.

There are currently two officially recognized securities exchanges in China --
The Shanghai Securities Exchange which opened in December 1990 and The Shenzhen
Stock Exchange which opened in July 1991. Shares traded on these Exchanges are
two types -- "A" shares which can be traded only by Chinese investors and "B"
shares which can be traded only by individuals and corporations not resident in
China.

In Shanghai, all "B" shares are denominated in Chinese renminbi ("RMB"), but all
transactions in "B" shares must be settled in U.S. dollars, and all
distributions made on "B" shares are payable in U.S. dollars, the exchange rate
being the weighted average exchange rate for the U.S. dollar as published by the
Shanghai Foreign Exchange Adjustment Centre.

In Shenzhen, the purchase and sale prices for "B" shares are quoted in Hong Kong
dollars. Dividends and other lawful revenue derived from "B" shares are
calculated in RMB but payable in Hong Kong dollars, the rate of exchange being
the average rate published by Shenzhen Foreign Exchange Adjustment Centre.

31
<PAGE>

There are no foreign exchange restrictions on the repatriation of gains made on
or income derived from "B" shares, subject to the payment of taxes imposed by
China thereon.

Company law relating to companies limited by shares and regulations regarding
the issuing of shares by equity joint ventures have not yet been developed on a
national basis. The Shenzhen municipality issued regulations in 1992 relating to
joint stock companies, and the Shanghai municipality has a draft joint stock
company law under review. Regulations governing the trading of securities on
both the Shenzhen and the Shanghai stock exchanges have been issued by each
municipality; there is no national securities legislation as yet.

Economies of countries in the China region may differ favorably or unfavorably
from the U.S. economy in such respects as rate of growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. As an export-driven economy, the economy of China
is affected by developments in the economies of its principal trading partners.
Revocation by the United States of China's "Most Favored Nation" trading status,
which the U.S. President and Congress reconsider annually, would adversely
affect the trade and economic development of China and Hong Kong. Hong Kong and
Taiwan have limited natural resources, resulting in dependence on foreign
sources for certain raw materials and economic vulnerability to global
fluctuations of price and supply.

Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by the Portfolio in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as principals, although foreign currency
options are also traded on certain national securities exchanges such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.

32
<PAGE>

Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.

33
<PAGE>

Rating Services. The ratings of rating services represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require the Portfolio to eliminate the obligation from its
portfolio, but the Adviser will consider such an event in its determination of
whether the Portfolio should continue to hold the obligation. A description of
the ratings is included in the Appendix herein.

Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio.

34
<PAGE>

For example, if a large fund withdraws from the Portfolio, the remaining funds
may experience higher pro rata operating expenses, thereby producing lower
returns (however, this possibility exists as well for traditionally structured
funds which have large institutional investors). Additionally, the Portfolio may
become less diverse, resulting in increased portfolio risk. Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting control
of the operations of the Portfolio. Except as permitted by the SEC, whenever the
Trust is requested to vote on matters pertaining to the Portfolio, the Trust
will hold a meeting of shareholders of the Fund and will cast all of its votes
in the same proportion as the votes of the Fund's shareholders. Fund
shareholders who do not vote will not affect the Trust's votes at the Portfolio
meeting. The percentage of the Trust's votes representing the Fund's
shareholders not voting will be voted by the Trustees or officers of the Trust
in the same proportion as the Fund shareholders who do, in fact, vote.

Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.

35
<PAGE>

Investment Restrictions

Fundamental Policies. The following investment restrictions are "fundamental
policies" of the Fund and the Portfolio and may not be changed with respect to
the Fund or the Portfolio without the approval of a "majority of the outstanding
voting securities" of the Fund or the Portfolio, as the case may be. "Majority
of the outstanding voting securities" under the 1940 Act, and as used in this
SAI, means, with respect to the Fund (or the Portfolio), the lesser of (i) 67%
or more of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio) present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio) are present or represented by proxy or
(ii) more than 50% of the outstanding voting securities of the Fund (or of the
total beneficial interests of the Portfolio). Whenever the Trust is requested to
vote on a fundamental policy of the Portfolio, the Trust will hold a meeting of
the Fund's shareholders and will cast its vote as instructed by the Fund's
shareholders. Fund shareholders who do not vote will not affect a Trust's votes
at the Portfolio meeting. The percentage of the Trust's votes representing Fund
shareholders not voting will be voted by the Trustees of a Trust in the same
proportion as the Fund's shareholders who do, in fact, vote.

As a matter of fundamental policy, no Portfolio (or Fund) may (except that no
investment restriction of the Fund shall prevent the Fund from investing all of
its Assets in an open-end investment company with substantially the same
investment objectives):

(1) borrow money (including through reverse repurchase agreements or
dollar roll transactions) in excess of 5% of the Portfolio's (Fund's)
total assets (taken at cost), except that the Portfolio may borrow for
temporary or emergency purposes up to 1/3 of its total assets. The
Portfolio (Fund) may pledge, mortgage or hypothecate not more than 1/3
of such assets to secure such borrowings provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered a pledge of
assets for purposes of this restriction and except that assets may be
pledged to secure letters of credit solely for the purpose of
participating in a captive insurance company sponsored by the Investment
Company Institute;

(2) underwrite securities issued by other persons except insofar as the
Portfolio (Trust or the Fund) may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;

36
<PAGE>

(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such
loans not exceed 30% of the Portfolio's (Fund's) total assets (taken at
market value); (b) through the use of repurchase agreements or the
purchase of short-term obligations; or (c) by purchasing a portion of an
issue of debt securities of types distributed publicly or privately;

(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except futures and option contracts) in the
ordinary course of business (except that the Portfolio (Fund) may hold
and sell, for the Portfolio's (Fund's) portfolio, real estate acquired
as a result of the Portfolio's (Fund's) ownership of securities);

(5) concentrate its investments in any particular industry (excluding
U.S. government securities), but if it is deemed appropriate for the
achievement of the Portfolio's (Fund's) investment objective(s), up to
25% of its total assets may be invested in any one industry;

(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction;

Additional Restrictions. The following are non-fundamental policies. In
order to comply with certain statutes and policies, the Portfolio (or
the Trust, on behalf of the Fund) will not as a matter of operating
policy (except that no operating policy shall prevent a Fund from
investing all of its Assets in an open-end investment company with
substantially the same investment objectives):

37
<PAGE>

(i) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance
of purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of futures;

(ii) invest for the purpose of exercising control or management of
another company;

(iii) purchase securities issued by any investment company (except when
such purchase, though not made in the open market, is part of a plan of
merger or consolidation); if such purchase at the time thereof would
cause: (a) more than 10% of the Portfolio's (Fund's) total assets (taken
at the greater of cost or market value) (except the Portfolio may exceed
the applicable percentage limits to the extent permitted by an exemptive
order of the SEC) to be invested in the securities of such issuers; (b)
more than 5% of the Portfolio's (Fund's) total assets (taken at the
greater of cost or market value) (except the Portfolio may exceed the
applicable percentage limits to the extent permitted by an exemptive
order of the SEC) to be invested in any one investment company; or (c)
more than 3% of the outstanding voting securities of any such issuer to
be held for the Portfolio (Fund);

(iv) invest more than 15% of the Portfolio's (Fund's) net assets (taken
at the greater of cost or market value) in securities that are illiquid
or not readily marketable (excluding Rule 144A securities deemed by the
Board of Trustees of the Portfolio (Trust) to be liquid);

(v) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment policies of the Portfolio (Fund) and the option is
issued by the OCC, except for put and call options issued by non-U.S.
entities or listed on non-U.S. securities or commodities exchanges; (b)
the aggregate value of the obligations underlying the puts determined as
of the date the options are sold shall not exceed 5% of the Portfolio's
(Fund's) net assets; (c) the securities subject to the exercise of the
call written by the Portfolio (Fund) must be owned by the Portfolio
(Fund) at the time the call is sold and must continue to be owned by the
Portfolio (Fund) until the call has been exercised, has lapsed, or the
Portfolio (Fund) has purchased a closing call, and such purchase has
been confirmed, thereby extinguishing the Portfolio's (Fund's)
obligation to deliver securities pursuant to the call it has sold; and
(d) at the time a put is written, the Portfolio (Fund) establishes a
segregated account with its custodian consisting of cash or liquid
securities equal in value to the amount the Portfolio (Fund) will be
obligated to pay upon exercise of the put (this account must be
maintained until the put is exercised, has expired, or the Portfolio
(Fund) has purchased a closing put, which is a put of the same series as
the one previously written); and

38
<PAGE>

(vi) buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or financial futures or options on
financial futures unless such options are written by other persons and:
(a) the options or futures are offered through the facilities of a
national securities association or are listed on a national securities
or commodities exchange, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate premiums paid on all such options which are
held at any time do not exceed 20% of the Portfolio's (Fund's) total net
assets; and (c) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the
Portfolio's (Fund's) total assets.

There will be no violation of any investment restriction (except with
respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in
net or total assets or in the change of securities rating of the
investment, or any other later change.

Portfolio Transactions and Brokerage Commissions

39
<PAGE>

The Adviser is authorized, consistent with Section 28(e) of the Securities
Exchange Act of 1934, when placing portfolio transactions for the Portfolio with
a broker to pay a brokerage commission (to the extent applicable) in excess of
that which another broker might have charged for effecting the same transaction
on account of the receipt of research, market or statistical information. The
term "research, market or statistical information" includes advice as to the
value of securities; the advisability of investing in, purchasing or selling
securities; the availability of securities or purchasers or sellers of
securities; and furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts.

Consistent with the policy stated above, the conduct of the National Association
of Securities Dealers, Inc. and such other policies as the Trustees of the
Portfolio may determine, the Adviser may consider sales of shares of the Trust
and of other investment company clients of Bankers Trust as a factor in the
selection of broker-dealers to execute portfolio transactions. Bankers Trust
will make such allocations if commissions are comparable to those charged by
nonaffiliated, qualified broker-dealers for similar services.

40
<PAGE>

For the period June 30, 1998 (commencement of operations), to September 30,
1998, International Small Company Equity Portfolio paid brokerage commissions in
the amount of $1,294.

