[Flag Investors logo]
Flag Investors
Mutual Funds
[Flag Investors logo]
Growth Flag
Flag Investors Emerging Growth Fund Investors
Flag Investors Equity Partners Fund International
Flag Investors International Fund Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Intermediate-Term Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate
Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515 Semi-Annual Report
Baltimore, Maryland 21203 April 30, 1996
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Directors and Officers
Truman T. Semans John W. Church, Jr.
Chairman President
James J. Cunnane Andrew B. Williams
Director Executive Vice President
Richard T. Hale Gary V. Fearnow
Director Vice President
John F. Kroeger Edward J. Veilleux
Director Vice President
Louis E. Levy Brian C. Nelson
Director Vice President and Secretary
Eugene J. McDonald Joseph A. Finelli
Director Treasurer
Carl W. Vogt, Esq. Laurie D. DePrine
Director Assistant Secretary
Harry Woolf
Director
Investment Objective
A mutual fund seeking long-term growth of capital primarily through investment
in a diversified portfolio of marketable equity securities of issuers domiciled
outside of the United States.
Investment Advisor
Investment Company Capital Corp.
P.O. Box 515
Baltimore, MD 21203
(800) 553-8080
Custodian
PNC Bank, N.A.
Transfer Agent
Investment Company Capital Corp.
Legal Counsel
Morgan, Lewis & Bockius LLP
Independent Auditors
Deloitte & Touche LLP
Fund Highlights
Average Annual Total Return*
Periods ended 4/30/96:
Six Months 12.9%
One Year 16.6%
Five Years 7.5%
Since Inception (11/18/86) 7.2%
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales charge
was reflected, the quoted performance would be lower. Since investment return
and principal value will fluctuate, an investor's shares may be worth more or
less than their original cost when redeemed. Past performance is not an
indicator of future results. Please review the Additional Performance
Information on page 3.
Portfolio Breakdown by Country
Australia 3.6%
Canada 1.7
Finland 1.6
France 7.9
Germany 5.8
Hong Kong 2.1
Italy 5.3 [Pie Chart Appears Here--
Japan 28.3 Plot Points at Left]
Malaysia 2.3
Mexico 1.1
Netherlands 6.7
Norway 1.3
Spain 7.1
Switzerland 1.7
Thailand 3.3
United Kingdom 18.4
United States 1.8
1
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Dear Shareholders:
International stock markets have performed well over the past six months.
Investors continue to react positively to the favorable combination of continued
earnings growth, modest valuations and stable interest rates. Over this period,
the Asian markets recorded the best returns as Japanese stocks pulled the region
higher with an 18% gain in dollar terms. Europe benefited from the same factors,
and the region appreciated 8.5%.
Overall, the Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index produced a 13.2% total return during the six months ended
April 30, 1996. Your Fund generated a 12.9% return over the same period. The
Fund's slight underperformance versus the Index was due primarily to the
relatively low, 28% exposure to Japanese stocks, versus a 40% exposure in the
Index. Over the past year, favorable security and country selection enabled the
Fund to outperform the Index, with a total return of 16.6% versus 11.4% in the
Index.
Many attractive investment opportunities in international stocks remain
unexploited. Due to their low valuations, European markets, in general, should
perform well over the next eighteen months. Presently, approximately 57% of the
Fund's net assets are invested in select European equities.
After several years of recession, the Japanese economy finally appears to
be recovering in 1996. Many of these holdings are financially strong companies
that have reduced operating costs and are well-positioned to participate in the
developing earnings recovery there. Japanese stocks currently represent 28% of
the Fund's net assets.
The balance of the Fund's investments are in the rapidly expanding Pacific
Rim economies or in Mexico, which, like Japan, is in a recovery mode. We expect
this mix of attractively valued assets to produce returns superior to the
EAFE Index.
Thank you for your continued interest in the Fund.
Sincerely,
/s/ John W. Church, Jr. /s/ Andrew B. Williams
John W. Church, Jr. Andrew B. Williams
President Executive Vice President
May 22, 1996
2
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
andExchange Commission (SEC)requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SECcalculation includes the impact of the
Fund's currently effective 4.50% maximum sales charge.
