[Flag Investors Logo]
FLAG
INVESTORS INTERNATIONAL FUND
ANNUAL REPORT
OCTOBER 31, 1996
<PAGE>
REPORT HIGHLIGHTS
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(bullet) The Fund outperformed the Morgan Stanley Capital International
Europe, Australia, Far East (EAFE) Index for the year ended October 31, 1996,
mainly because of its relatively small commitment to Japanese stocks.
(bullet) Sixteen of the 20 stock markets in the EAFE Index generated
positive U.S. dollar-based returns over the past year.
(bullet) The economic outlook for international stocks remains favorable as
economists anticipate an acceleration in Europe's economic activity and Japan
continues its earnings recovery.
<PAGE>
LETTER TO SHAREHOLDERS
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Dear Shareholders:
The international stock markets have performed well over the past twelve
months. During the period, moderate GDPgrowth and low inflation pressures
contributed to positive U.S. dollar-based returns for 16 of the 20 international
stock markets in the EAFE Index. The economic backdrop, in turn, facilitated a
global decline in interest rates while permitting an earnings expansion.
European returns were generally strong, but Asian performance was weaker,
primarily due to the 11% decline in the Japanese yen. Because Japan is the
dominant component of the EAFE Index, accounting for nearly 40% of its value,
the -0.8% dollar-based return on Japanese equities limited the index's return to
10.5%.
Average Annual Total Return*
Periods Ended 10/31/96
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One Year 12.1%
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Five Years 7.5%
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Since Inception (11/18/86) 6.7%
Over the same period, the Fund generated a 12.1% total return, net of
expenses (see chart, left). The Fund outperformed the index because of its
relatively small weighting of 27% in Japanese stocks during the period.
The outlook for international stocks remains favorable. In the European
region, economists anticipate an acceleration in economic activity, which should
facilitate an ongoing earnings expansion. At the same time, many corporations
there are restructuring their operations to improve profitability and enhance
shareholder returns. Approximately 60% of the Fund's assets are currently
invested in select European countries with modest valuations and good dividend
yields.
In Japan, where 25% of the Fund's assets are currently invested,
corporations have only just emerged from a four-year profits recession. Although
the financial sector of the Japanese economy remains fragile, many manufacturing
companies still enjoy dominant market shares on a global basis. Many companies
recently reported earnings that were ahead of expectations for the first half of
Japan's fiscal year (the six months ended September 30).
- ------------
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales charge
were 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 4.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
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The Japanese stocks in the portfolio are attractively valued companies with
solid earnings. While the yen's weakness against the dollar offset security
gains last year, many strategists believe the yen has stabilized against the
dollar and will not penalize future returns. We believe this mix of investments
will permit the Fund's continued outperformance against the EAFE Index in the
coming year.
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
November 14, 1996
2
<PAGE>
TEN LARGEST HOLDINGS
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Percent of
Company Net Assets
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1. IHC Caland NV Holdings 4.3%
Dutch engineering company serving the oil, dredging
and mining industries.
2. Deutsche Bank AG 3.6%
Largest bank in Germany, providing banking and related
financial services worldwide.
3. Lend Lease Corp., Ltd. 3.5%
One of the leading financial services groups in Australia
with businesses of property services and construction.
4. ABN-AMRO Holding N.V. 2.7%
Netherlands' largest bank and one of the ten largest
banks in Europe.
5. Elf Aquitaine SA 2.6%
International integrated oil and gas company in France.
6. Tomkins PLC 2.6%
U.K.-based conglomerate involved in the manufacture of
fluid controls, industrial products, food,
garden and leisure products.
7. Dragados & Construcciones SA 2.6%
Civil engineering and construction company in Spain.
8. Veba AG 2.5%
An electrical energy service provider in Germany that
also operates chemical, oil and telecommunications
subsidiaries.
9. MIRROR GROUP NEWSPAPERS PLC 2.5%
A large publisher in the U.K. with various newpapers
in England and Scotland.
10. Compagnie Generale des Eaux 2.3%
French conglomerate involved in water purification and
distribution, energy, waste management, construction,
communications and health care.
3
<PAGE>
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. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's inception on
November 18, 1986 through the most recent fiscal year-end and must reflect the
impact of the Fund's total expenses and its currently effective 4.50% maximum
sales charge.