PERFORMANCE INFORMATION

Standard Performance Information

From time to time, quotations of a Fund's performance may be included in
advertisements, sales literature or shareholder reports. For mutual funds,
performance is commonly measured as total return. The Fund's performance is
affected by its expenses. These performance figures are calculated in the
following manner:

41
<PAGE>

Total return: Total return is the change in value of an investment in
the Fund over a given period, assuming reinvestment of any dividends and
capital gains. A cumulative total return reflects actual performance
over a stated period of time. An average annual total return is a
hypothetical rate of return that, if achieved annually, would have
produced the same cumulative total return if performance had been
constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering
periods of less than one year assume that performance will remain
constant for the rest of the year. A Fund's average annual total return
is calculated for certain periods by determining the average annual
compounded rates of return over those periods that would cause an
investment of $1,000 (made at the maximum public offering price with all
distributions reinvested) to reach the value of that investment at the
end of the periods. A Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.

Total Return For the Period June 30, 1998 (Commencement
of Operations) through September 30, 1998

Institutional International Small Company Equity Fund -19.6

Performance Results: Any total return quotation provided for a Fund
should not be considered as representative of the performance of the
Fund in the future since the net asset value and public offering price
of shares of the Fund will vary based not only on the type, quality and
maturities of the securities held in the corresponding Portfolio, but
also on changes in the current value of such securities and on changes
in the expenses of the Fund and the corresponding Portfolio. These
factors and possible differences in the methods used to calculate total
return should be considered when comparing the total return of a Fund to
total returns published for other investment companies or other
investment vehicles. Total return reflects the performance of both
principal and income.

Performance information may include the Fund's investment results and/or
comparisons of its investment results to the Salomon Brothers Extended
Market Index of the World ex-US (Total), or various other unmanaged
indices or results of other mutual funds or investment or savings
vehicles. The Fund's investment results as used in such communications
will be calculated on a total rate of return basis in the manner set
forth herein. From time to time, fund rankings may be quoted from
various sources, such as Lipper Analytical Services, Inc., Value Line,
and Morningstar, Inc.

42
<PAGE>

The Trust may provide period and average annualized "total return"
quotations for the Shares. The Shares' "total return" refers to the
change in the value of an investment in the Shares over a stated period
based on any change in net asset value per Share and including the value
of any Shares purchased with any dividends or capital gains distributed
during such period. Period total return may be annualized. An annualized
total return is a compounded total return which assumes that the period
total return is generated over a one-year period, and that all dividends
and capital gains distributions are reinvested. An annualized total
return will be higher than a period total return if the period is
shorter than one year, because of the compounding effect.

Unlike some bank deposits or other investments which pay a fixed yield
for a stated period of time, the total return of the Fund will vary
depending upon interest rates, the current market value of the
securities held by the Portfolio and changes in the Shares' expenses.

Comparison of Fund Performance

Asian Wall Street Journal, a weekly Asian newspaper that often reviews
U.S. mutual funds investing internationally.

43
<PAGE>

Barron's, a Dow Jones and Company, Inc. business and financial weekly
that periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing
abroad.

Changing Times, The Kiplinger Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.

Consumer Digest, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time
to time articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a
"Market Watch" department reporting on activities in the mutual fund
industry.

Forbes, a national business publication that from time to time reports
the performance of specific investment companies in the mutual fund
industry.

Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

Investor's Daily, a daily newspaper that features financial, economic
and business news.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of
fund.

Money, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.

Morningstar Inc., a publisher of financial information and mutual fund
research.

44
<PAGE>

New York Times, a nationally distributed newspaper which regularly
covers financial news.

Personal Investing News, a monthly news publication that often reports
on investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that
includes a "Mutual Funds Outlook" section reporting on mutual fund
performance measures, yields, indices and portfolio holdings.

Success, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.

U.S. News and World Report, a national business weekly that periodically
reports mutual fund performance data.

ValueLine, a biweekly publication that reports on the largest 15,000
mutual funds.

Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.

Weisenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records, and price
ranges.

Working Women, a monthly publication that features a "Financial
Workshop" section reporting on the mutual fund/financial industry.

Economic and Market Information

Advertising and sales literature of a Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Fund portfolio managers and their views and
analysis on how such developments could affect the Fund. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute ("ICI").

45
<PAGE>

VALUATION OF SECURITIES; REDEMPTIONS AND PURCHASES IN KIND

Valuation of Securities

Equity and 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 may be
determined through 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 will normally be valued at the bid price. Short-term
debt obligations and money market securities maturing in 60 days or less are
valued at amortized cost, which approximates market.

46
<PAGE>

Purchase of Shares

47
<PAGE>

Certificates for Shares will not be issued. Each shareholder's account will be
maintained by a Service Agent or Transfer Agent.

Minimum Investments

To open an account $5 million

To add to an account $100,000

Minimum Account Balance $500,000

The Fund and its service providers reserve the right to, from time to time in
their discretion, waive or reduce the investment minimums.

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

If you have money invested in a fund in the BT Family of Funds, you can:

o Mail an account application with a check,

o Wire money into your account,

o Open an account by exchanging from another fund in the BT Family of
Funds, or

o Contact your Service Agent or Investment Professional.

<PAGE>
Additional Information About Buying Shares
<TABLE>
<S> <C> <C>

TO OPEN AN ACCOUNT TO ADD TO AN ACCOUNT
By Wire Call the BT Service Center at Call your Investment Professional
1-800-368-4031 to receive wire or wire additional investment to:
instructions for account
establishment. Routing No.: 021001033
Attn.: Bankers Trust/IFTC Deposit
DDA No.: 00-226-296
FBO: (Account name)
(Account Number)
Credit: BT Institutional
International Small Company
Equity Fund - 810

By Mail Complete and sign the account Make your check payable to the
application. Make your check complete name of the Fund of your
payable to the complete name of choice. Indicate your Fund account
the Fund of your choice. Mail to number on your check and mail to the
the appropriate address indicated address printed on your account
on the application. statement.

</TABLE>

49
<PAGE>

Redemption of Shares

You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your Shares.

Your Shares shall be sold at the next NAV calculated after an order is received
by the Transfer Agent. Redemption requests should be transmitted by customers in
accordance with procedures established by the Transfer Agent and the
shareholder's Service Agent. Redemption requests for Shares received by the
Service Agent and transmitted to the Transfer Agent prior to the Valuation Time
on each Valuation Day will be effective at that day's Valuation Time and the
redemption proceeds normally will be delivered to the shareholder's account the
next day, but in any event within seven calendar days following receipt of the
request.

Redemption orders are processed without charge by the Trust. The Trust reserves
the right to close investor accounts via 30 day notice in writing if the Fund
account balance falls below $100,000.

To sell Shares by bank wire you will need to sign up for these services in
advance when completing your account application.

50
<PAGE>

o Your account registration has changed within the last 30 days,

o The check is being mailed to a different address than the one on your
account (record address),

o The check is being made payable to someone other than the account owner,

o The redemption proceeds are being transferred to a BT account with a
different registration, or

o You wish to have redemption proceeds wired to a non-predesignated bank
account.

A signature guarantee is also required if you change the pre-designated bank
information for receiving redemption proceeds on your account.

Additional Information About Selling Shares

BT Service Center
P.O. Box 419210
Kansas City, MO 64141-6210

Overnight mailings:

BT Service Center
210 West 10th Street, 8th Floor
Kansas City, MO 64105-1716

51
<PAGE>

For a Business or Organization account, at least one person authorized
by corporate resolution to act on the account must sign the letter.

Unless otherwise instructed, the Transfer Agent will send a check to the account
address of record.

Exchange Privilege

o Call your Service Agent for information and a prospectus. Read the
prospectus before exchanging into a Fund.

o Complete and sign an application, taking care to register your new
account in the same name, address and taxpayer identification
number as your existing account(s).

o Exchanges out of the Fund may be limited to four per calendar year and
any exchange may have tax consequences for you.

o The Fund reserves the right to terminate or modify the exchange
privilege in the future.

52
<PAGE>

Redemptions and Purchases in Kind

The Trust, on behalf of the Fund, and the Portfolio reserve the right, if
conditions exist which make cash payments undesirable, to honor any request for
redemption or withdrawal by making payment in whole or in part in readily
marketable securities chosen by the Trust, or the Portfolio, as the case may be,
and valued as they are for purposes of computing the Fund's or the Portfolio's
net asset value, as the case may be (a redemption in kind). If payment is made
to a Fund shareholder in securities, an investor, including the Fund, the
shareholder may incur transaction expenses in converting these securities into
cash. The Trust, on behalf of the Fund, and the Portfolio have elected, however,
to be governed by Rule 18f-1 under the 1940 Act as a result of which the Fund
and the Portfolio are obligated to redeem shares or beneficial interests, as the
case may be, with respect to any one investor during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund or
the Portfolio, as the case may be, at the beginning of the period.

The Portfolio has agreed to make a redemption in kind to the Fund whenever a
Fund wishes to make a redemption in kind and therefore shareholders of the Fund
that receive redemptions in kind will receive portfolio securities of the
Portfolio and in no case will they receive a security issued by the Portfolio.
The Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which a Fund is permitted to redeem in kind or unless
requested by a Fund.

Each investor in the Portfolio, including the corresponding Fund, may add to or
reduce its investment in the Portfolio on each day the Portfolio determines its
net asset value. At the close of each such business day, the value of each
investor's beneficial interest in the Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage effective for
that day, which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals which are to be
effected as of the close of business on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the Portfolio
will then be recomputed as the percentage equal to the fraction (i) the
numerator of which is the value of such investor's investment in the Portfolio
as of the close of business on such day plus or minus, as the case may be, the
amount of net additions to or withdrawals from the investor's investment in the
Portfolio effected as of the close of business on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
close of business on such day plus or minus, as the case may be, the amount of
net additions to or withdrawals from the aggregate investments in the Portfolio
by all investors in the Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in the Portfolio as
the close of business on the following business day.

53
<PAGE>

The Fund may, at its own option, accept securities in payment for shares. The
securities delivered in payment for shares are valued by the method described
under "Net Asset Value" as of the day the Fund receives the securities. This may
be a taxable transaction to the shareholder. (Consult your tax adviser for
future tax guidance.) Securities may be accepted in payment for shares only if
they are, in the judgment of Bankers Trust, appropriate investments for the
Fund's portfolio. In addition, securities accepted in payment for shares must:
(i) meet the investment objective and policies of the acquiring Fund's
portfolio; (ii) be acquired by the applicable Fund for investment and not for
resale (other than for resale to the Fund's portfolio); (iii) be liquid
securities which are not restricted as to transfer either by law or liquidity of
the market; and (iv) if stock, have a value which is readily ascertainable as
evidenced by a listing on a stock exchange, over-the-counter market or by
readily available market quotations from a dealer in such securities. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.]