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
% Return With
Periods ended 3/31/96: Sales Charge
- --------------------------------------------------------------------------------
One Year 9.60%
Five Years 5.97%
Since Inception (11/18/86) 6.24%
Any performance figures shown are for the full period indicated. Since
investment return and principal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. Past performance
is not an indicator of future results.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
Ten Largest Holdings
(As of April 30, 1996)
Percent of
Company Net Assets
- --------------------------------------------------------------------------------
1. Mirror Group Newspapers PLC 4.5%
Large publisher in the U.K. with various
newspapers in England and Scotland.
- ---------------------------------------------------------------------------
2. Deutsche Bank AG 3.6
Largest bank in Germany, providing
banking and related financial services
worldwide.
- ---------------------------------------------------------------------------
3. Siam Commercial Bank Ltd. 3.3
One of the leading medium-sized banks
in Thailand.
4. Lend Lease Corp. 3.0
One of the leading financial services
groups in Australia with businesses and
property services and construction.
5. IHC Caland NV Holdings 2.9
Dutch engineering company serving
the oil, dredging and mining industries.
6. Dragados & Construcciones SA 2.6
Civil engineering and construction
company in Spain.
7. Tomkins PLC ADS 2.5
U.K.-based conglomerate involved in
the manufacture of fluid controls,
industrial products, food, garden and
leisure products.
8. Elf Aquitaine 2.4
International integrated oil and gas
company in France.
9. Algemene Bank Nederland 2.3
Amsterdam-Rotterdam
Netherlands' largest bank and one of
the ten largest banks in Europe.
10. Malaysian International Shipping 2.3
Corp. Berhad `F'
Operates a fleet of vessels and is
involved in shipbuilding, warehousing,
trucking and port operations.
3
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Statement of Net Assets April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent Percent
No. of Value of Net No. of Value of Net
Shares Security (Note A) Assets Shares Security (Note A) Assets
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <S> <C> <C>
COMMON STOCK--98.1%
AUSTRALIA--3.6% JAPAN (continued)
41,163 Burns Philip &Co. $ 84,466 0.6% 2,000 Aoyama ADR $ 62,756 0.5%
26,634 Lend Lease Corp. 406,229 3.0 10,000 Canon, Inc. 198,379 1.5
490,695 3.6 600 Chukyo Coca-Cola 6,924 --
10,000 Daiwa House Industry
CANADA--1.7% Co. Ltd. 159,275 1.2
50 East Japan Railway Co. 266,571 2.0
70 Bank of Nova Scotia* 1,586 -- 25,000 Hitachi Ltd. 269,432 2.0
5,000 Magna International 231,875 1.7 12,000 Honda Motor Co. 273,534 2.0
233,461 1.7 20,000 Kao Corp. 267,048 2.0
1,500 Kyocera Corp. ADR 226,313 1.7
FINLAND--1.6% 14,000 Matsushita Electric
6,000 Nokia Corp. 218,250 1.6 Industry Co. 247,020 1.8
20,000 Nishimatsu Construction
FRANCE--7.9% Co. 234,621 1.7
4,258 Elf Aquitaine 316,509 2.4 4,000 Rohm Company 254,077 1.9
2,549 Generale des Eaux 277,087 2.1 11,000 Sankyo Co. 266,476 2.0
4,356 Lafarge Coppee SA 278,885 2.1 7,000 Sharp Corp. 121,507 0.9
9,680 Lagardere Groupe, 20,000 Toda Construction Co. 217,453 1.6
Warrants Expiring 10,000 Yamanouchi
6/30/97* 7,677 -- Pharmaceutical 236,528 1.8
4,000 Technip ADR 179,598 1.3 3,813,589 28.3
1,059,756 7.9
MALAYSIA--2.3%
GERMANY--5.8% 94,666 Malaysian International
10,000 Deutsche Bank AG 478,928 3.6 Shipping Corp.
6,000 Veba AG 296,570 2.2 Berhad `F' 303,770 2.3
775,498 5.8
MEXICO--1.1%
HONG KONG--2.0% 33,750 Cementos Astsk `B' SA 144,278 1.1
125,000 Hong Kong Land Holdings 267,500 2.0
NETHERLANDS--6.7%
ITALY--5.3% 6,114 Algemene Bank Nederland
8,756 Assicurazioni Generali 218,619 1.6 Amsterdam-Rotterdam 316,494 2.3
21,300 Benetton Group SpA 256,010 1.9 10,100 Bols Wessanew 197,461 1.5
120,000 Telecom Italia 245,000 1.8 10,000 IHC Caland NV Holdings 392,763 2.9
719,629 5.3 906,718 6.7
JAPAN--28.3% NORWAY--1.3%
6,600 Acom Co., Ltd. 248,641 1.8 4,300 Kvaerner AS 176,704 1.3
5,000 Amway Japan Ltd. 257,034 1.9
</TABLE>
4
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Statement of Net Assets (concluded) April 30, 1996
(Unaudited)
<TABLE>
<CAPTION> No. of
Percent Shares/ Percent
No. of Value of Net Par Value of Net
Shares Security (Note A) Assets (000) Security (Note A) Assets
- ---------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <S> <C> <C>
COMMON STOCK (concluded) PREFERRED STOCK--0.1%
SPAIN--7.1% HONG KONG
10,000 Banco Central Hispano $ 209,595 1.6% 16 Dairy Farm International
25,000 Dragados & Holdings Ltd., Cvt.
Construcciones SA 344,082 2.6 (Cost $16,000) $ 13,360 0.1%
6,000 Repsol SA 220,134 1.6
10,000 Vallehermoso SA 180,889 1.3 REPURCHASE AGREEMENT--1.7%
954,700 7.1 $225 Goldman Sachs & Co., 5.20%
Dated 4/30/96, to be
SWITZERLAND--1.7% repurchased on 5/1/96,
1,260 Schweizerischer Bankverein collateralized by U.S.
(Swiss Bank Corp.), Treasury Notes with a
Registered Shares* 235,078 1.7 market value of
$230,180.
THAILAND--3.3% (Cost $225,000) 225,000 1.7
30,000 Siam Commercial Bank
Ltd. `F' 441,980 3.3 Total Investment
In Securities
UNITED KINGDOM--18.4% (Cost $10,951,660)** 13,451,997 99.9
22,967 Argyll Group PLC 115,024 0.9 Other Assets in Excess
16,149 The Boots Co. PLC 154,447 1.1 of Liabilities, Net 10,075 0.1
20,000 Grand Metropolitan PLC 131,843 1.0
70,000 Iceland Group PLC 161,560 1.2 Net Assets $13,462,072 100.0%
174,000 Mirror Group
Newspapers PLC* 603,702 4.5 Net Asset Value and
25,000 National Power PLC 211,567 1.6 Redemption Price
50,000 Scottish Power PLC 280,958 2.1 Per Share
40,000 Smith (WH) Group PLC 298,683 2.2 ($13,462,072 / 940,061
25,000 Tate & Lyle PLC 181,774 1.3 shares outstanding) $14.32
80,000 Tomkins PLC ADS 332,473 2.5
2,472,031 18.4 Maximum Offering
Total Common Stock Price Per Share
(Cost $10,710,660) 13,213,637 98.1 ($14.32 / .955) $14.99
</TABLE>
*Non-income producing security.
**Also aggregate cost for federal tax purposes.
See accompanying Notes to Financial Statements.
5
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Statement of Operations For the Six Months Ended April 30, 1996
(Unaudited)
INVESTMENT INCOME (NOTE A):
Dividends $ 116,850
Interest 8,675
Less:Foreign taxes withheld (14,013)
Total income 111,512
EXPENSES:
Investment advisory fee (Note B) 48,161
Distribution fee (Note B) 16,054
Audit 14,211
Accounting fees 13,592
Legal 12,465
Miscellaneous 12,093
Custodian fees 10,471
Printing and postage 9,724
Transfer agent fees (Note B) 8,478
Registration fees 3,989
Directors' fees 1,298
Insurance 48
Total expenses 150,584
Less:Fees waived and expenses reimbursed (Note B) (61,945)
Net expenses 88,639
Net investment income 22,873
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions 299,374
Net realized foreign exchange loss (13,759)
Change in unrealized appreciation of investments 1,254,809
Change in unrealized depreciation on translation of assets
and liabilities denominated in foreign currencies (3,942)
Net gain on investments 1,536,482
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,559,355
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
6
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
April 30, 1996 Ended
(Unaudited) October 31, 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 22,873 $ 90,267
Net realized gain from security transactions and
foreign exchange transactions 285,615 666,979
Change in unrealized appreciation/(depreciation)
of investments 1,254,809 (2,231,677)
Change in unrealized appreciation/(depreciation)
on translation of assets and liabilities
denominated in foreign currencies (3,942) 41,662
Net increase/(decrease) in net assets resulting
from operations 1,559,355 (1,432,769)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of 60,799 and 99,262 shares,
respectively 826,088 1,243,444
Cost of 104,246 and 224,000 shares repurchased,
respectively (1,406,515) (2,814,795)
Total decrease in net assets derived from capital
share transactions (580,427) (1,571,351)
Total increase/(decrease) in net assets 978,928 (3,004,120)
NET ASSETS:
Beginning of period 12,483,144 15,487,264
End of period $13,462,072 $12,483,144
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six
Months Ended
April 30, 1996 For the Year Ended October 31,
(Unaudited) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 12.69 $ 13.97 $ 13.05 $ 9.11 $ 10.63 $ 11.80
Income from Investment Operations:
Net investment income 0.03 0.09 0.18 0.49 0.16 0.15
Net realized and unrealized gain/(loss)
on investments* 1.60 (1.37) 1.58 3.45 (1.62) (0.55)
Total from Investment Operations 1.63 (1.28) 1.76 3.94 (1.46) (0.40)
Less Distributions:
Dividends from net investment income
and short-term gains -- -- (0.84) -- (0.06) --
Distributions from net realized
long-term gains -- -- -- -- -- (0.77)
Total distributions -- -- (0.84) -- (0.06) (0.77)
Net asset value at end of period $ 14.32 $ 12.69 $ 13.97 $ 13.05 $ 9.11 $ 10.63
Total Return** 12.85% (9.16)% 13.98% 43.25% (13.80)% (3.15)%
Ratios to Average Daily Net Assets:
Expenses(1) 1.50%(3) 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income(2) 0.36%(3) 0.68% 0.75% 1.91% 0.73% 1.17%
Supplemental Data:
Net assets at end of period (000) $13,462 $12,483 $15,487 $15,008 $19,780 $38,830
Portfolio turnover rate 13% 35% 43% 48% 63% 73%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Current period includes net realized currency loss. Prior year's realized
currency gain/(loss) is included in net income.
** Total return excludes the effect of sales charge.
(1) Without the waiver of advisory fees and reimbursement of expenses (Note
B), the ratio of expenses to average daily net assets would have
been 2.35% (annualized), 2.17%, 1.97%, 2.13%, 1.92%, and 1.90% for the
six months ended April 30, 1996 and the years ended October 31, 1995, 1994,
1993, 1992, and 1991, respectively.
(2) Without the waiver of advisory fees and reimbursement of expenses (Note
B), the ratio of net investment income to average daily net assets would
have been (0.61)% (annualized), 0.02%, 0.28%, 1.28%, 0.31%, and 0.77% for
the six months ended April 30, 1996 and the years ended October 31, 1995,
1994, 1993, 1992, and 1991, respectively.
(3) Annualized.
See accompanying Notes to Financial Statements.
8
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Notes to Financial Statements
A. Significant Accounting Policies - Flag Investors International Fund, Inc.
("the Fund") was organized as a Massachusetts business trust on September
3, 1986 and commenced operations on November 18, 1986. The Fund was
reorganized as a Maryland corporation on August 16, 1993. The Fund is
registered under the Investment Company Act of 1940 as a diversified,
open-end management investment company seeking long-term growth of capital
primarily through investment in a diversified portfolio of marketable
equity securities of issuers domiciled outside of the United States.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Security Valuation - Securities that are listed on a securities exchange are
valued on the basis of their last quoted sale price (or, in the absence of
recorded sales, at the last available bid price). If a security is listed on
more than one exchange, the last quoted sale price on the exchange where the
security is primarily traded is used. Securities or other assets for which
market quotations are not readily available are valued at their fair value
so determined in good faith by the Investment Advisor under procedures
established and monitored by the Board of Directors. Short-term obligations
with maturities of 60 days or less are valued at amortized cost.
Foreign Currency Transactions - The books and records of the Fund are
maintained in U.S. dollars. Transactions denominated in foreign currencies
are recorded in the Fund's records at the rate prevailing when earned or
incurred. Asset and liability accounts that are denominated in foreign
currencies are adjusted to reflect the current exchange rate. Transaction
gains or losses resulting from changes in the exchange rate during the
reporting period or upon settlement of the foreign currency transactions are
reported in realized and unrealized gain/(loss) on investments for the
current period. Prior period financial statements have not been
reclassified.
The Fund is authorized to enter into forward foreign exchange contracts as a
hedge against either specific transactions or portfolio positions. Such
contracts are not reflected in the Fund's financial statements. However, the
net income or loss from such contracts is recorded from the date the
contract is entered into. Premiums or discounts are amortized over the life
of the contracts.
Federal Income Tax - No provision is made for federal income taxes as it is
the Fund's intention to continue to qualify as a regulated investment
company and to make requisite distributions to the shareholders that will be
sufficient to relieve it from all or substantially all federal income and
excise taxes. The Fund's policy is to annually distribute to shareholders
substantially all of its taxable net investment income and net realized
capital gains.
Other - Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis and includes, when
applicable, the pro rata amortization of premiums and accretion of
discounts. Dividend income is recorded on the ex-dividend date.
9
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
INTERNATIONAL FUND
Notes to Financial Statements (concluded)
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees -
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., serves as the Fund's investment advisor and The Glenmede
Trust Company ("Glenmede") is the Fund's subadvisor. As compensation for
its services, ICC receives from the Fund a fee, calculated daily and paid
monthly, equal to .75% of the Fund's average daily net assets.
As compensation for its subadvisory services, Glenmede receives a fee from
ICC, calculated daily and paid monthly, equal to .55% of the Fund's average
daily net assets.
ICC and Glenmede have voluntarily agreed to waive a portion of their fees
and reimburse expenses so that the total operating expenses of the Fund do
not exceed 1.50% of the Fund's average daily net assets. For the six months
ended April 30, 1996, ICCand Glenmede waived $12,843 and $35,318,
respectively. For the six months ended April 30, 1996, ICC and Glenmede
reimbursed the Fund $3,676 and $10,108, respectively.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly from the Fund's average daily
net assets. ICC received $13,592 for accounting services for the six months
ended April 30, 1996.
As compensation for its transfer agent services, ICCreceives from the Fund a
per account fee, calculated and paid monthly. ICC received $8,478 for
transfer agent services for the six months ended April 30, 1996.
As compensation for providing distribution services, Alex. Brown &Sons
Incorporated ("Alex. Brown") receives from the Fund an annual fee, payable
monthly at the annual rate of .25% of the Fund's average daily net assets.
For the six months ended April 30, 1996, distribution fees were $16,054.
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated
to the Fund for the six months ended April 30, 1996 was $132.
C. Capital Share Transactions - The Fund is authorized to issue up to 10 million
shares of capital stock, par value $.001 per share, all of which shares
are designated as common stock.
D. Investment Transactions - Purchases and sales of investment securities, other
than short-term obligations, aggregated $806,425 and $1,211,565,
respectively, for the six months ended April 30, 1996.
At April 30, 1996, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $2,738,644 and
aggregate gross unrealized depreciation for all securities in which there
is an excess of tax cost over value was $238,307.
E. Net Assets - At April 30, 1996, net assets consisted of:
Paid-in capital $15,972,559
Undistributed net
investment income 126,104
Accumulated net realized loss
from security and foreign
exchange transactions (5,137,957)
Unrealized appreciation of
investments 2,500,337
Unrealized translation gain 1,029
$13,462,072
10