While the following chart is required by SEC rules, such comparisons are of
limited utility since the index shown is not adjusted for sales charges and
ongoing management, distribution and operating expenses applicable to the Fund.
An investor who wished to replicate the total return of the index would have had
to own the securities that it represents. Acquiring these securities would
require a considerable amount of money and would incur expenses that are not
reflected in the index results.
The SEC also requires that we report the Fund's total returns, 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 SEC
calculation includes the impact of the currently effective maximum sales charge.
These total returns correspond to those experienced by individual shareholders
only if their shares were purchased on the first day of each time period and the
maximum sales charge was paid. 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.
4
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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Change in Value of a $10,000 Investment*
November 18, 1986-October 31, 1996
[Graph appears here--see plot points below]
Flag Investors International Fund $18,234
Morgan Stanley Capital International Europe, Australia, Far East (EAFE)
Index $23,025
Morgan Stanley Capital
Flag Investors International Europe,
International Australia, Far East
Fund (EAFE) Index
10/88 11,997 15,799
10/89 14,066 17,085
10/90 13,133 14,895
10/91 12,719 15,930
10/92 10,964 13,824
10/93 15,706 19,003
10/94 17,927 20,920
10/95 16,261 20,843
10/96 18,234 23,025
Average Annual Total Return*
Periods Ended 9/30/96 1 Year 5 Years Since Inception
- --------------------------------------------------------------------------------
Flag Investors International Fund 5.01% 6.20% 6.28%
................................................................................
*These figures assume the reinvestment of dividends and capital gains
distributions. The Morgan Stanley Capital International Europe, Australia, Far
East (EAFE) Index is an unmanaged index that is widely recognized as an
indicator of general international equity performance. Past performance is not
an indicator of future results.
5
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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Statement of Net Assets October 31, 1996
<TABLE>
<CAPTION>
No. of Value Percent of
Shares Security (Note 1) Net Assets
- -----------------------------------------------------------------------------------------
=========================================================================================
<S> <C>
COMMON STOCK -- 98.8%
AUSTRALIA -- 4.0%
41,163 Burns, Philp & Co. Ltd. $ 65,145 0.5%
26,634 Lend Lease Corp., Ltd. 450,805 3.5
-------- ----
515,950 4.0
CANADA -- 1.9%
70 Bank of Nova Scotia 2,220 --
5,000 Magna International, Inc. - Class A 250,625 1.9
-------- ----
252,845 1.9
FINLAND -- 2.2%
6,000 Nokia AB - Series A ADR 278,250 2.2
-------- ----
FRANCE -- 8.4%
2,549 Compagnie Generale des Eaux 303,991 2.3
4,258 Elf Aquitaine SA 339,756 2.6
4,356 Lafarge SA 260,851 2.0
Lagardere Groupe,
9,680 Warrants Expiring 6/30/97* 13,037 0.1
4,000 Technip ADR 174,973 1.4
-------- ----
1,092,608 8.4
GERMANY -- 6.1%
10,000 Deutsche Bank AG 463,500 3.6
6,000 Veba AG 319,528 2.5
-------- ----
783,028 6.1
HONG KONG -- 2.2%
125,000 Hong Kong Land Holdings, Ltd. 278,750 2.2
-------- ----
ITALY -- 5.4%
9,631 Assicurazioni Generali 185,846 1.4
21,300 Benetton Group SpA 251,661 1.9
120,000 Telecom Italia SpA 267,123 2.1
- -----------------------------------------------------------------------------------------
704,630 5.4
</TABLE>
6
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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<TABLE>
<CAPTION>
No. of Value Percent of
Shares Security (Note 1) Net Assets
- -----------------------------------------------------------------------------------------
=========================================================================================
<S> <C>
COMMON STOCK -- continued
JAPAN -- 25.4%
6,600 Acom Co., Ltd. $ 253,111 2.0%
5,000 Amway Japan Ltd. 199,210 1.5
2,000 Aoyama Trading Co., Ltd. 51,075 0.4
10,000 Canon, Inc. 191,312 1.5
10,000 Daiwa House Industry Co., Ltd. 138,657 1.1
50 East Japan Railway Co. 229,487 1.8
25,000 Hitachi Ltd. 221,588 1.7
12,000 Honda Motor Co. 286,441 2.2
20,000 Kao Corp. 235,191 1.8
1,500 Kyocera Corp. ADR 197,063 1.5
2,000 Nintendo Corp. Ltd. 127,775 1.0
20,000 Nishimatsu Construction Co. 184,291 1.4
4,000 Rohm Co. 236,946 1.8
11,000 Sankyo Co., Ltd. 272,225 2.1
7,000 Sharp Corp. 106,275 0.8
20,000 Toda Construction Co. 158,140 1.2
10,000 Yamanouchi Pharmaceutical Co. 202,720 1.6
--------- ----
3,291,507 25.4
MALAYSIA -- 2.2%
94,666 Malaysian International
Shipping Corp. Berhad 282,949 2.2
--------- ----
MEXICO -- 1.0%
33,750 Cemex. S.A. de C.V. - Series "B" 123,228 1.0
--------- ----
NETHERLANDS -- 7.0%
6,114 ABN-AMRO Holding N.V. 344,678 2.7
10,000 IHC Caland NV Holdings 556,699 4.3
--------- ----
901,377 7.0
NEW ZEALAND -- 0.6%
5,000 Tranz Rail Holdings ADR* 81,875 0.6
.........................................................................................