Trading in Foreign Securities

Trading in foreign cities may be completed at times which vary from the closing
of the New York Stock Exchange ("NYSE"). In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the NYSE. Similarly,
foreign securities quoted in foreign currencies are translated into U.S. dollars
at the foreign exchange rates.

MANAGEMENT OF THE TRUST AND THE PORTFOLIO

54
<PAGE>

The Trustees and officers of the Trust, their birthdate and their principal
occupations during the past five years are set forth below. Their titles may
have varied during that period. Unless otherwise indicated, the address of each
officer is P. O. Box 7558, Portland, Maine 04101.

Trustees of the Trust

55
<PAGE>

Trustees of the Portfolio

CHARLES P. BIGGAR

S. LELAND DILL (birthdate: March 28, 1930) -- Trustee; Retired; Director, Coutts
(U.S.A.) International; Coutts Trust Holdings Ltd; Director, Zweig Series Trust;
formerly Partner of KPMG Peat Marwick; Director, Vinters International Company
Inc.; General Partner of Pemco (an investment company registered under the 1940
Act). His address is 5070 North Ocean Drive, Singer Island, Florida 33404.

PHILIP SAUNDERS, JR. (birthdate: October 11, 1935) -- Trustee; Principal, Philip
Saunders Associates (Economic and Finance Consulting); former Director of
Financial Industry Consulting, Wolf & Company; President, John Hancock Home
Mortgage Corporation; and Senior Vice President of Treasury and Financial
Services, John Hancock Mutual Life Insurance Company, Inc. His address is 445
Glen Road, Weston, Massachusetts 02193.

Officers of the Trust and Portfolio

Unless otherwise specified, each officer listed below holds the same position
with the Trust and the Portfolio.

JOHN Y. KEFFER (birthdate: July 15, 1942) -- President and Chief Executive
Officer; president, Forum Financial Group.

56
<PAGE>

No person who is an officer or director of Bankers Trust is an officer or
Trustee of the Trust or the Portfolios. No director, officer or employee of ICC
Distributors or any of its affiliates will receive any compensation from the
Trust or the Portfolios for serving as an officer or Trustee of the Trust or a
Portfolio.

Trustee Compensation Table
<TABLE>

AGGREGATE
COMPENSATION AGGREGATE FROM TOTAL
FROM BT COMPENSATION BT COMPENSATION
NAME OF PERSON, INSTITUTIONAL INVESTMENT FROM FUND
POSITION FUNDS* PORTFOLIOS+ COMPLEX**
<S> <C> <C> <C>

Richard J. Herring,
Trustee of
BT Institutional Funds $23,625 N/A $35,000

Bruce E. Langton,
Trustee of
BT Institutional Funds $23,625 N/A $35,000

Charles P. Biggar,
Trustee of
BT Institutional Funds
and Portfolio $10,732 $523 $35,000
</TABLE>

* The information provided is for the BT Institutional Funds, which is
comprised of 10 funds, for the year ended September 30, 1998.

+ Information provided is for the year ended September 30, 1998.

** Aggregated information is furnished for the BT Family of Funds
which consists of the following: BT Investment Funds, BT Institutional
Funds, BT Pyramid Mutual Funds, BT Advisor Funds, BT Investment Portfolios,
Cash Management Portfolio, Treasury Money Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, International Equity Portfolio,
Utility Portfolio, Intermediate Tax Free Portfolio, Asset Management
Portfolio, Equity 500 Index Portfolio, and Capital Appreciation Portfolio
for the year ended September 30, 1998.

57
<PAGE>

As of December 31, 1998, the Trustees and Officers of the Trust and the
Portfolio owned in the aggregate less than 1% of the shares of any Fund or the
Trust (all series taken together).

As of December 31, 1998, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund: Thomas F. Byrnes, Jr., Ross, California,
owned approximately 9,952 shares (21%); Ross C. Youngman, New York, New York,
owned approximately 9,869 shares (21%); Virginia P. Sirusas, Garrison, New York,
owned approximately 5,046 shares (11%); John H. Wise, Jr., Orlean, Virginia,
owned approximately 5,046 shares (11%); Robert W. Greenman & Jill B. Greenman,
Mill Valley, California, owned approximately 5,046 shares (11%); Craig McCauley,
New York, New York, owned approximately 4,637 shares (10%); and Michael A. Levy,
New York, New York, owned approximately 2,533 shares (5%).

Investment Adviser

Bankers Trust Company, a New York banking corporation, is a wholly owned
subsidiary of Bankers Trust Corporation. Bankers Trust conducts a variety of
general banking and trust activities and is a major wholesale supplier of
financial services to the international and domestic institutional markets. As
of December 31 1998, Bankers Trust Corporation was the seventh largest bank
holding company in the United States with total assets of over $156 billion. The
scope of Bankers Trust's investment management capability is broad due to its
leadership positions in both active and passive quantitative management and its
presence in major equity and fixed income markets around the world. Bankers
Trust is one of the nation's largest and most experienced investment managers
with over $338 billion in assets under management globally.

58
<PAGE>

All orders for investment transactions on behalf of the Portfolio are placed by
Bankers Trust with broker-dealers and other financial intermediaries that it
selects, including those affiliated with Bankers Trust. A Bankers Trust
affiliate will be used in connection with a purchase or sale of an investment
for the Portfolio only if Bankers Trust believes that the affiliate's charge for
the transaction does not exceed usual and customary levels. The Portfolio will
not invest in obligations for which Bankers Trust or any of its affiliates is
the ultimate obligor or accepting bank. The Portfolio may, however, invest in
the obligations of correspondents and customers of Bankers Trust.

Bankers Trust bears all expenses in connection with the performance of services
under each Advisory Agreement. The Trust and the Portfolio bear certain other
expenses incurred in their operation, including: taxes, interest, brokerage fees
and commissions, if any; fees of Trustees of the Trust or the Portfolio who are
not officers, directors or employees of Bankers Trust, ICC Distributors or any
of their affiliates; SEC fees and state Blue Sky qualification fees; charges of
custodians and transfer and dividend disbursing agents; certain insurance
premiums; outside auditing and legal expenses; costs of maintenance of corporate
existence; costs attributable to investor services, including, without
limitation, telephone and personnel expenses; costs of preparing and printing
prospectuses and statements of additional information for regulatory purposes
and for distribution to existing shareholders; costs of shareholders' reports
and meetings of shareholders, officers and Trustees of the Trust or the
Portfolio; and any extraordinary expenses.

Bankers Trust, subject to the supervision and direction of the Board of Trustees
of each Portfolio, manages each Portfolio in accordance with the Portfolio's
investment objective and stated investment policies, makes investment decisions
for the Portfolio, places orders to purchase and sell securities and other
financial instruments on behalf of the Portfolio and employs professional
investment managers and securities analysts who provide research services to the
Portfolio. Bankers Trust may utilize the expertise of any of its world wide
subsidiaries and affiliates to assist it in its role as investment adviser. All
orders for investment transactions on behalf of a Portfolio are placed by the
Adviser with broker-dealers and other financial intermediaries that it selects,
including those affiliated with Bankers Trust. A Bankers Trust affiliate will be
used in connection with a purchase or sale of an investment for the Portfolio
only if Bankers Trust believes that the affiliate's charge for the transaction
does not exceed usual and customary levels. A Portfolio will not invest in
obligations for which Bankers Trust or any of its affiliates is the ultimate
obligor or accepting bank. Each Portfolio may, however, invest in the
obligations of correspondents and customers of Bankers Trust. Bankers Trust may
perform the above duties or it may delegate such responsibilities to the
Sub-Investment Adviser as defined herein.

59
<PAGE>

Under the Advisory Agreement, Bankers Trust receives a fee from the Portfolio,
computed daily and paid monthly based on a percentage of the average daily net
assets of the Portfolio. Under certain circumstances Bankers Trust has agreed to
pay fees to certain securities brokers, dealers and other entities that
facilitate the sale of Fund shares, and in connection therewith provide
administrative, shareholder or distribution related services to the Fund or its
shareholders. Fees paid to entities that administer mutual fund "supermarkets"
may be higher than fees paid for other types of services. For the period from
June 30, 1998 (commencement of operations) to September 30, 1998, Bankers Trust
received $1,115 in compensation for advisory services provided to the Portfolio.
For the same period, Bankers Trust reimbursed $23,020 to the Portfolio to cover
expenses.

Sub-Investment Adviser

Bankers Trust has entered into a sub-investment advisory agreement (the
"Sub-Advisory Agreement") with BT Funds Management (International) Limited ("BT
Funds Management International") a wholly owned subsidiary of Bankers Trust
Australia Limited ("BTAL") in Sydney. BTAL is a wholly owned subsidiary of
Bankers Trust New York Corporation. Under the Sub-Advisory Agreement, Bankers
Trust may receive investment advice and research services with respect to
companies in which the Portfolio may invest and may grant BT Funds Management
International investment management authority as well as the authority to buy
and sell securities if Bankers Trust believes it would be beneficial to the
Portfolio. Under the Sub-Advisory Agreement for the Portfolio, BT Funds
Management International receives a fee from Bankers Trust for providing
investment advice and research services, accrued daily and paid monthly, equal
to 100% of the advisory fee earned by Bankers Trust with respect to that portion
of the Portfolio that the Sub-Adviser manages.

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BTAL, which was granted a banking license in 1986, is the parent of Bankers
Trust Australia Group which has offices is Sydney, Melbourne, Perth, Brisbane,
Adelaide, London and Hong Kong. A representative office of Bankers Trust Company
was opened in Australia in 1966 and Australian merchant banking operations
commenced in 1969. A related organization, Bankers Trust New Zealand Limited,
was established in 1986. Although BTAL has not previously served as investment
adviser for a registered investment company, BTAL provides investment services
for a range of clients.

Administrator

Under the administration and services agreements, Bankers Trust is obligated on
a continuous basis to provide such administrative services as the Board of
Trustees of the Trust and the Portfolio reasonably deem necessary for the proper
administration of the Trust or the Portfolio. Bankers Trust will generally
assist in all aspects of the Fund's and Portfolio's operations; supply and
maintain office facilities (which may be in Bankers Trust's own offices),
statistical and research data, data processing services, clerical, accounting,
bookkeeping and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the 1940 Act and the
rules thereunder, except as maintained by other agents), executive and
administrative services, and stationery and office supplies; prepare reports to
shareholders or investors; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the SEC and
various state Blue Sky authorities; supply supporting documentation for meetings
of the Board of Trustees; provide monitoring reports and assistance regarding
compliance with Declaration of Trust, by-laws, investment objectives and
policies and with federal and state securities laws; arrange for appropriate
insurance coverage; calculate net asset values, net income and realized capital
gains or losses; and negotiate arrangements with, and supervise and coordinate
the activities of, agents and others to supply services.

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For the period from June 30, 1998 (commencement of operations) to September 30,
1998, Bankers Trust received $89 in compensation for administrative and other
services provided to shares of the Fund. For the same period, Bankers Trust
reimbursed $19,515 to the shares of the Fund to cover expenses.

For the fiscal period from June 30, 1998 (commencement of operations) to
September 30, 1998, Bankers Trust received $152, in compensation for
administrative and other services provided to the Portfolio.

Distributor

Service Agent

All shareholders must be represented by a Service Agent. Bankers Trust acts as a
Service Agent pursuant to its Administration and Services Agreement with the
Trust and receives no additional compensation from the Fund for such shareholder
services. The service fees of any other Service Agents, including
broker-dealers, will be paid by Bankers Trust from its fees. The services
provided by a Service Agent may include establishing and maintaining shareholder
accounts, processing purchase and redemption transactions, arranging for bank
wires, performing shareholder sub-accounting, answering client inquiries
regarding the Trust, assisting clients in changing dividend options, account
designations and addresses, providing periodic statements showing the client's
account balance, transmitting proxy statements, periodic reports, updated
prospectuses and other communications to shareholders and, with respect to
meetings of shareholders, collecting, tabulating and forwarding to the Trust
executed proxies and obtaining such other information and performing such other
services as the Administrator or the Service Agent's clients may reasonably
request and agree upon with the Service Agent. Service Agents may separately
charge their clients additional fees only to cover provision of additional or
more comprehensive services not already provided under the "Administration and
Services Agreement with Bankers Trust, or of the type or scope not generally
offered by a mutual fund, such as cash management services or enhanced
retirement or trust reporting. In addition, investors may be charged a
transaction fee if they effect transactions in Fund shares through a broker or
agent. Each Service Agent has agreed to transmit to shareholders, who are its
customers, appropriate disclosures of any fees that it may charge them directly.

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Custodian and Transfer Agent

Bankers Trust, 130 Liberty Avenue (One Bankers Trust Plaza), New York, New York
10006, serves as Custodian for the Trust and for the Portfolio pursuant to the
administration and services agreements. As Custodian, it holds the Fund' and the
Portfolio's assets. Bankers Trust also serves as transfer agent of the Trust and
of the Portfolio pursuant to the respective administration and services
agreement. Under its transfer agency agreement with the Trust, Bankers Trust
maintains the shareholder account records for the Fund, handles certain
communications between shareholders and the Trust and causes to be distributed
any dividends and distributions payable by the Trust. Bankers Trust may be
reimbursed by the Fund or the Portfolio for its out-of-pocket expenses. Bankers
Trust will comply with the self-custodian provisions of Rule 17f-2 under the
1940 Act.

Use of Name

The Trust may be required, on 60 days' notice from Bankers Trust at any time, to
abandon use of the acronym "BT" as part of their name. If this were to occur,
the Trustees would select an appropriate new name for the Trust, but there would
be no other material effect on the Trust, their shareholders or activities.

Banking Regulatory Matters

Bankers Trust has been advised by its counsel that in its opinion Bankers Trust
may perform the services for the Portfolio contemplated by the Advisory
Agreements and other activities for the Trust and the Portfolio described in the
Prospectuses and this SAI without violation of the Glass-Steagall Act or other
applicable banking laws or regulations. However, counsel has pointed out that
future changes in either federal or state statutes and regulations concerning
the permissible activities of banks or trust companies, as well as future
judicial or administrative decisions or interpretations of present and future
statutes and regulations, might prevent Bankers Trust from continuing to perform
those services for the Trust and the Portfolio. State laws on this issue may
differ from the interpretations of relevant Federal law and banks and financial
institutions may be required to register as dealers pursuant to state securities
law. If the circumstances described above should change, the Board of Trustees
would review the relationships with Bankers Trust and consider taking all
actions necessary in the circumstances.

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Counsel and Independent Accountants

Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York 10019-6099,
serves as Counsel to the Trust and the Portfolio. PricewaterhouseCoopers L.L.P.,
1100 Main Street, Suite 900, Kansas City, Missouri 64105 acts as Independent
Accountants of the Trust and the Portfolio.

ORGANIZATION OF THE TRUST

BT Institutional Funds was organized on March 26, 1990. The shares of each
series participate equally in the earnings, dividends and assets of the
particular series. The Trust may create and issue additional series of shares.
The Trust's Declaration of Trust permits the Trustees to divide or combine the
shares into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in series. Each share represents an equal
proportionate interest in a series with each other share. Shares when issued are
fully paid and non-assessable, except as set forth below. Shareholders are
entitled to one vote for each share held.

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Whenever the Trust is requested to vote on matters pertaining to a Portfolio,
the Trust will vote its shares without a meeting of shareholders of the
respective Fund if the proposal is one, which if made with respect to the Fund,
would not require the vote of shareholders of the Fund as long as such action is
permissible under applicable statutory and regulatory requirements. For all
other matters requiring a vote, the Trust will hold a meeting of shareholders of
the Fund and, at the meeting of the investors in the Portfolio, the Trust will
cast all of its votes in the same proportion as votes in all its shares at the
Portfolio meeting, other investors with a greater pro rata ownership of the
Portfolio could have effective voting control of the operations of the
Portfolio.

TAXATION

Taxation of the Fund

The Trust intends to qualify annually and to elect each Fund to be treated as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code").

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As a regulated investment company, the Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to
their shareholders, at least annually, substantially all of their investment
company taxable income and net capital gains. Amounts not distributed on a
timely basis in accordance with a calendar year distribution requirement are
subject to a nondeductible 4% excise tax. To prevent imposition of the excise
tax, the Fund must distribute during each calendar year an amount equal to the
sum of: (1) at least 98% of its ordinary income (not taking into account any
capital gains or losses) for the calendar year; (2) at least 98% of its capital
gains in excess of its capital losses (adjusted for certain ordinary losses, as
prescribed by the Code) for the one-year period ending on October 31 of the
calendar year; and (3) any ordinary income and capital gains for previous years
that was not distributed during those years. A distribution will be treated as
paid on December 31 of the current calendar year if it is declared by the Fund
in October, November or December with a record date in such a month and paid by
the Fund during January of the following calendar year. Such distributions will
be taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.

If for any taxable year the Fund does not qualify for the special federal income
tax treatment afforded regulated investment companies, all of its taxable income
will be subject to federal income tax at regular corporate rates (without any
deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations in the case of corporate shareholders.

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Each Fund shareholder will also receive, if appropriate, various written notices
after the close of the Fund's prior taxable year as to the federal income status
of his dividends and distributions which were received from the Fund during the
Fund's prior taxable year. Shareholders should consult their tax advisers as to
any state and local taxes that may apply to these dividends and distributions.

Foreign Securities

Foreign Securities. Income from investments in foreign stocks or securities may
be subject to foreign taxes. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. It is impossible to determine
the effective rate of foreign tax in advance since the amount of the Portfolio's
assets to be invested in various countries will vary.

If the Portfolio is liable for foreign taxes, and if more than 50% of the value
of the Portfolio's total assets at the close of its taxable year consists of
stocks or securities of foreign corporations (including foreign governments),
the Fund may make an election pursuant to which certain foreign taxes paid by
the Portfolio would be treated as having been paid directly by shareholders of
the Fund. Pursuant to such election, the amount of foreign taxes paid will be
included in the income of the Fund's shareholders, and such Fund shareholders
(except tax-exempt shareholders) may, subject to certain limitations, claim
either a credit or deduction for the taxes. Each such Fund shareholder will be
notified after the close of the Portfolio's taxable year whether the foreign
taxes paid will "pass through" for that year and, if so, such notification will
designate (a) the shareholder's portion of the foreign taxes paid to each such
country and (b) the amount which represents income derived from sources within
each such country.

Distributions

Federal Taxes. The Fund intends to qualify as a regulated investment company, as
defined in the Internal Revenue Code of 1986, as amended (the "Code"). Provided
the Fund meets the requirements imposed by the Code and distributes all of its
income and gains, the Fund will not pay any federal income or excise taxes.

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Distributions from the Fund's income and short-term capital gains are taxed as
dividends, and long-term capital gain distributions are taxed as long-term
capital gains. The Fund's capital gain distributions are taxable when they are
paid, whether you take them in cash or reinvest them in additional Shares.
Distributions declared to shareholders of record in October, November or
December and paid in January are taxable as if paid on December 31. The Fund
will send each shareholder a tax statement by January 31 showing the tax status
of the distributions received on the past year.

"Buying a Dividend." On the ex-date for a distribution from capital gains, the
Fund's Share value is reduced by the amount of the distribution. If you buy
Shares just before the ex-date ("buying a dividend"), you will pay the full
price for the Shares and then receive a portion of the price back as a taxable
distribution.

Taxation of the Portfolio

The Portfolio is not subject to federal income taxation. Instead, the Fund and
other investors investing in the Portfolio must take into account, in computing
their federal income tax liability, their share of the Portfolio's income,
gains, losses, deductions, credits and tax preference items, without regard to
whether they have received any cash distributions from the Portfolio.

Distributions received by a Fund from the Portfolio generally will not result in
the Fund recognizing any gain or loss for federal income tax purposes, except
that: (1) gain will be recognized to the extent that any cash distributed
exceeds a Fund's basis in its interest in the Portfolio prior to the
distribution; (2) income or gain may be realized if the distribution is made in
liquidation of a Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio; and
(3) loss may be recognized if the distribution is made in liquidation of a
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. A Fund's basis in its interest in the Portfolio
generally will equal the amount of cash and the basis of any property which the
Fund invests in the Portfolio, increased by the Fund's share of income from the
Portfolio, and decreased by the amount of any cash distributions and the basis
of any property distributed from the Portfolio.

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Sale of Shares

Foreign Withholding Taxes

Income received by the Portfolio from sources within foreign countries may be
subject to withholding and other taxes imposed by such countries.

Backup Withholding

Foreign Shareholders

The tax consequences to a foreign shareholder of an investment in the Fund may
be different from those described herein.

Foreign shareholders are advised to consult their own tax advisers with respect
to the particular tax consequences to them of an investment in the Fund.

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Other Taxation

The Trust is organized as a Massachusetts business trusts and, under current
law, neither the Trust nor the Fund is liable for any income or franchise tax in
the Commonwealth of Massachusetts, provided that the Fund continues to qualify
as a regulated investment company under Subchapter M of the Code. The investment
by the Fund in the Portfolio does not cause the Fund to be liable for any income
or franchise tax in the State of New York.