NORWAY -- 1.3%
4,300 Kvaerner AS 162,099 1.3
--------- ----
</TABLE>
7
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded)
<TABLE>
<CAPTION>
No. of Value Percent of
Shares Security (Note 1) Net Assets
- -----------------------------------------------------------------------------------------
=========================================================================================
<S> <C>
COMMON STOCK -- concluded
SPAIN -- 7.4%
10,000 Banco Central Hispano Americano SA $ 233,086 1.8%
25,000 Dragados & Construcciones SA 334,376 2.6
6,000 Repsol SA 195,463 1.5
10,000 Vallehermoso SA 197,106 1.5
--------- ----
960,031 7.4
SWITZERLAND -- 1.9%
1,260 Schweizerischer Bankverein
(Swiss Bank Corp.), Registered Shares 241,964 1.9
--------- ----
THAILAND -- 0.7%
10,000 Siam Commercial Bank Ltd. `F' 90,952 0.7
- -----------------------------------------------------------------------------------------
UNITED KINGDOM -- 21.1%
25,000 B.A.T. Industries PLC 173,982 1.3
16,149 The Boots Co. PLC 163,852 1.3
45,000 BTR PLC 188,413 1.4
25,000 Dalgety PLC 126,625 1.0
10,000 De La Rue PLC* 95,853 0.7
20,000 Grand Metropolitan PLC 150,730 1.2
70,000 Iceland Group PLC 97,885 0.8
84,000 Mirror Group Newspapers PLC 317,558 2.5
25,000 National Power PLC 165,445 1.3
22,967 Safeway PLC 136,120 1.0
55,100 Scottish Power PLC 281,769 2.2
40,000 Smith (WH) Group PLC 298,859 2.3
25,000 Tate & Lyle PLC 193,900 1.5
80,000 Tomkins PLC 335,606 2.6
--------- ----
2,726,597 21.1
--------- ----
Total Common Stock
(Cost $10,861,064) 12,768,640 98.8
---------- ----
</TABLE>
8
<PAGE>
Flag Investors International Fund
<TABLE>
<CAPTION>
No. of
Shares/ Value Percent of
Par (000) Security (Note 1) Net Assets
- -----------------------------------------------------------------------------------------
=========================================================================================
<S> <C>
PREFERRED STOCK -- 0.1%
HONG KONG -- 0.1%
16 Dairy Farm International
Holdings Ltd., Cvt.
(Cost $16,000) $ 10,800 0.1%
---------- ----
=========================================================================================
REPURCHASE AGREEMENT -- 1.4%
$187 Goldman Sachs & Co., 5.45%
Dated 10/31/96, to be repurchased
on 11/1/96, collateralized by U.S.
Treasury Notes with a market value
of $190,920.