The Portfolio is subtrust of BT Institutional Portfolios, which is organized as
a New York master trust fund. The Portfolio is not subject to any income or
franchise tax in the State of New York or the Commonwealth of Massachusetts.

FINANCIAL STATEMENTS

The financial statements for the Fund and the Portfolio for the fiscal period
ended September 30, 1998, are incorporated herein by reference to the Annual
Report to shareholders for the Fund and Portfolio dated September 30, 1998. A
copy of the Fund's and the Portfolio's Annual Report may be obtained without
charge by contacting the Fund.

APPENDIX

Description of Moody's Corporate Bond Ratings:

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

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A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium-grade obligations, i.e. they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such, bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both (good
and bad times over the future). Uncertainty of position characterizes bonds in
this class.

B - Bonds rated B generally lack characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.

C - Bonds rated C are the lowest-rated class of bonds and issued so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond system. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.

Description of S&P Corporate Bond Ratings:

AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.

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AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay interest and repay principal for debt
in this category than in higher-rated categories.

BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI - The rating CI is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

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Description of S&P commercial paper ratings:

Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted A-1+.

Description of Moody's commercial paper ratings:

The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of short-term promissory obligations.

Description of S&P Municipal Bond Ratings:

AAA - Prime - These are obligations of the highest quality. They have the
strongest capacity for timely payment of debt service.

General Obligations Bonds - In a period of economic stress, the issuers will
suffer the smallest declines in income and will be least susceptible to
autonomous decline. Debt burden is moderate. A strong revenue structure appears
more than adequate to meet future expenditure requirements. Quality of
management appears superior.

Revenue Bonds - Debt service coverage has been, and is expected to remain,
substantial, stability of the pledged revenues is also exceptionally strong due
to the competitive position of the municipal enterprise or to the nature of the
revenues. Basic security provisions (including rate covenant, earnings test for
issuance of additional bonds and debt service reserve requirements) are
rigorous. There is evidence of superior management.

AA - High Grade - The investment characteristics of bonds in this group are only
slightly less marked than those of the prime quality issues. Bonds rated AA have
the second strongest capacity for payment of debt service.

A - Good Grade - Principal and interest payments on bonds in this category are
regarded as safe although the bonds are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in higher
rated categories. This rating describes the third strongest capacity for payment
of debt service. Regarding municipal bonds, the rating differs from the two
higher ratings because:

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General Obligation Bonds - There is some weakness, either in the local economic
base, in debt burden, in the balance between revenues and expenditures, or in
quality of management. Under certain adverse circumstances, any one such
weakness might impair the ability of the issuer to meet debt obligations at some
future date.

Revenue Bonds - Debt service coverage is good, but not exceptional. Stability of
the pledged revenues could show some variations because of increased competition
or economic influences on revenues. Basic security provisions, while
satisfactory, are less stringent. Management performance appearance appears
adequate.

S&P's letter ratings may be modified by the addition of a plus or a minus sign,
which is used to show relative standing within the major rating categories,
except in the AAA rating category.

Description of Moody's Municipal Bond Ratings:

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities, or fluctuation of protective elements
may be of greater amplitude, or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Moody's may apply the numerical modifier in each generic rating classification
from Aa through B. The modifier 1 indicates that the security within its generic
rating classification possesses the strongest investment attributes.

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Description of S&P Municipal Note Ratings:

Municipal notes with maturities of three years or less are usually given note
ratings (designated SP-1, or -2) to distinguish more clearly the credit quality
of notes as compared to bonds. Notes rated SP-1 have a very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given the designation of SP-1. Notes
rates SP-2 have a satisfactory capacity to pay principal and interest.

Description of Moody's Municipal Note Ratings:

Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade (MIG) and for variable rate demand
obligations are designated Variable Moody's Investment Grade (VMIG). This
distinction recognizes the differences between short-term credit risk and
long-term risk. Loans bearing the designation MIG 1/VMIG 1 are of the best
quality, enjoying strong protection from established cash flows of funds for
their servicing or from established cash flows of funds for their servicing or
from established and broad-based access to the market for refinancing, or both.
Loans bearing the designation MIG2/VMIG2 are of high quality, with ample margins
of protection, although not as large as the preceding group.

S&P's Commercial Paper Ratings:

A is the highest commercial paper rating category utilized by S&P, which uses
the numbers 1, 1, 2 and 3 to denote relative strength within its A
classification. Commercial paper issues rated A by S&P have the following
characteristics: Liquidity ratios are better than industry average. Long-term
debt ratings is A or better. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow are in an upward tread.
Typically, the issuer is a strong company in a well-established industry and has
superior management.

<PAGE>

Moody's Commercial Paper Ratings:

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leasing
market positions in well-established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well-established access to
a range of financial markets and assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rates Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.

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STATEMENT OF
ADDITIONAL INFORMATION

January __, 1999

BT Institutional Funds

International Small Company Equity Fund

Investment Adviser of the Portfolio and Administrator
BANKERS TRUST COMPANY

Distributor

ICC DISTRIBUTORS, INC.

Custodian and Transfer Agent
BANKERS TRUST COMPANY

Independent Accountants

PRICEWATERHOUSECOOPERS LLP

Counsel

WILLKIE FARR & GALLAGHER

No person has been authorized to give any information or to make any
representations other than those contained in the Trust's Prospectus, its SAI or
the Trust's official sales literature in connection with the offering of the
Trust's shares and, if given or made, such other information or representations
must not be relied on as having been authorized by the Trust. Neither the
Prospectus nor this Statement of Additional Information constitutes an offer in
any state in which, or to any person to whom, such offer may not lawfully be
made.

CUSIP #055922686
CUSIP #055924831

SAI808/810400 (6/98)

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

January 31, 1999

BT INSTITUTIONAL FUNDS

o Global Emerging Markets Equity Fund

BT Institutional Funds (the "Trust") is an open-end management investment
company that offers investors a selection of investment portfolios, each having
distinct investment objectives and policies. This Statement of Additional
Information ("SAI") relates to the BT Institutional Funds' Global Emerging
Markets Equity Fund (the "Fund").

The Fund's investment objective is to seek long-term capital growth. The Fund
will attempt to outperform the return of the Morgan Stanley Capital
International Emerging Markets Free Total Return Index before expenses, although
there is no assurance that it will be able to do so. The Trust seeks to achieve
the investment objective of the Fund by investing all the investable assets
("Assets") of the Fund in the Global Emerging Markets Equity Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objectives as the Fund. The Portfolio is a subtrust of the BT
Investment Portfolios.

Shares of the Funds are sold by ICC Distributors, Inc. ("ICC Distributors"), the
Trust's Distributor, to clients and customers (including affiliates and
correspondents) of Bankers Trust Company ("Bankers Trust"), the Portfolio's
investment adviser (the "Adviser"), and to clients and customers of other
organizations. As appropriate, references to the Adviser herein apply to any
sub-adviser which may have day-to-day investment management responsibility for
the Portfolio.

The Fund's Prospectus is dated January 31, 1999, and provides the basic
information investors should know before investing. This SAI, which is not a
prospectus, is intended to provide additional information regarding the
activities and operations of the Trust and should be read in conjunction with
the Fund's Prospectus. You may obtain a Prospectus or a paper copy of this SAI
if you received your SAI electronically by calling the Trust at the telephone
number listed below or by contacting any Bankers Trust service agent ("Service
Agent"). This SAI is not an offer of any Fund for which an investor has not
received a prospectus. Capitalized terms not otherwise defined in this SAI have
the meanings accorded to them in the Fund's Prospectus. The financial statements
for the Fund and the Portfolio for the fiscal period ended September 30, 1998,
are incorporated herein by reference to the Annual Report to shareholders for
the Fund and Portfolio dated September 30, 1998. A copy of the Fund's and the
Portfolio's Annual Report may be obtained without charge by calling the Fund at
the telephone number listed below.

BANKERS TRUST COMPANY

Investment Adviser of the Portfolio and Administrator

ICC DISTRIBUTORS, INC.

Distributor

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Two Portland Square
Portland, Maine 04101
1-800-368-4031

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TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>

INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS..........................................................................3
Investment Objective................................................................................................3
Investment Policies.................................................................................................3
Additional Risk Factors............................................................................................18
Investment Restrictions............................................................................................26

PERFORMANCE INFORMATION.................................................................................................30
Standard Performance Information...................................................................................30

Prior Performance of BT Funds Management (International) Limited and BT Funds

Management Limited.................................................................................................31
Expenses...........................................................................................................33
Comparison of Fund Performance.....................................................................................33
Economic and Market Information....................................................................................35

VALUATION OF SECURITIES;REDEMPTIONS AND PURCHASES IN KIND...............................................................35
Purchase of Shares.................................................................................................36
Redemption of Shares...............................................................................................38
Redemptions and Purchases in Kind..................................................................................41
Trading in Foreign Securities......................................................................................41

MANAGEMENT OF THE TRUST AND THE PORTFOLIO...............................................................................41
Trustees of the Trust..............................................................................................41
Trustees of the Portfolio..........................................................................................42
Officers of the Trust and the Portfolio............................................................................42
Trustee Compensation Table.........................................................................................43
Investment Adviser.................................................................................................44
Sub-Investment Adviser.............................................................................................45
Administrator......................................................................................................46
Distributor........................................................................................................46
Service Agent......................................................................................................47
Custodian and Transfer Agent.......................................................................................47
Use of Name........................................................................................................47
Banking Regulatory Matters.........................................................................................48
Counsel and Independent Accountants................................................................................48

ORGANIZATION OF THE TRUST...............................................................................................48

TAXATION................................................................................................................50
Taxation of the Fund...............................................................................................50
Foreign Securities.................................................................................................51
Distributions......................................................................................................51
Taxation of the Portfolio..........................................................................................51
Sale of Shares.....................................................................................................51
Foreign Withholding Taxes..........................................................................................52
Backup Withholding.................................................................................................52
Foreign Shareholders...............................................................................................52
Other Taxation.....................................................................................................52

FINANCIAL STATEMENTS....................................................................................................53

</TABLE>

2
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INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS

Investment Objective

The investment objective of the Fund is long-term capital growth. The Fund will
pursue this objective through investment in stocks and other equity securities
of companies in the world's emerging markets. There can, of course, be no
assurance that the Fund will achieve its investment objective.

Investment Policies

Since the investment characteristics of each Fund will correspond directly to
those of the Portfolio, the following is a discussion of the various investments
of and techniques employed by the Portfolio. It is expected under normal
conditions that at least 65% of the Portfolio's assets will be invested in the
equity securities of issuers based in at least three emerging market countries.
Investment in such securities involves certain considerations that are not
normally present in investments in securities of U.S. issuers and an investment
in the Fund may be considered speculative. The Fund will attempt to outperform
the return of the Morgan Stanley Capital International Emerging Markets Free
Total Return Index before expenses, although there is no assurance it will be
able to do so.

In selecting securities for investment, the Adviser employs a research-driven
process that emphasizes proprietary economic and stock specific analysis. The
Adviser's process is geared to identifying those companies whose growth
prospects and/or risk profile has been incorrectly analyzed and priced by the
market as a whole. The Adviser's process concentrates on understanding the
relevant industry dynamics in terms of the risks and opportunities that may
arise, and then focusing on the comparative strengths and weaknesses of the
individual constituent companies. The Adviser then combines this fundamental
assessment with a valuation analysis which establishes a "fair value" for each
stock. This is calculated after considering the above factors, as well as local
and international peer comparisons.

3
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The Adviser uses asset allocation, country selection and currency selection
primarily as risk management tools. That is, the Adviser seeks to identify and
underweight or eliminate those markets that research shows as offering poor
return opportunities or relatively high risks, and focus the Portfolio in those
markets where the risk/return profile is more favorable. Country and cash
exposure is managed within predetermined ranges around the Morgan Stanley
Capital International Emerging Markets Free Total Return Index. The Adviser's
macro research is coordinated around the consistent analysis of five key
investment indicators. These indicators capture the essential risk/return
characteristics of each market. They include earnings, liquidity, politics,
supply and demand, and valuation.

While currency management draws heavily on this macro analysis, currency
decisions themselves are taken separately to the asset decision, as once again
the Portfolio seeks to eliminate or reduce exposure to those currencies that
research indicates to be most at risk of depreciation, and to concentrate
exposure in those currencies that will be stable or even appreciate against the
U.S. dollar.

Debt Securities. Although not a principal investment, each Portfolio may invest
in debt securities, bonds and other debt instruments are used by issuers to
borrow money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. Some debt
securities, such as zero coupon bonds, do not pay current interest, but are
purchased at a discount from their face values. Debt securities, loans, and
other direct debt have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Longer-term bonds are generally more
sensitive to interest rate changes than short-term bonds.

4
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5
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Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may beunable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.

Brady Bonds. The Portfolio may invest in "Brady bonds," which have been issued
by the governments of Argentina, Brazil, Costa Rica, Mexico, Nigeria,
Philippines, Uruguay and Venezuela. Most Brady bonds are currently rated below
BBB by S&P or Baa by Moody's. "Brady bonds" are bonds issued as a result of a
restructuring of a country's debt obligations to commercial banks under the
"Brady plan." While the Adviser is not aware of the occurrence of any payment
defaults on Brady bonds, investors should recognize that these debt securities
have been issued only recently and, accordingly, do not have a long payment
history. Brady bonds may be collateralized or uncollateralized, are issued in
various currencies (primarily the U.S. dollar) and are actively traded in the
secondary market for Latin American debt.

The Brady Plan was conceived by the U.S. Treasury in the 1980's in an attempt to
produce a debt restructuring program which would enable a debt country to (i)
reduce the absolute level of debt of its creditor banks, and (ii) reschedule its
external debt repayments, based upon its ability to service such debts by
persuading its creditor banks to accept a debt write-off by offering them a
selection of options, each of which represented an attractive substitute for the
nonperforming debt. Although it was envisioned that each debtor country would
agree to a unique package of options with its creditor banks, the plan was that
these options would be based upon the following:(i) a discount bond carrying a
market rate of interest (whether fixed or floating), with principal
collateralized by the debtor country with cash or securities in an amount equal
to at least one year of rolling interest; (ii) a par bond carrying a low rate of
interest (whether fixed or floating), collateralized in the same way as in (i)
above; and (iii) retention of existing debt (thereby avoiding a debt write-off)
coupled with an advance of new money or subscription of new bonds.

6
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The Portfolio may invest in either collateralized or uncollateralized Brady
bonds. U.S. dollar-denominated, collateralized Brady bonds, which may be fixed
rate par bonds or floating rate discount bonds, are collateralized in full as to
principal by U.S. Treasury zero coupon bonds having the same maturity as the
bonds. Interest payments on such bonds generally are collateralized by cash or
securities in an amount that in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of floating rate
bonds, initially is equal to at least one year's rolling interest payments based
on the applicable interest rate at the time and is adjusted at regular intervals
thereafter.

A large institutional market has developed for certain securities that are not
registered under the 1933 Act, including repurchase agreements, commercial
paper, foreign securities, municipal securities and corporate bonds and notes.
Institutional investors depend on an efficient institutional market in which the
unregistered security can be readily resold or on an issuer's ability to honor a
demand for repayment. The fact that there are contractual or legal restrictions
on resale of such investments to the general public or to certain institutions
may not be indicative of their liquidity.

The Securities and Exchange Commission the (the "SEC") has adopted Rule 144A,
which allows a broader institutional trading market for securities otherwise
subject to restriction on their resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the 1933 Act
of resales of certain securities to qualified institutional buyers. The Adviser
anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.

7
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Rule 144A Securities are securities in the United States that are not registered
for sale under federal securities laws but which can be resold to institutions
under SEC Rule 144A. Provided that a dealer or institutional trading market in
such securities exists, these restricted securities are treated as exempt from
the 15% limit on illiquid securities. Under the supervision of the Board of
Trustees of the Portfolio, the Adviser determines the liquidity of restricted
securities and, through reports from the Adviser, the Board will monitor trading
activity in restricted securities. If institutional trading in restricted
securities were to decline, the liquidity of the Portfolio could be adversely
affected.

In reaching liquidity decisions, the Adviser will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers or sellers of the
security; (3) dealer undertakings to make a market in the security and (4) the
nature of the security and of the marketplace trades (E.G., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).

Reverse Repurchase Agreements. In a reverse repurchase agreement, the Portfolio
temporarily transfers possession of a portfolio instrument to another party in
return for cash. This could increase the risk of fluctuation in the Fund's yield
or in the market value of its assets. A reverse repurchase agreement is a form
of borrowing and will be counted toward the Portfolio's borrowing restrictions.

Investment Companies. With respect to certain countries in which capital markets
are either less developed or not easily accessed, investments by the Portfolio
may be made through investment in other registered investment companies that in
turn are authorized to invest in the securities of such countries. Investments
in other investment companies may also be made for other purposes, such as noted
below under "Short-Term Instruments," are limited in amount by the Investment
Company Act of 1940, as amended ("1940 Act") (except the Portfolio may exceed
the applicable percentage limits to the extent permitted by an exemptive order
of the SEC), and will involve the indirect payment of a portion of the expenses,
including advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.

8
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Short-Term Instruments. The Portfolio intends to stay invested in the securities
described herein to the extent practical in light of its objective and long-term
investment perspective. However, the Portfolio may invest up to 35% of its total
assets in high quality short-term investments with remaining maturities of 397
days or less, or in money market mutual funds, to meet anticipated redemptions
and expenses for day-to-day operating purposes and up to 100% of its total
assets when, in the Adviser's opinion, it is advisable to adopt a temporary
defensive position because of unusual and adverse conditions affecting the
respective markets. When the Portfolio experiences large cash inflows through
the sale of securities and desirable equity securities, that are consistent with
the Portfolio's investment objective, which are unavailable in sufficient
quantities or at attractive prices, the Portfolio may invest in short-term
instruments for a limited time pending availability of such portfolio
securities. Short-term instruments consist of U.S. and non-U.S.: (i) short-term
obligations of sovereign governments, their agencies, instrumentalities,
authorities or political subdivisions; (ii) other short-term debt securities
rated AA or higher by Standard & Poor's ("S&P") or Aa or higher by Moody's
Investors Services, Inc. ("Moody's") or, if unrated, of comparable quality in
the opinion of the Adviser; (iii) commercial paper; (iv) bank obligations,
including negotiable certificates of deposit, time deposits and bankers'
acceptances; and (v) repurchase agreements. At the time the Portfolio invests in
commercial paper, bank obligations or repurchase agreements, the issuer or the
issuer's parent must have outstanding debt rated AA or higher by S&P or Aa or
higher by Moody's or outstanding commercial paper or bank obligations rated A-1
by S&P or Prime-1 by Moody's; or, if no such ratings are available, the
instrument must be of comparable quality in the opinion of the Adviser. These
instruments may be denominated in U.S. dollars or in foreign currencies.

Lending of Portfolio Securities. The Portfolio has the authority to lend up to
30% of the total value of its securities to brokers, dealers and other financial
organizations. These loans must be secured continuously by cash or securities
issued or guaranteed by the United States government, its agencies or
instrumentalities or by a letter of credit at least equal to the market value of
the securities loaned plus accrued income. The Portfolio will not lend
securities to the Adviser, ICC Distributors or their affiliates. By lending its
securities, the Portfolio may increase its income by continuing to receive
payments in respect of dividends and interest on the loaned securities as well
as by either investing the cash collateral in short-term securities or obtaining
yield in the form of a fee interest paid by the borrower when irrevocable
letters of credit and U.S. government obligations are used as collateral. During
the term of the loan, the Portfolio continues to bear the risk of fluctuations
in the price of the loaned securities. There may be risks of delay in receiving
additional collateral or risks of delay in recovery of the securities or even
loss of rights in the collateral should the borrower of the securities fail
financially. The Portfolio will adhere to the following conditions whenever its
securities are loaned: (i) the Portfolio must receive at least 100% cash
collateral or equivalent securities from the borrower; (ii) the borrower must
increase this collateral whenever the market value of the securities including
accrued interest rises above the level of the collateral; (iii) the Portfolio
must be able to terminate the loan at any time; (iv) the Portfolio must receive
substitute payments in respect of all dividends, interest or other distributions
on the loaned securities, and (v) voting rights on the loaned securities may
pass to the borrower; provided, however, that if a material event adversely
affecting the investment occurs, the Board of Trustees must retain the right to
terminate the loan and recall and vote the securities. Cash collateral may be
invested in a money market fund managed by Bankers Trust (or its affiliates) and
Bankers Trust may serve as the Portfolio's lending agent and may share in
revenue received from the securities lending transactions as compensation for
this service.