(Cost $187,000) 187,000 1.4
----------- -----
Total Investment in Securities
(Cost $11,064,064) ** 12,966,440 100.3
Liabilities in Excess of Other Assets, Net (36,184) (0.3)
----------- -----
Net Assets $12,930,256 100.0%
=========== =====
Net Asset Value and Redemption Price Per Share
($12,930,256 / 910,571 shares outstanding) $14.20
======
Maximum Offering Price Per Share
($14.20 / .955) $14.87
======
- ------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
9
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the Year Ended
October 31,
1996
Investment Income (Note 1):
Dividends $ 496,529
Interest 26,100
Other income 7,770
Less:Foreign taxes withheld (82,170)
----------
Total income 448,229
----------
Expenses:
Investment advisory fee (Note 2) 98,672
Legal 35,086
Distribution fee (Note 2) 32,891
Printing and postage 29,036
Accounting fee (Note 2) 27,527
Registration fees 27,453
Audit 20,877
Transfer agent fees (Note 2) 17,048
Custodian fee 9,796
Miscellaneous 4,435
Directors' fees 346
----------
Total expenses 303,167
Less:Fees waived and expenses reimbursed (Note 2) (105,738)
----------
Net expenses 197,429
----------
Net investment income 250,800
----------
Net realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 601,748
Net realized foreign exchange loss (30,525)
Change in unrealized appreciation or depreciation
of investments 656,848
Change in unrealized appreciation or depreciation
on translation of assets and liabilities,
excluding investments, denominated in
foreign currencies (3,773)
----------
Net gain on investments 1,224,298
----------
Net increase in net assets resulting from operations $1,475,098
==========
See Notes to Financial Statements.
10
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended October 31,
1996 1995
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 250,800 $ 90,267
Net realized gain from security transactions
and foreign exchange transactions 571,223 666,979
Change in unrealized appreciation or
depreciation of investments 656,848 (2,231,677)
Change in unrealized appreciation or
depreciation on translation of
assets and liabilities denominated in
foreign currencies (3,773) 41,662
------------ -----------
Net increase/(decrease) in net assets
resulting from operations 1,475,098 (1,432,769)
------------ -----------
Dividends to Shareholders from:
Net investment income (28,072) --
------------ -----------
Capital Share Transactions (Note 3):
Proceeds from sale of 107,997 and
99,262 shares, respectively 1,494,406 1,243,444
Value of 1,596 shares issued in
reinvestment of dividends 22,601 --
Cost of 182,530 and 224,000 shares
repurchased, respectively (2,516,921) (2,814,795)
------------ -----------
Total decrease in net assets derived
from capital share transactions (999,914) (1,571,351)
------------ -----------
Total increase/(decrease) in net assets 447,112 (3,004,120)
Net Assets:
Beginning of year 12,483,144 15,487,264
------------ -----------
End of year $12,930,256 $12,483,144
============ ===========
Undistributed net investment income $ 625,259 $ 103,321
============ ===========
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)(1)
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
October 31, For the Year Ended October 31,
1996 1995 1994 1993 1992
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 12.69 $ 13.97 $ 13.05 $ 9.11 $ 10.63
------- ------- ------- ------- --------
Income from Investment Operations:
Net investment income 0.26 0.09 0.18 0.49 0.16
Net realized and unrealized gain/(loss) on investments(2) 1.28 (1.37) 1.58 3.45 (1.62)
------- ------- ------- ------- --------
Total from Investment Operations $ 1.54 $ (1.28) $ 1.76 $ 3.94 $ (1.46)
------- ------- ------- ------- --------
Less Distributions:
Dividends from net investment income
and short-term gains (0.03) -- (0.84) -- (0.06)
------- ------- ------- ------- --------
Net asset value at end of year $ 14.20 $ 12.69 $ 13.97 $ 13.05 $ 9.11
======= ======= ======= ======= ========
Total Return(3) 12.13% (9.16)% 13.98% 43.25% (13.80)%
Ratios to Average Daily Net Assets:
Expenses(4) 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income(5) 1.91% 0.68% 0.75% 1.91% 0.73%
Supplemental Data:
Net assets at end of the year (000) $12,930 $12,483 $15,487 $15,008 $19,780
Portfolio turnover rate 13% 35% 43% 48% 63%
Average commissions per share(6) $0.0201 -- -- -- --
</TABLE>
- --------------------------------------------------------------------------------
(1) Computed based upon average shares outstanding.
(2) The years ended October 31, 1996, 1995 and 1994 include net realized
currency loss. Realized currency gain/(loss) is included in net
investment income for the years ended October 31, 1993 and 1992.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.30%, 2.17%, 1.97%, 2.13% and
1.92% for the years ended October 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(5) Without the waiver of advisory fees (Note 2), the ratio of net
investment income to average daily net assets would have been 1.10%,
0.02%, 0.28%, 1.28% and 0.31% for the years ended October 31, 1996, 1995,
1994, 1993 and 1992, respectively.
(6) Disclosure of average commissions per share is effective fiscal year
beginning in 1996.
12 See Notes to Financial Statements. 13
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--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:
A. Security Valuation--Securities that are listed on a securities exchange
are valued on the basis of their last quoted sale price as
provided by an independent pricing service (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
procedures established and monitored by the Board of Directors.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost.
B. 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.
14
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
NOTE 1--concluded
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.
C. Federal Income Taxes -- 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 distribute annually to shareholders substantially all of its taxable
net investment income and net realized capital gains.
D. 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.
NOTE 2--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.
ICC has voluntarily agreed to waive a portion of its fees and reimburse the
Fund for 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 year ended October 31,
1996, ICC waived $98,672 and reimbursed expenses of $7,066, respectively.
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. Glenmede voluntarily agreed to waive all of its fees from the
beginning of the fiscal year through September 30, 1996, which amounted to
$66,211.
15
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 2--concluded
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 earned $27,527 for accounting services for the year ended October
31, 1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated and paid monthly. ICC earned $17,048 for transfer
agent services for the year ended October 31, 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 year ended October 31, 1996, distribution fees were $32,891.
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 period January 1, 1996 through October 31, 1996 was
approximately $471, and the accrued liability was approximately $1,808.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 10 million shares of capital stock,
par value $0.001 per share, all of which shares are designated as common stock.
NOTE 4--Investment Transactions
Purchases and sales of investment securities, other than short-term
obligations, aggregated $1,660,869 and $2,217,979, respectively, for the year
ended October 31, 1996.
At October 31, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $2,518,521 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $616,145.
16
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
NOTE 5--Federal Income Tax Information
Generally accepted accounting principles require that certain components of
net assets be reclassified to reflect permanent differences between financial
reporting and tax purposes. Accordingly, current year's permanent book/tax
differences of $299,300 have been reclassified to undistributed net investment
income from paid-in capital. These reclassifications have no effect on net
assets or net asset values per share.
At October 31, 1996, there was a tax capital loss carryforward of
approximately $4,386,000, of which $1,447,000 expires in 1999, $2,350,000 in
2000 and $589,000 in 2001. This carryforward will be used to offset future net
capital gains, if any.
NOTE 6--Net Assets
At October 31, 1996, net assets consisted of:
Paid-in capital $15,253,772
Undistributed net investment income 625,259
Accumulated net realized loss from security and
foreign exchange transactions (4,852,349)
Unrealized appreciation of investments 1,902,376
Unrealized translation gain 1,198
-----------
$12,930,256
===========
NOTE 7--Personal Income Tax Information for the Shareholder (Unaudited)
The following information summarizes all per share distributions paid by
the Fund during the taxable period ending October 31, 1996.
Foreign Total Foreign
Record Payable Source Ordinary Taxes Paid Long-Term
Date Date Income Income or Withheld Capital Gains
------ ------- ------- -------- ----------- -------------
10/1/96 10/2/96 $0.0308 $0.0308 $0.116499 None
All of the foreign taxes paid or withheld represent taxes incurred by the
Fund on dividends received by the Fund from foreign sources. Foreign taxes paid
or withheld should be included in taxable income with an offsetting deduction
from gross income or as a credit for taxes paid to foreign governments. You
should consult your tax advisor regarding the appropriate treatment of foreign
taxes paid.
17
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Flag Investors International Fund, Inc.:
We have audited the statement of net assets of the Flag Investors
International Fund, Inc. as of October 31, 1996, and the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Flag Investors
InternationalFund, Inc. as of October 31, 1996, the results of its operations,
the changes in its net assets and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
November 22, 1996
18
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE JOHN W. CHURCH, JR.
Director President
RICHARD T. HALE ANDREW B. WILLIAMS
Director Executive Vice President
JOHN F. KROEGER GARY V. FEARNOW
Director Vice President
LOUIS E. LEVY EDWARD J. VEILLEUX
Director Vice President
EUGENE J. MCDONALD SCOTT J. LIOTTA
Director Vice President
CARL W. VOGT, ESQ. JOSEPH A. FINELLI
Director Treasurer
HARRY WOOLF EDWARD J. STOKEN
Director Secretary
LAURIE D. COLLIDGE
Assistant Secretary
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.
19
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This report is submitted 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.
<PAGE>
[Flag Investors Logo]
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International 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
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