9
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Derivatives. The Portfolio may invest in various instruments that are commonly
known as "derivatives." Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset, or
market index. Some derivatives such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses. Futures and options
are commonly used for traditional hedging purposes to attempt to protect a fund
from exposure to changing interest rates, securities prices, or currency
exchange rates and as a low cost method of gaining exposure to a particular
securities market without investing directly in those securities. However, some
derivatives are used for leverage, which tends to magnify the effects of an
instrument's price changes as market conditions change. Leverage involves the
use of a small amount of money to control a large amount of financial assets,
and can in some circumstances, lead to significant losses. The Adviser will use
derivatives only in circumstances where they offer the most efficient means of
improving the risk/reward profile of the Portfolio and when consistent with the
Portfolio's investment objective and policies. The use of derivatives for
non-hedging purposes may be considered speculative.

Forward Currency Exchange Contracts. A forward currency exchange contract is an
obligation by the Portfolio to purchase or sell a specific currency at a future
date, which may be any fixed number of days from the date of the contract.
Forward foreign currency exchange contracts establish an exchange rate at a
future date. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks and
brokerages) and their customers. A forward foreign currency exchange contract
may not have a deposit requirement and may be traded at a net price without
commission. The Portfolio maintains with its custodian a segregated account of
cash or liquid securities in an amount at least equal to its obligations under
each forward foreign currency exchange contract. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the prices
of the Portfolio's securities or in foreign exchange rates, or prevent loss if
the prices of these securities should decline.

10
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The Portfolio may enter into currency hedging transactions in an attempt to
protect against changes in currency exchange rates between the trade and
settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into the Adviser's long-term investment
decisions, the Portfolio will not routinely enter into currency hedging
transactions with respect to security transactions; however, the Adviser
believes that it is important to have the flexibility to enter into currency
hedging transactions when it determines that the transactions would be in the
Portfolio's best interest. Although these transactions tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.

While these contracts are not presently regulated by the Commodity Futures
Trading Commission ("CFTC"), the CFTC may in the future assert authority to
regulate forward contracts. In such event the Portfolio's ability to utilize
forward contracts may be restricted. Forward contracts may reduce the potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Portfolio than if it had not entered into
such contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject the Portfolio to certain
risks.

The matching of the increase in value of a forward contract and the decline in
the U.S. dollar equivalent value of the foreign currency denominated asset that
is the subject of the hedge generally will not be precise. In addition, the
Portfolio may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the Portfolio's ability to
use such contract to hedge or cross-hedge its assets. Also, with regard to the
Portfolio's use of cross-hedges, there can be no assurance that historical
correlations between the movement of certain foreign currencies relative to the
U.S. dollar will continue. Thus, at any time poor correlation may exist between
movements in the exchange rates of the foreign currencies underlying the
Portfolio's cross-hedges and the movements in the exchange rates of the foreign
currencies in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.

11
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12
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13
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A put option sold by the Portfolio is covered when, among other things, cash or
securities acceptable to the broker are placed in a segregated account to
fulfill the obligations undertaken.

When the Portfolio writes a covered put option, it gives the purchaser of the
option the right to sell the underlying security to the Portfolio at the
specified exercise price at any time during the option period. If the option
expires unexercised, the Portfolio will realize income in the amount of the
premium received for writing the option. If the put option is exercised, a
decision over which the Portfolio has no control, the Portfolio must purchase
the underlying security from the option holder at the exercise price. By writing
a covered put option, the Portfolio, in exchange for the net premium received,
accepts the risk of a decline in the market value of the underlying security
below the exercise price. The Portfolio will only write put options involving
securities for which a determination is made at the time the option is written
that the Portfolio wishes to acquire the securities at the exercise price.

The Portfolio may terminate its obligation as the writer of a call or put option
by purchasing an option with the same exercise price and expiration date as the
option previously written. This transaction is called a "closing purchase
transaction." The Portfolio will realize a profit or loss for a closing purchase
transaction if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Portfolio, may make a "closing sale
transaction" which involves liquidating the Portfolio's position by selling the
option previously purchased. Where the Portfolio cannot effect a closing
purchase transaction, it may be forced to incur brokerage commissions or dealer
spreads in selling securities it receives or it may be forced to hold underlying
securities until an option is exercised or expires.

14
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15
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The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Adviser will monitor
the creditworthiness of dealers with which the Portfolio enters into such
options transactions under the general supervision of the Portfolio's Trustees.
Unless the Trustees conclude otherwise, each Portfolio intends to treat OTC
options as not readily marketable and therefore subject to each Portfolio's 15%
limitation on investment in illiquid securities. The Portfolio intends to treat
OTC Options purchased and the assets used to "cover" OTC Options written as not
readily marketable and therefore subject to the limitations described in
"Investment Restrictions."

The Portfolio may, to the extent allowed by federal and state securities laws,
invest in securities indices instead of investing directly in individual foreign
securities.

16
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Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC Option will be met.

17
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For a description of commercial paper ratings, see Appendix.

Futures Contracts and Options on Futures Contracts.

General. The successful use of futures contracts and options thereon draws upon
the Adviser's skill and experience with respect to such instruments and usually
depends on the Adviser's ability to forecast interest rate and currency exchange
rate movements correctly. Should interest or exchange rates move in an
unexpected manner, a Portfolio may not achieve the anticipated benefits of
futures contracts or options on futures contracts or may realize losses and thus
will be in a worse position than if such strategies had not been used. In
addition, the correlation between movements in the price of futures contracts or
options on futures contracts and movements in the price of the securities and
currencies hedged or used for cover will not be perfect and could produce
unanticipated losses.

18
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Futures Contracts. Futures contracts are contracts to purchase or sell a fixed
amount of an underlying instrument, commodity or index at a fixed time and place
in the future. U.S. futures contracts have been designed by exchanges which have
been designated "contracts markets" by the CFTC, and must be executed through a
futures commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of exchanges and
clear through their clearing corporations. A Portfolio may enter into contracts
for the purchase or sale for future delivery of fixed-income securities, foreign
currencies, or financial indices including any index of U.S. government
securities, foreign government securities or corporate debt securities. A
Portfolio may enter into futures contracts which are based on debt securities
that are backed by the full faith and credit of the U.S. Government, such as
long-term U.S. Treasury Bonds, Treasury Notes, Government National Mortgage
Association ("GNMA") modified pass-through mortgage-backed securities and
three-month U.S. Treasury Bills. A Portfolio may also enter into futures
contracts which are based on bonds issued by governments other than the U.S.
government. Futures contracts on foreign currencies may be used to hedge against
securities that are denominated in foreign currencies.

19
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The purchase of a put option on a futures contract is similar in some respects
to the purchase of protective put options on portfolio securities. For example,
a Portfolio may purchase a put option on an interest rate sensitive futures
contract to hedge its portfolio against the risk of a decline in the prices of
debt securities and to rising interest rates.

20
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Futures Contracts on Foreign Securities Indices. The Portfolio may enter into
futures contracts providing for cash settlement based upon changes in the value
of an index of foreign securities. This investment technique is designed only to
hedge against anticipated future change in general market prices which otherwise
might either adversely affect the value of securities held by the Portfolio or
adversely affect the prices of securities which are intended to be purchased at
a later date for the Portfolio.

Although futures contracts on securities indices would be entered into for
hedging purposes only, such transactions do involve certain risks. Futures may
fail as hedging techniques in cases where the price movements of the securities
underlying the futures do not follow the price movements of the portfolio
securities subject to the hedge. The loss from investing in futures transactions
is potentially unlimited. Gains and losses on investments in futures depend on
the portfolio manager's ability to predict correctly the direction of stock
prices, interest rates, and other economic factors. The Portfolio will likely be
unable to control losses by closing its position where a liquid secondary market
does not exist.

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Investment Restrictions on Futures Transactions. A Portfolio will not enter into
any futures contracts or options on futures contracts if immediately thereafter
the amount of margin deposits on all the futures contracts of the Portfolio and
premiums paid on outstanding options on futures contracts owned by the Portfolio
(other than those entered into for bona fide hedging purposes) would exceed 5%
of the Portfolio's net asset value, after taking into account unrealized profits
and unrealized losses on any such contracts.

Additional Risk Factors

In addition to the risks discussed above, the Portfolio's investments may be
subject to the following risk factors:

Investing in Foreign Securities. The Portfolio will, under normal market
conditions, invest a significant portion of its assets in foreign securities.
Investors should realize that investing in securities of foreign issuers
involves considerations not typically associated with investing in securities of
companies organized and operated in the United States. Investors should realize
that the value of the Portfolio's foreign investments may be adversely affected
by changes in political or social conditions, diplomatic relations, confiscatory
taxation, expropriation, nationalization, limitation on the removal of funds or
assets, or imposition or (or change in) exchange control or tax regulations in
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Portfolio's operations, Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether favorably
or unfavorably, in areas such as growth or gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency or balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. In general, less information is publicly
available with respect to foreign issuers than is available with respect to U.S.
companies. Most foreign companies are also not subject to the uniform accounting
and financial reporting requirements applicable to issuers in the Untied States.
Any foreign investments made by the Portfolio must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

22
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Because foreign securities generally are denominated and pay dividends or
interest in foreign currencies, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. In order to protect against uncertainty in the level of future
foreign currency exchange rates, the Portfolio is also authorized to enter into
certain foreign currency exchange transactions. Furthermore, the Portfolio's
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. The settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. Finally, there may be less
government supervision and regulation of securities exchanges, brokers and
issuers in foreign countries than in the United States.

Investing in Emerging Markets. The risks involved when investing in emerging
markets are of a nature generally not encountered when investing in securities
traded on major international markets.

The world's industrialized markets generally include but are not limited to the
following: Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Norway, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and
the United States; the world's emerging markets generally include but are not
limited to the following: Argentina, Bolivia, Brazil, Bulgaria, Chile, China,
Colombia, Costa Rica, the Czech Republic, Ecuador, Egypt, Greece, Hungary,
India, Indonesia, Israel, the Ivory Coast, Jordan, Malaysia, Mexico, Morocco,
Nicaragua, Nigeria, Pakistan, Peru, the Philippines, Poland, Portugal, Romania,
Russia, Slovakia, Slovenia, South Africa, South Korea, Sri Lanka, Taiwan,
Thailand, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe.

Investment in securities of issuers based in underdeveloped emerging markets
entails all of the risks of investing in securities of foreign issuers outlined
in the above section to a heightened degree. These heightened risks include: (i)
greater risks of expropriation, confiscatory taxation, nationalization, and less
social, political and economic stability; (ii) the smaller size of the market
for such securities and a low or nonexistent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; (iv) accounting, auditing and financial reporting standards
applicable can be less demanding than the levels acceptable in the United States
which can result in incomplete company information; and (v) in the case of
Eastern Europe and in China and other Asian countries, the absence of developed
capital markets and legal structures governing private or foreign investment and
private property and the possibility that recent favorable economic and
political developments could be slowed or reversed by unanticipated events.

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Although external debt in most emerging markets is generally falling, it remains
at high levels. This acts as a depressant on economic growth and limits access
to global savings. As a result, many emerging markets are reliant on foreign
capital inflows for fund development. During periods of uncertainty, foreign
capital may be withdrawn from these economies, causing financial market
weakness.

Investments in certain countries may require government approval which may
restrict the size and nature of investments. These restrictions may limit the
Portfolio's access to certain emerging markets. Additionally, the Adviser may be
required to obtain government consent to redeem the Portfolio's capital and
profits. Therefore, the Portfolio could encounter delays or refusals to grant
permission for money to be removed from the country. This could impact the
amount of cash available to meet shareholder redemptions.

In addition to brokerage commissions, custodial services and other costs
relating to investment in emerging markets are generally more expensive than in
the United States. Such markets have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of the Portfolio to make intended security purchases due to settlement
problems could cause the Portfolio to miss attractive investment opportunities.
Inability to dispose of a security due to settlement problems could result
either in losses to the Portfolio due to subsequent declines in the value of the
security or, if the Portfolio has entered into a contract to sell the security,
could result in possible liability to the purchaser.

It should be noted that developments affecting emerging market investments
cannot always be foreseen. Therefore, a shareholder may find it difficult to
protect their investments against risk.

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There are no foreign exchange restrictions on the repatriation of gains made on
or income derived from "B" shares, subject to the payment of taxes imposed by
China thereon.

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Company laws relating to companies limited by shares and regulations regarding
the issuing of shares by equity joint ventures have not yet been developed on a
national basis. The Shenzhen municipality issued regulations in 1992 relating to
joint stock companies, and the Shanghai municipality has a draft joint stock
company law under review. Regulations governing the trading of securities on
both the Shenzhen and the Shanghai stock exchanges have been issued by each
municipality; there is no national securities legislation as yet.

Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by the Portfolio in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as principals, although foreign currency
options are also traded on certain national securities exchanges such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.

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Options on foreign currencies traded on national securities exchanges are within
the jurisdiction of the SEC, as are other securities traded on such exchanges.
As a result, many of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In particular, all foreign
currency option positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation ("OCC"), thereby
reducing the risk of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more readily available
than in the over-the-counter market, potentially permitting the Portfolio to
liquidate open positions at a profit prior to exercise or expiration, or to
limit losses in the event of adverse market movements.

In addition, futures contracts, options on futures contracts, forward contracts
and options on foreign currencies may be traded on foreign exchanges. Such
transactions are subject to the risk of governmental actions affecting trading
in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during nonbusiness hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.

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Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distribution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.

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Rating Services. The ratings of rating services represent their opinions as to
the quality of the securities that they undertake to rate. It should be
emphasized, however, that ratings are relative and subjective and are not
absolute standards of quality. Although these ratings are an initial criterion
for selection of portfolio investments, the Adviser also makes its own
evaluation of these securities, subject to review by the Board of Trustees.
After purchase by the Portfolio, an obligation may cease to be rated or its
rating may be reduced below the minimum required for purchase by the Portfolio.
Neither event would require the Portfolio to eliminate the obligation from its
portfolio, but the Adviser will consider such an event in its determination of
whether the Portfolio should continue to hold the obligation. A description of
the ratings is included in the Fund's Prospectus.

Investment Restrictions

Fundamental Policies. The following investment restrictions are "fundamental
policies" of the Fund and the Portfolio and may not be changed with respect to
the Fund or the Portfolio without the approval of a "majority of the outstanding
voting securities" of the Fund or the Portfolio, as the case may be. "Majority
of the outstanding voting securities" under the the 1940 Act, and as used in
this SAI, means, with respect to the Fund (or the Portfolio), the lesser of (i)
67% or more of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio) present at a meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund (or of the total
beneficial interests of the Portfolio) are present or represented by proxy or
(ii) more than 50% of the outstanding voting securities of the Fund (or of the
total beneficial interests of the Portfolio). Whenever the Trust is requested to
vote on a fundamental policy of the Portfolio, the Trust will hold a meeting of
the Fund's shareholders and will cast its vote as instructed by the Fund's
shareholders. Fund shareholders who do not vote will not affect the Trust's
votes at the Portfolio meeting. The percentage of the Trust's votes representing
Fund shareholders not voting will be voted by the Trustees of the Trust in the
same proportion as the Fund shareholders who do, in fact, vote.

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As a matter of fundamental policy, no Portfolio (or Fund) may (except that no
investment restriction of a Fund shall prevent a Fund from investing all of its
Assets in an open-end investment company with substantially the same investment
objectives):

(2) underwrite securities issued by other persons except insofar as the
Portfolio (Trust or the Fund) may technically be deemed an underwriter
under the 1933 Act in selling a portfolio security;

(3) make loans to other persons except: (a) through the lending of the
Portfolio's (Fund's) portfolio securities and provided that any such
loans not exceed 30% of the Portfolio's (Fund's) total assets (taken at
market value); (b) through the use of repurchase agreements or the
purchase of short-term obligations; or (c) by purchasing a portion of an
issue of debt securities of types distributed publicly or privately;

(4) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or interests
therein), interests in oil, gas or mineral leases, commodities or
commodity contracts (except futures and option contracts) in the
ordinary course of business (except that the Portfolio (Fund) may hold
and sell, for the Portfolio's (Fund's) portfolio, real estate acquired
as a result of the Portfolio's (Fund's) ownership of securities);

(5) concentrate its investments in any particular industry (excluding
U.S. government securities), but if it is deemed appropriate for the
achievement of the Portfolio's (Fund's) investment objective(s), up to
25% of its total assets may be invested in any one industry; and

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(6) issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction.

Additional Restrictions. The following are non-fundamental policies. In
order to comply with certain statutes and policies, the Portfolio (or
the Trust, on behalf of the Fund) will not as a matter of operating
policy (except that no operating policy shall prevent the Fund from
investing all of its Assets in an open-end investment company with
substantially the same investment objectives):

(ii) invest for the purpose of exercising control or management of
another company;

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There will be no violation of any investment restriction (except with
respect to fundamental investment restriction (1) above) if that
restriction is complied with at the time the relevant action is taken,
notwithstanding a later change in the market value of an investment, in
net or total assets or in the change of securities rating of the
investment, or any other later change.

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Portfolio Transactions and Brokerage Commissions

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Consistent with the policy stated above, the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such other policies as the
Trustees of the Portfolio may determine, the Adviser may consider sales of
shares of the Trust and of other investment company clients of the Adviser as a
factor in the selection of broker-dealers to execute portfolio transactions. The
Adviser will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.

Higher commissions may be paid to firms that provide research services to the
extent permitted by law. The Adviser may use this research information in
managing the Portfolio's assets, as well as the assets of other clients.

For the period June 30, 1998 (commencement of operations through September 30,
1998, the Portfolio paid brokerage commissions in the amount of $7,522.

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PERFORMANCE INFORMATION

Standard Performance Information

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. Performance information
may include the Fund's investment results and/or comparisons of its investment
results to the Morgan Stanley Capital International Emerging Markets Free Total
Return Index or to various other unmanaged indices or results of other mutual
funds or investment or savings vehicles. From time to time, Fund rankings may be
quoted from various sources, such as Lipper Analytical Services, Inc., Value
Line, and Morningstar, Inc.

For mutual funds, performance is commonly measured as total return. The Fund's
performance is affected by its expenses. These performance figures are
calculated in the following manner:

Total Return: Total return is the change in value of an investment in
the Fund over a given period, assuming reinvestment of any dividends and
capital gains. A cumulative total return reflects actual performance
over a stated period of time. An average annual total return is a
hypothetical rate of return that, if achieved annually, would have
produced the same cumulative total return if performance had been
constant over the entire period. Average annual total return
calculations smooth out variations in performance; they are not the same
as actual year-by-year results. Average annual total returns covering
periods of less than one year assume that performance will remain
constant for the rest of the year. The Fund's average annual total
return is calculated for certain periods by determining the average
annual compounded rates of return over those periods that would cause an
investment of $1,000 (made at the maximum public offering price with all
distributions reinvested) to reach the value of that investment at the
end of the periods. A Fund may also calculate total return figures which
represent aggregate performance over a period or year-by-year
performance.

Cumulative Total Return for the Period from
June 30, 1998 (Commencement of Operations)
to September 30, 1998

Global Emerging -19.60%
Markets Equity Fund

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Performance Results: Total returns are based on past results and are not
an indication of future performance. Any total return quotation provided
for the Fund should not be considered as representative of then
performance of a Fund in the future since the net asset value and public
offering price of shares of a Fund will vary based not only on the type,
quality and maturities of the securities held in the corresponding
Portfolio, but also on changes in the current value of such securities
and on changes in the expenses of a Fund and the corresponding
Portfolio. These factors and possible differences in the methods used to
calculate total return should be considered when comparing the total
return of the Fund to total returns published for other investment
companies or other investment vehicles. Total return reflects the
performance of both principal and income.

Expenses

The Fund bears its own expenses. Operating expenses for the Fund generally
consist of all costs not specifically borne by the Adviser or ICC Distributors,
including administration fees, fees for necessary professional services,
amortization of organizational expenses and costs associated with regulatory
compliance and maintaining legal existence and shareholder relations. The
Portfolio bears its own expenses. Operating expenses for the Portfolio generally
consist of all costs not specifically borne by the Adviser or ICC Distributors,
including investment advisory and administration and service fees, fees for
necessary professional services, amortization of organizational expenses, the
costs associated with regulatory compliance and maintaining legal existence and
investor relations.

Comparison of Fund Performance

In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
other mutual funds tracked by mutual fund rating services or to unmanaged
indices which may assume reinvestment of dividends but generally do not reflect
deductions for administrative and management costs. A Fund's performance may be
compared to the performance of various indices and investments for which
reliable data is available. The Fund's performance may also be compared to
averages, performance rankings, or other information prepared by recognized
mutual fund statistical services. Evaluations of the Fund's performance made by
independent sources may also be used in advertisements concerning the Fund.

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Sources for the Fund's performance information could include the following: