<PAGE>
As Filed with the Securities and Exchange Commission on February 25, 1997
Registration No. 33-28479
811-4827
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 17 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 18 [X]
FLAG INVESTORS INTERNATIONAL FUND, INC.
----------------------------------------
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux
One South Street
Baltimore, MD 21202
---------------------------------------
(Name and address of agent for service)
Copy to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_X_ on March 1, 1997 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)
___ 75 days after filing pursuant to paragraph (a)
___ on [date] pursuant to paragraph (a)(2) of Rule 485.
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Securities Amount Being Proposed Maximum Proposed Maximum Amount of
Being Registered Registered Offering Price Per Unit Aggregate Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of 182,530 shares $14.75 $0
Common Stock
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Registrant has calculated the maximum aggregate offering price pursuant
to Rule 24e-2 under the Investment Company Act of 1940 (the "1940 Act")
for its fiscal year ended October 31, 1996. Registrant had actual
aggregate redemptions of 182,530 shares for its fiscal year ended October
31, 1996. Because of credits for prior net redemptions, Registrant has
used no available redemptions for reductions pursuant to Rule 24f-2(c)
under the 1940 Act and has previously used no available redemptions for
reductions pursuant to Rule 24e-2(a) of the 1940 Act during the current
year. Registrant elects to use redemptions in the aggregate amount of
182,530 shares for reductions in its current amendment.
- --------------------------------------------------------------------------------
Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for its fiscal year ended October 31,
1996 was filed with the Commission on December 20, 1996.
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
(Class A Shares)
Cross Reference Sheet
February 25, 1997
Registration
Items Required by Form N-1A Statement Heading
- ---------------------------- ------------------
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page......................................Cover Page
Item 2. Synopsis........................................Fee Table
Item 3. Condensed Financial Information.................Financial Highlights;
Performance
Information
Item 4. General Description of Registrant...............Investment Program;
Investment
Restrictions; General
Information
Item 5. Management of the Fund..........................Management of the
Fund; Investment
Advisor and Sub-
Advisor; Distributor;
Custodian, Transfer
Agent and Accounting
Services
Item 5A. Management's Discussion of Fund
Performance.....................................*
Item 6. Capital Stock and Other Securities..............Cover Page; Dividends
and Taxes; General
Information
Item 7. Purchase of Securities Being Offered............How to Invest in the
Fund; Distributor
Item 8. Redemption or Repurchase........................How to Redeem Shares
Item 9. Pending Legal Proceedings.......................**
- --------
* Information required by Item 5A is contained in Registrant's 1996 Annual
Report to Shareholders.
**Omitted since the answer is negative or the item is not applicable.
<PAGE>
Part B - Information Required in a Statement
- ------ of Additional Information
Item 10. Cover Page......................................Cover Page
Item 11. Table of Contents...............................Table of Contents
Item 12. General Information and History.................General Information
and History
Item 13. Investment Objectives and Policies..............Investment Objective
and Policies
Item 14. Management of the Fund..........................Management of the
Fund
Item 15. Control Persons and Principal
Holders of Securities...........................Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services..........Investment Advisory
and Other Services;
Custodian, Accounting
Services and Transfer
Agent; Independent
Auditors
Item 17. Brokerage Allocation............................Brokerage
Item 18. Capital Stock and Other Securities..............Capital Shares; Semi-
Annual Reports
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered.....................Valuation of Shares
and Redemption
Item 20. Tax Status......................................Federal Tax Treatment
of Dividends and
Distributions
- ---------
**Omitted since the answer is negative or the item is not applicable.
<PAGE>
Item 21. Underwriters....................................Distribution of Fund
Shares and
Administration
Item 22. Calculation of Performance Data.................Performance
Information
Item 23. Financial Statements............................Financial Statements
Part C - Other Information
- -------
Part C contains the information required by the items contained
therein under the items set forth in the form.
<PAGE>
LOGO
FLAG INVESTORS
INTERNATIONAL FUND, INC.
(Class A Shares)
Prospectus & Application -- March 1, 1997
- -----------------------------------------------------------------------------
Flag Investors International Fund, Inc. (the "Fund") is a mutual fund seeking
long-term growth of capital primarily through investment in a diversified
portfolio of marketable equity securities of issuers located outside of the
United States.
Class A Shares of the Fund ("Class A Shares") are available through Alex.
Brown & Sons Incorporated (the "Distributor"), as well as through
Participating Dealers and Shareholder Servicing Agents. (See "How to Invest
in the Fund.").
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing, and should be retained for future reference. A
Statement of Additional Information dated March 1, 1997 has been filed with
the Securities and Exchange Commission (the "SEC") and is hereby incorporated
by reference. It is available upon request and without charge by calling the
Fund at (800) 767-FLAG.
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund or the Distributor.
TABLE OF CONTENTS
Fee Table ........................... 1
Financial Highlights ................ 2
Investment Program .................. 4
Investment Restrictions ............. 5
How to Invest in the Fund ........... 5
How to Redeem Shares ................ 8
Telephone Transactions .............. 9
Dividends and Taxes ................. 9
Management of the Fund .............. 10
Investment Advisor and Sub-Advisor .. 10
Distributor ......................... 11
Custodian, Transfer Agent and
Accounting Services ................ 12
Performance Information ............. 12
General Information ................. 12
Application ......................... A-1
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- -----------------------------------------------------------------------------
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>
FEE TABLE
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............ 4.50%*
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) .. None
Maximum Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds whichever is lower) ........................................ .50%*
Annual Fund Operating Expenses (net of fee waivers and reimbursements):
(as a percentage of average daily net assets)
Management Fees (net of fee waivers) ..................................................... .00%**
12b-1 Fees ............................................................................... .25%
Other Expenses (net of fee waivers and reimbursements) ................................... 1.25%
-----------
Total Fund Operating Expenses (net of fee waivers and reimbursements) .................... 1.50%**
===========
</TABLE>
- ------
* Purchases of $1 million or more by persons not otherwise eligible for
sales load waivers are not subjct to an initial sales charge, however, a
contingent deferred sales charge of .50% may be imposed upon redemption.
(See "How to Invest in the Fund -- Offering Price.")
** The Fund's investment advisor has agreed to voluntarily waive its fees and to
reimburse expenses to the extent required so that Total Fund Operating
Expenses do not exceed 1.50% of the Class A Shares' average daily net assets.
Absent fee waivers and reimbursements, Management Fees would be .75%, Other
Expenses would be 1.30% and Total Fund Operating Expenses would be 2.30% of
the Class A Shares' average daily net assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------- ---------- ----------- ----------- ------------
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period:* ................................... $60 $90 $123 $216
</TABLE>
- ------
* The Example is based on Total Fund Operating Expenses, net of fee waivers and
reimbursements. Absent fee waivers and reimbursements, expenses would be
higher.
The Example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Class A Shares through a financial institution may be
charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in the
Fund -- Offering Price", "Investment Advisor and Sub-Advisor" and
"Distributor.") The Expenses appearing in the table above have been restated
to reflect current, rather than historical, fees.
The rules of the SEC require that the maximum sales charge (in the Class A
Shares' case, 4.50% of the offering price) be reflected in the above table.
However, certain investors may qualify for reduced sales charges. (See "How
to Invest in the Fund -- Offering Price.") Due to the continuous nature of
Rule 12b-1 fees, long-term shareholders of the Fund may pay more than the
equivalent of the maximum front-end sales charges permitted by the Conduct
Rules of the National Association of Securities Dealers, Inc. ("NASD Rules").
The foregoing table has not been audited by Deloitte & Touche LLP, the Fund's
independent auditors.
1
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The financial highlights included in this table have been derived from the
Fund's financial statements for the periods indicated and have been audited
by Deloitte & Touche LLP, independent auditors. The financial statements and
related notes for the fiscal year ended October 31, 1996 and the independent
auditors' report thereon of Deloitte & Touche LLP are included in the
Statement of Additional Information. Additional performance information is
contained in the Fund's Annual Report for the fiscal year ended October 31,
1996, which can be obtained at no charge by calling the Fund at
(800) 767-FLAG.
(FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)+
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............... $12.69 $13.97
--------- ---------
Income from Investment Operations:
Net investment income ................................ 0.26 0.09
Net realized and unrealized gain/(loss) on
investments(1) .................................... 1.28 (1.37)
--------- ---------
Total from Investment Operations ..................... 1.54 1.28
--------- ---------
Less Distributions:
Dividends from net investment income and short-term
gains ............................................. (0.03) --
Distributions from net realized long-term gains ...... -- --
--------- ---------
Total distributions .................................. (0.03) --
--------- ---------
Net asset value at end of period ..................... $14.20 $12.69
========= =========
Total Return*** ........................................ 12.13% (9.16)%
Ratios to Average Net Assets:
Expenses(2) .......................................... 1.50% 1.50%
Net investment income(3) ............................. 1.91% 0.68%
Supplemental Data:
Net assets at end of period (000) .................... $12,930 $12,483
Portfolio turnover rate .............................. 13% 35%
Average commissions per share(4) ..................... $0.0201 --
</TABLE>
- ------
+ Computed based on average shares outstanding.
++ Commencement of operations.
* Annualized.
** Investment Company Capital Corp. and The Glenmede Trust Company became
the Fund's investment advisor and sub-advisor, respectively, on August
23, 1993.
*** Total return excludes the effect of sales charge.
(1) 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, 1992 and 1991,
respectively.
(2) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 2.30%, 2.17%, 1.97%, 2.13%, 1.92%,
1.90%, 1.75%, 1.82%, 1.79% and 1.85% during the periods ended October 31,
1996, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, and 1987,
respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average daily net assets would have been 1.10%, 0.02%, 0.28%, 1.28%,
0.31%, 0.77%, 1.21%, 0.29%, 0.54%, and 0.78% for the years ended October
31, 1996, 1995, 1994, 1993, 1992, 1991, 1990, 1989, 1988, and 1987,
respectively.
(4) Disclosure of average commissions per share is effective beginning in
fiscal year 1996.
2
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
November 18,
1986++
For the Year Ended October 31, through
- ------------------------------------------------------------------------------------ October 31,
1994 1993** 1992 1991 1990 1989 1988 1987
--------- --------- ---------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
$13.05 $ 9.11 $10.63 $11.80 $13.71 $11.78 $10.81 $10.00
--------- --------- ---------- --------- --------- --------- --------- --------------
0.18 0.49 0.16 0.15 0.60 0.10 0.11 0.03
1.58 3.45 (1.62) (0.55) (1.33) 1.92 1.57 0.78
--------- --------- ---------- --------- --------- --------- --------- --------------
1.76 3.94 (1.46) (0.40) (0.73) 2.02 1.68 0.81
--------- --------- ---------- --------- --------- --------- --------- --------------
(0.84) -- (0.06) -- (0.57) (0.09) (0.16) --
-- -- -- (0.77) (0.61) -- (0.55) --
--------- --------- ---------- --------- --------- --------- --------- --------------
(0.84) -- (0.06) (0.77) (1.18) (0.09) (0.71) --
--------- --------- ---------- --------- --------- --------- --------- --------------
$13.97 $13.05 $ 9.11 $10.63 $11.80 $13.71 $11.78 $10.81
========= ========= ========== ========= ========= ========= ========= ==============
13.98% 43.25% (13.80)% (3.15)% (6.63)% 17.25% 16.21% 8.1%
1.50% 1.50% 1.50% 1.50% 1.50% 1.49% 1.46% 1.48%*
0.75% 1.91% 0.73% 1.17% 1.48% 0.62% 0.87% 1.41%*
$15,487 $15,008 $19,780 $38,830 $44,406 $32,325 $35,259 $38,227
43% 48% 63% 73% 62% 95% 96% 72%
-- -- -- -- -- -- -- --
</TABLE>
3
<PAGE>
INVESTMENT PROGRAM
- -------------------------------------------------------------------------------
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The investment objective of the Fund is long-term growth of capital. The
foregoing investment objective is a fundamental policy of the Fund and cannot be
changed without shareholder approval. The Fund seeks to achieve this objective
by investing primarily in common stocks and other equity securities of companies
located outside the United States. The Fund's assets will usually consist of
issues listed on recognized foreign securities exchanges. The Fund is, however,
free to hold securities that are not so listed, and may invest up to 15% of its
net assets in such securities. There can be no assurance the Fund will achieve
its objective.
The Fund's investment advisor (the "Advisor") and sub-advisor (the
"Sub-Advisor") (collectively, the "Advisors") are responsible for managing the
Fund's investments. (See "Investment Advisor and Sub-Advisor.") The Sub-Advisor
manages the Fund's investments on a day-to-day basis and utilizes a disciplined,
value-based investment management style to construct the Fund's international
equity portfolio. Markets, and individual securities within each market, are
compared on the basis of fundamental value, quality, and prospective earnings
potential.
The Fund's assets will normally be invested primarily in equity securities of
companies located outside the United States. For these purposes, equity
securities consist of not only common stock but securities convertible into
common stock and American Depository Receipts, which are securities issued in
the United States that represent ownership rights in foreign countries. The Fund
diversifies investments by issuer and does not concentrate in any one industry.
In addition, the Fund allocates its investments among geographic regions and
individual countries and, normally, expects to have 65% of its total assets
invested in at least three different foreign countries. (See "Investment
Restrictions.")
If the Fund is not fully invested in equity securities, any assets not so
invested may be invested in securities issued or guaranteed by the United States
government or any of its agencies or instrumentalities; shares of open- or
closed-end investment companies that invest exclusively in such securities;
fixed income securities issued by U.S. or foreign corporations, or by foreign
governments, that are determined by the Advisors to be of high quality; U.S. and
foreign short-term money market instruments (consisting of government
obligations; time deposits, bankers acceptances, and certificates of deposit of
creditworthy banks; commercial paper and short-term corporate debt securities,
which are rated in the top two categories published by Moody's Investors
Service, Inc. or by Standard & Poor's Ratings Group or, if unrated, are of
comparable quality as determined by the Advisors under guidelines established by
the Fund's Board of Directors; and repurchase agreements with respect thereto).
Under normal circumstances, no more than 35% of the Fund's assets may be
invested in fixed income securities and money market instruments. For defensive
purposes, however, up to 100% of such assets may be invested in money market
instruments.
The Fund may also enter into forward currency exchange contracts in order to
hedge against uncertainty in the level of future foreign exchange rates in the
purchase and sale of investment securities, but it may not enter into such
contracts for speculative purposes. The Fund will use these instruments
primarily for transaction hedging (i.e., to protect against adverse currency
movements between a security's trade and settlement dates) but reserves the
right occasionally to use forward contracts to hedge the value of securities
denominated in a particular currency against a decline in the value of that
currency. A forward foreign currency exchange contract involves an obligation 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 agreed upon by the parties, at a
price set at the time of the contract. These contracts may be bought or sold to
protect the Fund, to some degree, against a possible loss resulting from an
adverse change in the relationship between foreign currencies and the U.S.
dollar. This method of protecting the value of the Fund's investment securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange at some future point in time. Additionally, although such contracts
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 which might
result should the value of the currency increase.
In addition, the Fund may invest up to 5% of its total assets in restricted
securities, including Rule 144A Securities.
SPECIAL RISK CONSIDERATIONS
Foreign investments involve substantial and different risks which should be
carefully considered by any potential investor. In general, less information is
publicly available about foreign companies than is available about companies in
the United States. Most foreign
4
<PAGE>
companies are not subject to uniform audit and financial reporting standards,
practices and requirements comparable to those in the United States.
Foreign stock markets are generally not as developed or efficient as those in
the United States. In most foreign markets volume and liquidity are less than in
the United States and, at times, volatility of price can be greater than in the
United States. Fixed commissions on foreign stock exchanges are generally higher
than the negotiated commissions on U.S. exchanges. There is generally less
government supervision and regulation of foreign stock exchanges, brokers and
companies than in the United States. The settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity.
Although the Fund intends to invest in securities of companies and
governments of developed, stable nations, there is also the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or social instability, or diplomatic developments which could
adversely affect investments, assets or securities transactions of the Fund in
some foreign countries.
INVESTMENT RESTRICTIONS
- -------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. Accordingly, the Fund will not:
1) Invest more than 5% of its total assets in the securities of any single
issuer;
2) Invest in the securities of any single issuer if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of such
issuer;
3) Borrow money except as a temporary measure to facilitate settlements and
for extraordinary or emergency purposes and then only from banks and in an
amount not exceeding 10% of the value of the total assets of the Fund at
the time of such borrowing, provided that, while borrowings by the Fund
equalling 5% or more of the Fund's total assets are outstanding, the Fund
will not purchase securities; and
4) Invest more than 10% of the value of its net assets in illiquid
securities, including time deposits of over seven days' duration.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
HOW TO INVEST IN THE FUND
- -------------------------------------------------------------------------------
Class A Shares may be purchased from the Distributor, through any securities
dealer which has entered into a dealer agreement with the Distributor,
("Participating Dealer") or through any financial institution which has entered
into a shareholder servicing agreement with the Fund ("Shareholder Servicing
Agents"). Class A Shares may also be purchased by completing the Application
Form attached to this Prospectus and returning it, together with payment of the
purchase price, to the address shown on the Application Form.
The minimum initial investment is $2,000, except that the minimum initial
investment for shareholders of any other Flag Investors fund or class is $500
and the minimum initial investment for participants in the Fund's Automatic
Investing Plan is $250. Each subsequent investment must be at least $100, except
that the minimum subsequent investment under the Fund's Automatic Investing Plan
is $250 for quarterly investments and $100 for monthly investments. (See
"Purchases Through Automatic Investing Plan" below.) There is no minimum
investment requirement for qualified retirement plans (i.e., 401(k) plans or
pension and profit sharing plans). IRA accounts are, however, subject to the
$2,000 minimum initial investment requirement. There is no minimum investment
requirement for spousal IRA accounts.
The Fund reserves the right to suspend the sale of Class A Shares at any time
at the discretion of the Distributor and the Advisor. Orders for purchases of
Class A Shares are accepted on any day on which the New York Stock Exchange is
open for business (a "Business Day"). Purchase orders for Class A Shares will be
executed at a per share purchase price equal to the net asset value next
determined after receipt of the purchase order plus any applicable front-end
sales charge
5
<PAGE>
(the "Offering Price") on the date such net asset value is determined (the
"Purchase Date"). Purchases made by mail must be accompanied by payment of
the Offering Price. Purchases made through the Distributor, a Participating
Dealer or Shareholder Servicing Agent must be in accordance with such
entity's payment procedures. The Distributor may, in its sole discretion,
refuse to accept any purchase order.
The net asset value per share is determined daily as of the close of the New
York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share is calculated by valuing all assets held
by the Fund, deducting liabilities, and dividing the resulting amount by the
number of then outstanding Class A Shares. For this purpose, portfolio
securities are given their market value where feasible. If a portfolio security
is traded on a national exchange, whether U.S. or foreign, or on an automated
dealer quotation system, on the valuation date, the last quoted sale price is
generally used. In the case of securities listed on more than one exchange, the
Fund will use the latest sale price on the exchange where the stock is primarily
traded as determined by the Advisors under procedures established and monitored
by the Fund's Board of Directors. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith by the Advisors under procedures established from time
to time and monitored by the Fund's Board of Directors. Investments with
maturities of less than 60 days are valued at amortized cost, which constitutes
fair value as determined by the Fund's Board of Directors. Any assets and
liabilities initially expressed in foreign currency values will be translated
into U.S. dollar values at the prevailing market rates of such currencies
against U.S. dollars at the time of valuation.
OFFERING PRICE
Class A Shares may be purchased from the Distributor, Participating Dealers
or Shareholder Servicing Agents at the Offering Price, which includes a sales
charge which is calculated as a percentage of the Offering Price and decreases
as the amount of the purchase increases, as shown below:
Sales Charge
as Percentage of Dealer
------------------------------ Retention
Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
- -------------------------------------------------------------------------------
Less than $ 50,000 ... 4.50% 4.71% 4.00%
$ 50,000 - $ 99,999 ... 3.50% 3.63% 3.00%
$ 100,000 - $249,999 ... 2.50% 2.56% 2.00%
$ 250,000 - $499,999 ... 2.00% 2.04% 1.50%
$ 500,000 - $999,999 ... 1.50% 1.52% 1.25%
$1,000,000 and over ..... None* None* None*
- ------
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The Distributor may make payments to dealers in
the amount of .50% of the Offering Price.
<PAGE>
A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of accumulation.
In addition, an investor may obtain reduced sales charges as set forth above
through a right of accumulation of purchases of Class A Shares and purchases of
Class A shares of other Flag Investors funds with the same sales charge and
purchases of Class A shares of Flag Investors Short-Intermediate Income Fund,
Inc. (formerly Flag Investors Intermediate-Term Income Fund, Inc.) and Flag
Investors Maryland Intermediate Tax- Free Income Fund, Inc. (the "Intermediate
Funds"). The applicable sales charge will be determined based on the total of
(a) the shareholder's current purchase plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of all Class A Shares and
of all Flag Investors shares described above and any Flag Investors Class D
shares held by the shareholder. To obtain the reduced sales charge through a
right of accumulation, the shareholder must provide the Distributor, either
directly or through a Participating Dealer or Shareholder Servicing Agent, as
applicable, with sufficient information to verify that the shareholder has such
a right. The Fund may amend or terminate this right of accumulation at any time
as to subsequent purchases.
The term "purchase" refers to an individual purchase by a single purchaser,
or to concurrent purchases which will be aggregated, by a purchaser, the
purchaser's spouse and their children under the age of 21 years purchasing Class
A Shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent, which states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the Offering
Price applicable at the time of such purchase to the full amount indicated on
the Letter of Intent. A Letter of Intent is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial investment
under a Letter of Intent is 5% of the full amount. Shares purchased with the
first 5% of the full amount will be held in escrow (while remaining registered
in the name of the investor) to secure payment of the higher sales charge
applicable to the Class A Shares actually purchased if the full amount indicated
is not invested. Such escrowed shares will be involuntarily redeemed to pay the
additional sales charge, if necessary. When the full amount indicated has been
purchased, the escrowed shares will be released. An investor who wishes to enter
into a Letter of Intent in conjunction with an investment in Class A Shares may
do so by completing the appropriate section of the Application Form attached to
this Prospectus.
6
<PAGE>
No sales charge will be payable at the time of purchase on investments of $1
million or more of Class A Shares. However, a contingent deferred sales charge
may be imposed on such investments in the event of a redemption within 24 months
following the purchase, at the rate of .50% on the lesser of the value of the
Class A Shares redeemed or the total cost of such shares. No contingent deferred
sales charge will be imposed on purchases of $3 million or more of Class A
Shares redeemed within 24 months of purchase if the Participating Dealer and the
Distributor have entered into an agreement under which the Participating Dealer
agrees to return any payments received on the sale of such shares. In
determining whether a contingent deferred sales charge is payable, and, if so,
the amount of the charge, it is assumed that Class A Shares not subject to such
charge are the first redeemed followed by other Class A Shares held for the
longest period of time.
The Fund may sell Class A Shares at net asset value (without sales charge) to
the following: (i) banks, bank trust departments, registered investment advisory
companies, financial planners and broker-dealers purchasing shares on behalf of
their fiduciary and advisory clients, provided such clients have paid an account
management fee for these services (investors may be charged a fee if they effect
transactions in Fund shares through a broker or agent); (ii) qualified
retirement plans; (iii) participants in a Flag Investors fund payroll savings
plan program; (iv) investors who have redeemed Class A Shares, or Class A shares
of any other mutual fund in the Flag Investors family of funds with the same
sales charges, or who have redeemed Class A shares of the Intermediate Funds
which they had held for at least 24 months prior to redemption, in an amount
that is not more than the total redemption proceeds, provided that the purchase
is within 90 days after the redemption; and (v) current or retired Directors of
the Fund, and directors and employees (and their immediate families) of the
Distributor, the Advisors, Participating Dealers and their respective
affiliates.
Class A Shares may also be purchased through a Systematic Purchase Plan. An
investor who wishes to take advantage of such a plan should contact the
Distributor or a Participating Dealer or Shareholder Servicing Agent.
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds that have the same sales load
structure may exchange their Class A shares of those funds for an equal dollar
amount of Class A Shares. Except as provided below, Class A Shares issued
pursuant to this offer will not be subject to the sales charges described above
or any other charge. In addition, shareholders of Class A shares of the
Intermediate Funds may exchange into Class A Shares upon payment of the
difference in sales charges, as applicable, except that the exchange will be
made at net asset value if the shares of such funds have been held for more than
24 months. Shareholders of Flag Investors Cash Reserve Prime Class A Shares may
also exchange into Class A Shares upon payment of the difference in sales
charges, as applicable.
When a shareholder acquires Class A Shares through an exchange from another
fund in the Flag Investors family of funds, the Fund will combine the period for
which the original shares were held prior to the exchange with the holding
period of the Class A Shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon a
redemption of any such shares.
The net asset value of shares purchased and redeemed in an exchange request
received on a Business Day will be determined on the same day, provided that the
exchange request is received prior to 4:00 p.m. (Eastern Time) or the close of
the New York Stock Exchange, whichever is earlier. Exchange requests received
after 4:00 p.m. (Eastern Time) will be effected on the next Business Day.
Shareholders of any mutual fund not affiliated with the Fund who have paid a
sales charge may exchange shares of such fund for an equal dollar amount of
Class A Shares by submitting to the Distributor or a Participating Dealer the
proceeds of the redemption of such shares, together with evidence of the payment
of a sales charge and the source of such proceeds. Class A Shares issued
pursuant to this offer will not be subject to the sales charges described above
or any other charge.
The exchange privilege with respect to other Flag Investors funds may also be
exercised by telephone. (See "Telephone Transactions" below.) The Fund may
modify or terminate this offer of exchange at any time on 60 days' prior written
notice to shareholders.
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase Class A Shares regularly by means of an Automatic
Investing Plan with a pre-authorized check drawn on their checking accounts.
Under this plan, the shareholder may elect to have a specified amount invested
monthly or quarterly in Class A Shares. The amount specified will be withdrawn
from the shareholder's checking account using the pre-authorized check and will
be invested in Class A Shares at the applicable Offering Price determined
7
<PAGE>
on the date the amount is available for investment. Participation in the
Automatic Investing Plan may be discontinued either by the Fund or the
shareholder upon 30 days' prior written notice to the other party. A shareholder
who wishes to enroll in the Automatic Investing Plan or who wishes to obtain
additional purchase information may do so by completing the appropriate section
of the Application Form attached to this Prospectus.
PURCHASES THROUGH DIVIDEND REINVESTMENT
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Class A Shares.
Unless the shareholder elects otherwise, all income dividends and capital gains
distributions will be reinvested in additional Class A Shares at net asset
value, without a sales charge. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Fund's transfer agent (the
"Transfer Agent") (see "Custodian, Transfer Agent and Accounting Services"),
either directly or through their Participating Dealer or Shareholder Servicing
Agent, at least five days before the next date on which dividends or
distributions will be paid.
Alternately, shareholders may have their distributions invested in Class A
shares of other funds in the Flag Investors family of funds. Shareholders who
are interested in this option should call the Transfer Agent for additional
information.
HOW TO REDEEM SHARES
- -------------------------------------------------------------------------------
Shareholders may redeem all or part of their investment on any Business Day
by transmitting a redemption order through the Distributor, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Transfer Agent. Shareholders may also redeem Class A Shares by telephone (in
amounts up to $50,000). (See "Telephone Transactions" below.) A redemption order
is effected at the net asset value per share (reduced by any applicable
contingent deferred sales charge) next determined after receipt of the order
(or, if stock certificates have been issued for the Class A Shares to be
redeemed, after the tender of the stock certificates for redemption). Redemption
orders received after 4:00 p.m. (Eastern Time) or the close of the New York
Stock Exchange, whichever is earlier, will be effected at the net asset value
next determined on the following Business Day. Payment for redeemed Class A
Shares will be made by check and will be mailed within seven days after receipt
of a duly authorized telephone redemption request or of a redemption order fully
completed and, as applicable, accompanied by the documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of Class A Shares or
dollar amount to be redeemed, signed by all owners of the Class A Shares
in the exact names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
3) If Class A Shares are held in certificate form, stock certificates either
properly endorsed or accompanied by a duly executed stock power for Class
A Shares to be redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
Dividends payable up to the date of redemption of Class A Shares will be paid
on the next dividend payable date. If all of the Class A Shares in a
shareholder's account have been redeemed on a dividend payable date, the
dividend will be remitted by check to the shareholder.
The Fund has the power under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' written notice.
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Class A Shares having a value of $10,000 or more may
arrange to have a portion of their Class A Shares redeemed monthly or quarterly
under the Fund's Systematic Withdrawal Plan. Such payments are drawn from income
dividends, and, to the extent necessary, from share redemptions (which would be
a return of principal and, if reflecting a gain, would be taxable). If
redemptions continue, a shareholder's account may eventually be exhausted.
Because share purchases include a sales charge that will not be recovered at the
time of redemption, a shareholder should not have a withdrawal plan in effect at
the same time he is making recurring purchases of Class A Shares. A shareholder
who wishes to participate in the Systematic Withdrawal Plan may do so by
completing the appropriate section of the Application Form attached to this
Prospectus.
8
<PAGE>
TELEPHONE TRANSACTIONS
- -------------------------------------------------------------------------------
Shareholders may exercise the exchange privilege with respect to other Flag
Investors funds, or redeem Class A Shares in amounts up to $50,000, by notifying
the Transfer Agent by telephone on any Business Day between the hours of 8:30
a.m. and 5:30 p.m. (Eastern Time) or by regular or express mail at its address
listed under "Custodian, Transfer Agent and Accounting Services." Telephone
transaction privileges are automatic. Shareholders may specifically request that
no telephone redemptions or exchanges be accepted for their accounts. This
election may be made on the Application Form or at any time thereafter by
completing and returning appropriate documentation supplied by the Transfer
Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, is effective that
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected at
the net asset value (less any applicable contingent deferred sales charge on
redemptions) as determined on the next Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include requiring the investor to provide certain personal identification
information at the time an account is opened and prior to effecting each
transaction requested by telephone. In addition, telephone transaction requests
will be recorded and investors may be required to provide additional telecopied
instructions of such transaction requests. If these procedures are employed,
neither the Fund nor the Transfer Agent will be responsible for any loss,
liability, cost or expense for following instructions received by telephone that
either of them reasonably believes to be genuine. During periods of extreme
economic or market changes, shareholders may experience difficulty in effecting
telephone transactions. In such event, requests should be made by regular or
express mail. Class A Shares held in certificate form may not be exchanged or
redeemed by telephone. (See "How to Invest in the Fund--Purchases by Exchange"
and "How to Redeem Shares.")
DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of annual dividends. The Fund may
distribute to shareholders any taxable net capital gains on an annual basis or,
alternatively, may elect to retain net capital gains and pay taxes thereon.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal tax considerations
affecting the Fund and the shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or the shareholders, and
the discussion here is not intended as a substitute for careful tax planning.
The following summary is based on current tax laws and regulations, which may
be changed by legislative, judicial or administrative action. The Statement of
Additional Information sets forth further information concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders, but U.S.
shareholders, unless otherwise exempt, will pay federal income or capital gains
taxes on the amounts so distributed regardless of whether such distributions are
paid in cash or reinvested in additional Class A Shares.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, are taxed
to shareholders as long-term capital gains regardless of how long the
shareholder has held the shares. All other income distributions are taxed to the
shareholders as ordinary income. Shareholders will be advised annually as to the
tax status of all distributions.
Ordinarily, shareholders will include all dividends declared by the Fund as
income in the year of payment. However, dividends declared payable to
shareholders of record in one year, but paid the following year, will be deemed
for tax purposes to have been received by the shareholders and paid by the Fund
in the year in which the dividends were declared.
Investors should be careful to consider the tax implications of buying shares
just prior to a distribution. The price of shares purchased at that time may
9
<PAGE>
reflect the amount of the forthcoming distribution. Those purchasing just
prior to a distribution will nevertheless be taxable on the entire amount of
the distribution received.
Investment income received by the Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. To the extent
that the Fund is liable for foreign income taxes so withheld, it intends to
operate so as to meet the requirements of the Code to pass through to its
shareholders credit for foreign income taxes paid. Although the Fund intends to
meet the requirements of the Code to pass through such taxes, there can be no
assurance that it will be able to do so.
Distributions by the Fund to shareholders who are non-resident alien
individuals, foreign trusts or estates, foreign corporations or foreign
partnerships may be subject to federal income tax treatment that differs from
the treatment described above. (See the Statement of Additional Information.)
The sale, exchange, or redemption of Class A Shares is a taxable event for
the shareholder.
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary income and capital gain net income prior to the end of each
calendar year to avoid liability for federal excise tax.
Shareholders are urged to consult with their tax advisors concerning the
application of the rules described above to their particular circumstances and
the application of U.S. federal, state and local income taxes to an investment
in the Fund.
MANAGEMENT OF THE FUND
- -------------------------------------------------------------------------------
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian,
accounting services agent and transfer agent. The day-to-day operations of the
Fund are delegated to the Fund's executive officers, to the Distributor and to
the Advisors. Two Directors and all of the officers of the Fund are officers or
employees of the Distributor or the Advisors. The other Directors of the Fund
have no affiliation with the Distributor or the Advisors.
The Fund's Directors and officers are as follows:
Truman T. Semans Chairman and Director
Richard T. Hale Director
James J. Cunnane Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Carl W. Vogt Director
John W. Church, Jr. President
Andrew B. Williams Executive Vice President
Gary V. Fearnow Vice President
Edward J. Veilleux Vice President
Scott J. Liotta Vice President
Joseph A. Finelli Treasurer
Edward J. Stoken Secretary
Laurie D. Collidge Assistant Secretary
INVESTMENT ADVISOR AND SUB-ADVISOR
- -------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and The Glenmede Trust Company ("Glenmede" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and Alex. Brown Cash
Reserve Fund, Inc., which funds had approximately $5.2 billion of net assets as
of December 31, 1996. Glenmede provides fiduciary and investment services to
endowment funds, foundations, employee benefit plans and other institutions and
individuals. At December 31, 1996, Glenmede had over $10 billion in assets in
the accounts for which it serves in various capacities including as executor,
trustee, or investment advisor.
Pursuant to the terms of the Investment Advisory Agreement, ICC supervises
and manages all of the Fund's operations. Under the Investment Advisory and
Sub-Advisory Agreements, ICC delegates to Glenmede certain of its duties,
provided that ICC continues to supervise the performance of Glenmede and to
report thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, Glenmede is responsible for the decisions to buy and
sell securities for the Fund, for broker-dealer selection, and for negotiation
of commission rates under standards established and periodically reviewed by the
Board of Directors.
ICC has voluntarily agreed to waive a portion of the advisory fee to which it
is contractually entitled so that the total operating expenses of the Fund do
not exceed 1.50% of the Fund's average daily net assets. (See "Fee Table.") For
the fiscal year ended October 31, 1996, ICC waived all advisory fees ($98,672)
and reimbursed expenses of $7,066. In addition, from its own resources, ICC paid
Glenmede a fee (net of fee waivers in effect through September 30, 1996) equal
to .05% of the Fund's average daily net assets.
10
<PAGE>
ICC is an indirect subsidiary of Alex. Brown Incorporated. ICC is also the
Fund's transfer and dividend disbursing agent and provides accounting services
to the Fund. (See "Custodian, Transfer Agent and Accounting Services.")
Glenmede, a limited purpose trust company, is a wholly-owned subsidiary of The
Glenmede Corporation. The address of ICC is One South Street, Baltimore,
Maryland 21202. The address of Glenmede is One Liberty Place, 1650 Market
Street, Philadelphia, Pennsylvania 19103.
PORTFOLIO MANAGERS
Messrs. John W. Church, Jr., the Fund's President, and Andrew B. Williams,
CFA, the Fund's Executive Vice President, have shared primary responsibility for
managing the Fund's assets since August, 1993.
Mr. Church is senior vice president and chief investment officer of Glenmede.
Prior to joining Glenmede, he was vice president in charge of investment
strategy at Girard (Mellon) Bank, where he was employed for sixteen years.
Before Girard Bank, Mr. Church spent two years at the investment counseling firm
of Franklin, Cole & Co., New York, and four years at Chemical Bank, New York.
Mr. Church received an A.B. in Economics from Bowdoin College in 1954. He is a
member and past president of the Financial Analysts of Philadelphia, and a
member of the Philadelphia Securities Association.
Mr. Williams is vice president, equity analyst and international equity
manager of Glenmede. Before joining Glenmede, he served as vice president in
investment research at Shearson Lehman Brothers in New York. Before that, he
worked at Provident National Bank as a research analyst. Mr. Williams received
an M.B.A. in Finance from Temple University in 1981 and an A.B. in History from
Trinity College in 1976. He is a member of the Financial Analysts of
Philadelphia and is a Chartered Financial Analyst.
DISTRIBUTOR
- -------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor"), One
South Street, Baltimore, Maryland 21202, acts as distributor of the Class A
Shares. Alex. Brown is an investment banking firm which offers a broad range of
investment services to individual, institutional, corporate and municipal
clients. It is a wholly- owned subsidiary of Alex. Brown Incorporated which has
engaged directly and through subsidiaries and affiliates in the investment
business since 1800. Alex. Brown is a member of the New York Stock Exchange and
other leading securities exchanges. Headquartered in Baltimore, Maryland, Alex.
Brown has offices throughout the United States and, through subsidiaries,
maintains offices in London, England, Geneva, Switzerland and Tokyo, Japan.
The Fund has adopted a Distribution Plan for the Class A Shares (the "Plan")
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended. As
compensation for providing distribution services to the Class A Shares for the
fiscal year ended October 31, 1996, Alex. Brown received a fee equal to .25% of
the Class A Shares' average daily net assets. This fee may be more or less than
Alex. Brown's actual expenses. Alex. Brown expects to allocate on a proportional
basis most of its annual distribution fee to its investment representatives or
up to all of its fee to Participating Dealers as compensation for their ongoing
shareholder services, including processing purchase and redemption requests and
responding to shareholder inquiries.
In addition, the Fund may enter into Shareholder Servicing Agreements with
certain financial institutions such as banks, to act as Shareholder Servicing
Agents, pursuant to which Alex. Brown will allocate a portion of its
distribution fee as compensation for such financial institutions' ongoing
shareholder services. Such financial institutions may impose separate fees in
connection with these services and investors should review this Prospectus in
conjunction with any such institution's fee schedule. Amounts allocated to
Participating Dealers and Shareholder Servicing Agents may not exceed amounts
payable to Alex. Brown under the Plan.
Payments under the Plan are made as described above, regardless of Alex.
Brown's actual cost of providing distribution services. If the cost of providing
distribution services to the Fund in connection with the sale of the Class A
Shares is less than .25% of the Class A Shares' average daily net assets for any
period, the unexpended portion of the distribution fee may be retained by Alex.
Brown. Alex. Brown will from time to time and from its own resources pay or
allow additional discounts or promotional incentives in the form of cash or
other compensation (including merchandise or travel) to Participating Dealers.
11
<PAGE>
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- -------------------------------------------------------------------------------
Investment Company Capital Corp., One South Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080) is the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. As compensation for providing
accounting services for the fiscal year ended October 31, 1996, ICC received a
fee equal to .21% of the Fund's average daily net assets. (See the Statement of
Additional Information.)
Boston Safe Deposit and Trust Company, located at One Boston Place, Boston,
Massachusetts 02108, acts as custodian of the Fund's assets.
PERFORMANCE INFORMATION
- -------------------------------------------------------------------------------
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return, net of the Fund's maximum sales charge, over one, five and
ten year periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such total return quotations will be
computed by finding average annual compounded rates of return over such periods
that would equate an assumed initial investment of $1,000 to the ending
redeemable value, net of the maximum sales charge and other fees according to
the required standardized calculation. The standardized calculation is required
by the SEC to provide consistency and comparability in investment company
advertising and is not equivalent to a yield calculation. If the Fund compares
its performance to other funds or to relevant indices, its performance will be
stated in the same terms in which such comparative data and indices are stated,
which is normally total return rather than yield. For these purposes, the
performance of the Fund, as well as the performance of such investment companies
or indices, may not reflect sales charges, which, if reflected, would reduce
performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Europe, Australia and Far
East Index, an unmanaged foreign securities index monitored by Morgan Stanley
Capital International, S.A. and to the Standard & Poor's 500 Stock Index and the
Dow Jones Industrial Average, both of which are recognized indices of domestic
market performance. The Fund may also use total return performance data as
reported in the following national financial and industry publications that
monitor the performance of mutual funds: Money Magazine, Forbes, Business Week,
Barron's, IBC/Donoghue's Money Fund Report, Investor's Daily and The Wall Street
Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the Fund,
operating expenses and market conditions. Any fees charged by banks with respect
to customer accounts through which Class A Shares may be purchased, although not
included in calculations of performance, will reduce performance results.
GENERAL INFORMATION
- -------------------------------------------------------------------------------
CAPITAL SHARES
The Fund is an open-end diversified management investment company. It was
organized as a Massachusetts business trust on September 3, 1986 and reorganized
as a Maryland corporation on August 16, 1993, pursuant to an Agreement and Plan
of Reorganization and Liquidation approved by shareholders on June 16, 1993. The
Fund is authorized to issue ten million shares of capital stock, with a par
value of $.001 per share. Shares of the Fund have equal rights with respect to
voting. Voting rights are not cumulative, so the holders of more than 50% of the
outstanding shares voting together for election of Directors may elect all the
members of the Board of Directors of the Fund. In the event of liquidation or
dissolution of the Fund, each share is entitled to its portion of the Fund's
assets after all debts and expenses have been paid. The fiscal year end of the
Fund is October 31.
The Board of Directors may classify any authorized but unissued shares into
classes and may establish certain distinctions between classes relating to
12
<PAGE>
additional voting rights, payments of dividends, rights upon liquidation or
distribution of the assets of the Fund and any other restrictions permitted
by law and the Fund's charter.
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund retain
the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors, Deloitte & Touche
LLP.
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact the
Transfer Agent at (800) 553-8080, the Fund at (800) 767-FLAG, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
13
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors International Fund, Inc." and mail with
this Application to:
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors International Fund, Inc.
For assistance in completing this Application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
To open an IRA account, please call 1-800-767-3524 to request an IRA information
kit.
I enclose a check for $____________ payable to "Flag Investors International
Fund, Inc." for the purchase of Class A Shares of the Fund. The minimum initial
purchase is $2,000, except that the minimum initial purchase for shareholders of
any other Flag Investors Fund or class is $500 and the minimum initial purchase
for participants in the Fund's Automatic Investing Plan is $250. The Fund
reserves the right not to accept checks for more than $50,000 that are not
certified or bank checks.
- ------------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Existing Account No., if any: ________________________________________________
INDIVIDUAL OR JOINT TENANT
______________________________________________________________________________
First Name Initial Last Name
______________________________________________________________________________
Social Security Number
______________________________________________________________________________
Joint Tenant Initial Last Name
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
______________________________________________________________________________
Name of Corporation, Trust or Partnership
______________________________________________________________________________
Tax ID Number Date of Trust
______________________________________________________________________________
Name of Trustees (If to be included in the Registration)
______________________________________________________________________________
For the Benefit of
GIFTS TO MINORS
______________________________________________________________________________
Custodian's Name (only one allowed by law)
______________________________________________________________________________
Minor's Name (only one)
______________________________________________________________________________
Social Security Number of Minor
under the ___________________Uniform Gifts to Minors Act
State of Residence
MAILING ADDRESS
______________________________________________________________________________
Street
______________________________________________________________________________
City State Zip
( )
______________________________________________________________________________
Daytime Phone
<PAGE>
==============================================================================
LETTER OF INTENT (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors International
Fund, Inc. in an aggregate amount at least equal to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
==============================================================================
RIGHT OF ACCUMULATION (OPTIONAL)
List the account numbers of other Flag Investors Funds (except Class B shares)
that you or your immediate family already own that qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional shares of the Fund at no
sales charge.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800)553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
<PAGE>
- ------------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $______ for me, on a monthly or quarterly basis, on or
about the 20th of each month or if quarterly, the 20th of January, April,
July and October, and to draw a bank draft in payment of the investment
against my checking account. (Bank drafts may be drawn on commercial banks
only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
[ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
______________________________________________________________________________
Bank Name
______________________________________________________________________________
Existing Flag Investors Fund Account No., if any
Please attach a voided check.
______________________________________________________________________________
Depositor's Signature Date
______________________________________________________________________________
Depositor's Signature Date
(if joint acct., both must sign)
- ------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of ______, 19____ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of $______, from
Class A Shares that I own, payable to the account registration address as
shown above. (Participation requires minimum account value of $10,000.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July, and October)
<PAGE>
- ------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or both of the boxes below.
No, I/we do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank: _________________________ Account No: _______________
Address: _________________________ Bank Account Name: _______________
- ------------------------------------------------------------------------------
SIGNATURE AND TAXPAYER CERTIFICATION
[THE INFORMATION BELOW APPEARS IN A BOX]
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this application, I hereby certify under penalties of perjury
that the information on this application is complete and correct and
that as required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above,
I have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this application or if I fail to furnish
my correct Social Security Number or Tax ID Number, I may be subject to
a penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes:_______________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
[END OF BOX]
I have received a copy of the Fund's prospectus dated March 1, 1997. I
acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
[THE INFORMATION BELOW APPEARS IN A BOX]
The Internal Revenue Service does not require your consent to any provision
of this document other than the certifications required to avoid backup
withholding.
[END OF BOX]
______________________________________________________________________________
Signature Date
______________________________________________________________________________
Signature (if joint acct., both must sign) Date
For Dealer Use Only
Dealer's Name: ____________________ Dealer Code: __________________________
Dealer's Address: ____________________ Branch Code: __________________________
____________________
Representative: ____________________ Rep. No.: __________________________
A-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------
FLAG INVESTORS INTERNATIONAL FUND, INC.
One South Street
Baltimore, Maryland 21202
-----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH A
PROSPECTUS WHICH MAY BE OBTAINED FROM YOUR
PARTICIPATING DEALER OR SHAREHOLDER SERVICING AGENT
OR BY WRITING OR CALLING ALEX. BROWN & SONS
INCORPORATED, ONE SOUTH STREET, BALTIMORE, MARYLAND
21202, (800) 767-FLAG.
Statement of Additional Information Dated: March 1, 1997
Relating to the Prospectus Dated: March 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History............................... 1
2. Investment Objective and Policies............................. 1
3. Valuation of Shares and Redemption............................ 2
4. Federal Tax Treatment of Dividends and Distributions.......... 3
5. Management of the Fund........................................ 8
6. Investment Advisory and Other Services........................ 13
7. Distribution of Fund Shares................................... 14
8. Brokerage..................................................... 16
9. Capital Shares................................................ 18
10. Semi-Annual Reports........................................... 19
11. Custodian, Accounting Services and Transfer Agent............. 19
12. Independent Auditors.......................................... 19
13. Performance Information....................................... 19
14. Control Persons and Principal Holders of Securities........... 21
15. Financial Statements.......................................... 21
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors International Fund, Inc. (the "Fund") is an
open-end management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information concerning the activities
of the company being considered for investment. The Fund currently offers one
class of shares: Flag Investors International Fund Class A Shares (the
"Shares").
Important information concerning the Fund is included in the Fund's
Prospectus which may be obtained without charge from Alex. Brown & Sons
Incorporated (the "Distributor"), One South Street, Baltimore, Maryland 21202,
(telephone: (800) 767-FLAG) or from Participating Dealers that offer Shares to
prospective investors. Prospectuses may also be obtained from Shareholder
Servicing Agents. Some of the information required to be in this Statement of
Additional Information is also included in the Fund's current Prospectus. To
avoid unnecessary repetition, references are made to related sections of the
Prospectus. In addition, the Prospectus and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the Registration Statement relating to the Fund and its Shares
filed with the SEC. Copies of the Registration Statement as filed, including
such omitted items, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations.
The Fund was organized as a Massachusetts business trust on
September 3, 1986. The Fund filed a registration statement with the SEC
registering itself as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and commenced operations on November 18, 1986. On August 16,
1993, the Fund reorganized as a Maryland corporation pursuant to an Agreement
and Plan of Reorganization and Liquidation approved by shareholders on June 16,
1993.
Under a license agreement dated August 16, 1993, between the
Fund and Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund
the "Flag Investors" name and logo but retains the rights to that name and logo,
including the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVE AND POLICIES
Investment Objective
The Fund's investment objective is long-term growth of
capital. As more fully described in the Fund's Prospectus, the Fund seeks to
achieve this objective primarily through investment in a diversified portfolio
of marketable equity securities of issuers domiciled outside of the United
States.
Investment Restrictions
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
and state regulatory limitations. The investment restrictions recited below are
in addition to those described in the Fund's Prospectus, and are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the Fund's outstanding Shares. The percentage limitations contained
in these restrictions apply at the time of purchase of securities. Accordingly,
the Fund will not:
1. Concentrate 25% or more of its total assets in securities
of issuers in any one industry (for these purposes, banks and insurance
companies are considered to be separate industries);
-1-
<PAGE>
2. Invest in real estate or mortgages on real estate;
3. Purchase or sell commodities or commodities contracts,
except that the Fund may enter into forward currency exchange
contracts;
4. Purchase a security if, as a result, more than 5% of the
value of the Fund's total assets would be invested in securities with
legal or contractual restrictions on resale ("restricted securities");
5. Act as an underwriter of securities within the meaning of
the federal securities laws except insofar as it might be deemed to be
an underwriter upon disposition of certain portfolio securities
acquired within the limitation on purchases of restricted securities;
6. Issue senior securities;
7. Make loans of money or portfolio securities, except that
the Fund may purchase or hold debt instruments, including time
deposits, in accordance with its investment objectives and policies;
8. Effect short sales of securities;
9. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions); or
10. Purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs.
The following investment restriction may be changed by a vote
of the majority of the Board of Directors. The Fund will not:
1. Invest in shares of any other open-end investment company
registered under the Investment Company Act, except as permitted by
federal law. [(The Fund might incur sales charges, management fees and
other expenses in connection with any such investment, which charges
would be a Fund expense and accordingly might have some impact on the
Fund's net asset value).]
Other Considerations
The Fund's investments in convertible securities rated below
investment grade will not exceed 5% of the value of its total assets.
3. VALUATION OF SHARES AND REDEMPTION
Valuation
The net asset value per Share is determined daily as of the
close of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern
Time), each day on which the New York Stock Exchange is open for business (a
"Business Day"). The New York Stock Exchange is open for business on all
weekdays except for the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
-2-
<PAGE>
Portfolio securities held by the Fund which are listed on foreign exchanges may
be traded on days that the Fund does not value its securities, such as Saturdays
and the customary U.S. business holidays on which the New York Stock Exchange is
closed. As a result, the net asset value of Shares may be significantly affected
on days when shareholders do not have access to the Fund.
Redemption
The Fund may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC so that valuation of the net assets of
the Fund is not reasonably practicable.
Under normal circumstances, the Fund will redeem Shares by
check as described in the Prospectus. However, if the Board of Directors
determines that it would be in the best interests of the remaining shareholders
to make payment of the redemption price in whole or in part by a distribution in
kind of readily marketable securities from the portfolio of the Fund in lieu of
cash, in conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. In the unlikely event that Shares are redeemed in kind,
the redeeming shareholder, will incur brokerage costs in later converting the
assets into cash. The method of valuing portfolio securities is described under
"Valuation of Shares," and such valuation will be made as of the same time the
redemption price is determined. The Fund, however, has elected to be governed by
Rule 18f-1 under the Investment Company Act pursuant to which the Fund is
obligated to redeem Shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90-day period for any one
shareholder. A corporate shareholder requesting a redemption must have on file
with the Fund's Transfer Agent, Alex. Brown, a Participating Dealer or
Shareholder Servicing Agent all required resolutions and certificates, such as
resolutions authorizing the redemption and secretary's certificates.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.
The following is only a summary of certain additional federal
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
-3-
<PAGE>
Qualification as Regulated Investment Company
The Fund has been and expects to continue to be taxed as a
regulated investment company ("RIC") under Subchapter M of the Code. As a RIC,
the Fund is exempt from federal income tax on its net investment income and
capital gains which it distributes to shareholders, provided that it distributes
at least 90% of its investment company taxable income (net investment income and
the excess of net short-term capital gains over net long-term capital losses)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions of
investment company taxable income made during the taxable year or, under certain
specified circumstances, within 12 months after the close of the taxable year,
will satisfy the Distribution Requirement. The Distribution Requirement for any
year may be waived if the Fund establishes to the satisfaction of the Internal
Revenue Service that it is unable to satisfy the Distribution Requirement by
reason of distributions previously made for the purpose of avoiding liability
for federal excise tax (as discussed below).
In addition to satisfaction of the Distribution Requirement,
in order to qualify as a RIC the Fund must (1) derive at least 90% of its gross
income from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies, and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business of
investing in such stocks, securities or currencies (the "Income Requirement");
and (2) derive less than 30% of its gross income (exclusive of certain gains
from designated hedging transactions that are offset by realized or unrealized
losses on offsetting positions) from gains on the sale or other disposition of
any of the following investments if such investments are held for less than
three months (the "Short-Short Gain Test"): (a) stock or securities (as defined
in Section 2(a)(36) of the Investment Company Act); (b) options, futures, or
forward contracts (other than options, futures, or forward contracts on foreign
currencies); and (c) foreign currencies (or options, futures, or forward
contracts on foreign currencies) but only if such currencies (or options,
futures, or forward contracts) are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities).
Income derived by the Fund from a partnership or trust
satisfies the Income Requirement only to the extent such income is attributable
to items of income of the partnership or trust that would satisfy the Income
Requirement if they were realized by the Fund in the same manner as realized by
the partnership or trust. Future Treasury regulations may provide that foreign
currency gains that are not "directly related" to the Fund's principal business
of investing in stock or securities (or in options and futures with respect to
stock or securities) will not satisfy the Income Requirement. It is unclear to
what extent gross income from certain currency related transactions will be
treated as not satisfying the Income Requirement under these Treasury
regulations or whether the Treasury regulations, when issued, will have only
prospective effect. Consequently, the Fund will attempt to operate so that its
gross income from certain currency related transactions will be less than 10% of
the gross income of the Fund in any taxable year that could be subject to these
Treasury regulations until such time as the applicable Treasury regulations are
issued or the Fund receives a satisfactory opinion of counsel or private letter
ruling from the Service that income from such currency transactions may be
considered "qualifying income" for purposes of the Income Requirement.
Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities or currencies that it has held for less
than three months. In addition, until such time as Treasury regulations are
issued indicating in which circumstances the writing and purchasing of options
on foreign currency and the investment in forward foreign currency exchange
contracts and currencies is directly related to a regulated investment company's
principal business of investing in stock or securities (or options and futures
with respect to stock or securities), the Fund may have to limit (1) the sale or
offsetting of forward foreign currency exchange contracts that it has held for
less than three months; (2) the exercise or
-4-
<PAGE>
closing of appreciated options on foreign currency that it has held for less
than three months; and (3) certain other transactions involving foreign
currencies.
Many of the forward foreign currency exchange contracts that
the Fund enters into will be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are treated as if they are sold for their
fair market value on the last business day of the taxable year, regardless of
whether a taxpayer's obligations (or rights) thereunder have terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as of such
date. Any gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is combined with any other gain or loss
that was previously recognized upon the termination of other Section 1256
contracts during that taxable year and is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund may elect
not to have the year-end deemed sale rule apply to Section 1256 contracts that
are part of a "mixed straddle" with other investments of the Fund that are not
Section 1256 contracts (the "Mixed Straddle Election"). Gains and losses with
respect to certain foreign currency contracts are treated as ordinary income or
loss pursuant to Section 988 of the Code.
In order to qualify as a RIC, at the close of each quarter of
its taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other RICs, and
securities of other issuers (as to which the Fund has not invested more than 5%
of the value of its total assets in securities of such issuer and as to which
the Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other RICs), or in two or more issuers which the
Fund controls and which are engaged in the same, similar or related trades or
businesses (the "Asset Diversification Test"). The above limitations are imposed
on the Fund as investment restrictions as set forth in the Prospectus under the
heading "Investment Restrictions." Generally, the Fund will not lose its status
as a RIC if it fails to meet the Asset Diversification Test solely as a result
of a fluctuation in value of portfolio assets not attributable to a purchase.
For purposes of the Asset Diversification Test, it is unclear
under present law who should be treated as the issuers of options on foreign
currencies and of forward foreign currency exchange contracts, although it has
been suggested that the issuer in each case would be the foreign central bank or
foreign government backing the particular currency.
Fund Distributions
The Fund anticipates that it will distribute substantially all
of its investment company taxable income for each taxable year. Such
distributions will generally be taxable to shareholders as ordinary income,
regardless of whether such distributions are paid in cash or are reinvested in
Shares. Shareholders receiving any distribution from the Fund in the form of
additional Shares will generally be treated as receiving a taxable distribution
in an amount equal to the fair market value of the Shares received, determined
as of the reinvestment date.
Corporate shareholders will be entitled to the dividends
received deduction on Fund distributions to the extent of qualifying dividends
received by the Fund each year. Generally, a dividend will be treated as a
qualifying dividend if it has been received from a domestic corporation. Because
most of the Fund's income will be from foreign securities, only a small portion,
if any, of the Fund's distributions will qualify for the dividends received
deduction. Moreover, for the purposes of the alternative minimum tax and the
environmental tax, corporate shareholders will generally be required to take the
full amount of any dividend received from the Fund into account in determining
"adjusted current earnings."
The Fund may either retain or distribute to shareholders as a
capital gains distribution the excess of its net long-term capital gains over
its net short-term capital losses ("net capital gains") for each taxable year.
If such gains are distributed as a capital gains distribution, they are taxable
to shareholders as
-5-
<PAGE>
long-term capital gains, regardless of the length of time the shareholder has
held Shares, whether such gains were recognized by the Fund prior to the date on
which a shareholder acquired Shares and whether the distribution was paid in
cash or reinvested in Shares. The aggregate amount of distributions designated
by the Fund as capital gains distributions may not exceed the net capital gains
of the Fund for any taxable year, determined by excluding any net capital losses
or net long-term capital losses attributable to transactions occurring after
October 31 of such year and by treating any such losses as if they arose on the
first day of the following taxable year. Shareholders will be advised annually
as to the U.S. federal income tax status of distributions made during the year.
Conversely, if the Fund elects to retain its net capital gains
for any taxable year it will be taxed thereon (except to the extent of any
available capital loss carryovers) at the corporate tax rate. In such event, it
is expected that the Fund also will elect to have shareholders treated as having
received a distribution of such gains, with the result that they will be
required to report their respective shares of such gains on their returns as
long-term capital gains, will receive a refundable tax credit for their
allocable share of tax paid by the Fund on the gains, and will increase the tax
basis for their Shares by an amount equal to 65 percent of the deemed
distribution.
Investors should be careful to consider the tax implications
of purchasing Shares just prior to the next dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the distribution received, even though the net asset value per
share on the date of such purchase reflected the amount of such distribution.
If for any taxable year the Fund does not qualify as a RIC,
all of its taxable income will be subject to tax at regular corporate rates
.without any deduction for distributions to shareholders, and such distributions
will be taxable to shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions will
generally be eligible for the dividends received deduction in the case of
corporate shareholders.
The Fund generally will be required in certain cases to
withhold and remit to the United States Treasury 31% of distributions paid to
any shareholder (1) who has provided either an incorrect tax identification
number or no number at all, (2) who is subject to backup withholding by the
Internal Revenue Service for failure to report the receipt of interest or
dividend income properly, or (3) who has failed to certify to the Fund that he
is not subject to backup withholding.
Miscellaneous Considerations
A 4% non-deductible federal excise tax is imposed on RICs that
fail to distribute in each calendar year an amount equal to 98% of ordinary
income for the calendar year and 98% of "capital gain net income" (excess of
long and short-term capital gains over long and short-term capital losses) for
the one-year period ending on October 31 of such calendar year. The balance of
such income must be distributed during the next calendar year. For the foregoing
purposes, a RIC is treated as having distributed any amount on which it is
subject to income tax for any taxable year ending in such calendar year.
The Fund intends to make sufficient distributions of its
ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the federal excise tax. However, investors
should note that the Fund may in certain circumstances be required to liquidate
portfolio investments in order to make sufficient distributions to avoid excise
tax liability and, in addition, that the liquidation of investments in such
circumstances may affect the ability of the Fund to satisfy the Short-Short Gain
test.
Generally, gain or loss on the sale of Shares will be capital
gain or loss, which will be long-term if the Shares have been held for more than
one year and otherwise will be short-term. Any loss realized upon the sale,
exchange or redemption of Shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gains distributions have been
paid with respect to such Shares (or any undistributed net capital gains of the
Fund with respect to such Shares have been included in determining the
investor's long-term capital gains). In addition, any loss realized on a sale or
other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning
-6-
<PAGE>
30 days before and ending 30 days after the disposition of the Shares). This
loss disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
Foreign Income Taxes
The dividends and interest payable on certain of the Fund's
foreign portfolio securities received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source, thus
reducing the net amount available for distribution to the Fund's shareholders.
The United States has entered into tax treaties with many foreign countries
which entitle the Fund to a reduced rate of, or exemption from, taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested in various
countries is not known.
If more than 50% of the value of the Fund's total assets at
the close of its taxable year consists of the stock or securities of foreign
corporations, the Fund may elect to "pass through" to the Fund's shareholders
the amount of foreign income taxes paid by the Fund (the "Foreign Tax
Election"). Pursuant to the Foreign Tax Election, shareholders would be required
(i) to include in gross income, even though not actually received, their
respective pro-rata shares of the foreign income taxes paid by the Fund; (ii)
either to deduct their pro-rata share of foreign taxes in computing their
taxable income, or to use such share (subject to various Code limitations) as a
foreign tax credit against federal income tax (but not both). In determining the
source and character of distributions received from the Fund for purposes of the
foreign tax credit limitation rules of the Code, shareholders would, if the Fund
makes the Foreign Tax Election, be required to treat their pro-rata shares of
such foreign taxes and allocable portions of Fund distributions as foreign
source income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, a foreign trust or estate, foreign corporation, or
foreign partnership ("Foreign Shareholder"), depends on whether the income from
the Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from the Fund is not effectively connected with
a U.S. trade or business carried on by a Foreign Shareholder, distributions of
net investment income will be subject to U.S. withholding tax at the rate of 30%
(or such lower treaty rate as may be applicable) upon the gross amount of the
distribution. Furthermore, Foreign Shareholders will generally be exempt from
U.S. federal income tax on gains realized on the sale of Shares, distributions
of net long-term capital gains, and amounts retained by the Fund which are
designated as undistributed capital gains.
If the income from the Fund is effectively connected with a
U.S. trade or business carried on by a Foreign Shareholder, then distributions
of net investment income and net long-term capital gains, and any gains realized
upon the sale of Shares, will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
The Fund may be required to withhold U.S. federal income tax
on distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) if the Foreign Shareholder does not comply with Internal
Revenue Service certification requirements.
The tax consequences to a Foreign Shareholder entitled to
claim the benefits of an applicable tax treaty may be different from those
described herein. Furthermore, Foreign Shareholders are strongly urged to
consult their own tax advisors with respect to the particular tax consequences
to them of an investment in the Fund. For various reasons dependent upon the
application of specific U.S. tax rules, Foreign Shareholders may determine that
an investment in the Fund results in adverse tax consequences.
-7-
<PAGE>
Local Tax Considerations
Rules of U.S. state and local taxation of dividend and capital
gains distributions from regulated investment companies often differ from the
rules for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other U.S.
state and local tax rules regarding an investment in the Fund.
5. MANAGEMENT OF THE FUND
The overall business affairs of the Fund are the
responsibility of the Board of Directors. The Board approves all significant
agreements between the Fund and persons or companies furnishing services to the
Fund, including the Fund's agreements with its investment advisor, sub-advisor,
custodian, accounting services agent and transfer agent. The day-to-day
operations of the Fund are delegated to the Fund's executive officers and to its
investment advisor (the "Advisor") and sub-advisor (the "Sub-Advisor")
(collectively, the "Advisors").
Directors and Officers
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is One South Street, Baltimore, Maryland 21202.
*TRUMAN T. SEMANS, Chairman and Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Director,
Investment Company Capital Corp. (registered investment advisor);
Formerly, Vice Chairman, Alex. Brown & Sons Incorporated.
*RICHARD T. HALE, Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Director and
President, Investment Company Capital Corp. (registered investment
advisor); Chartered Financial Analyst.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice-President and Chief Financial Officer, General
Dynamics Corporation (defense) 1989-1993 and Director, The Arch Fund
(registered investment company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds (registered investment companies); Formerly, Consultant, Wendell
& Stockel Associates, Inc. (consulting firm); General Manager, Shell
Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (finance and banking); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; Partner, KPMG Peat Marwick, retired 1990.
- --------
* A Director who is an "interested person" of the Fund as that term is
defined in Section 2(a)(19) of the Investment Company Act.
-8-
<PAGE>
EUGENE J. MCDONALD, Director (7/14/32)
President, Duke Management Company (investments), Erwin Square, Suite
1000, 2200 West Main Street, Durham, North Carolina 27705; Executive
Vice President, Duke University (education, research and healthcare);
Director, Central Carolina Bank & Trust (banking), Key Funds
(registered investment companies) and AMBAC Treasurers Trust
(registered investment companies).
CARL W. VOGT, Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
Director, Yellow Corporation (trucking); Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak) and Member, Aviation System Capacity
Advisory Committee (Federal Aviation Administration).
JOHN W. CHURCH, JR., President (11/25/32)
Executive Vice President and Chief Investment Officer, The Glenmede
Trust Company, One Liberty Place, 1650 Market Street, Philadelphia,
Pennsylvania 19103.
ANDREW B. WILLIAMS, Executive Vice President (4/28/54)
Vice President, The Glenmede Trust Company, One Liberty Place, 1650
Market Street, Philadelphia, Pennsylvania 19103.
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated and Manager, Special
Products Department, Alex. Brown & Sons Incorporated.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Vice President, Armata
Financial Corp. (registered broker-dealer); Executive Vice President,
Investment Company Capital Corp. (registered investment advisor).
SCOTT J. LIOTTA, Vice President (3/18/65)
Manager, Fund Administration, Alex. Brown & Sons Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (registered investment companies), April 1994-July
1996; and Supervisor, Brown Brothers Harriman & Co. (domestic and
global custody) August 1991-April 1994..
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons 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.
EDWARD J. STOKEN, Secretary (8/7/47)
Compliance Officer, Alex. Brown & Sons Incorporated, April
1995-Present; Formerly, Legal Advisor, Federated Investors (registered
investment advisor), 1991-1995.
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present.
Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, administered,
advised or distributed by the Distributor or its affiliates. There are currently
twelve funds in the Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund,
Inc. fund
-9-
<PAGE>
complex (the "Fund Complex"). Mr. Semans serves as Chairman of five funds and as
a Director of five other funds in the Fund Complex. Mr. Hale serves as Chairman
of three funds, as President and Director of one fund, and as a Director of each
of the other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy and
McDonald serve as Directors of each fund in the Fund Complex. Mr. Vogt serves as
a director of nine funds in the Fund Complex. Mr. Church and Mr. Williams serve
as President and Vice President, respectively, of the Fund. Mr. Fearnow serves
as Vice President of ten funds in the Fund Complex. Mr. Veilleux serves as
Executive Vice President of one fund and as Vice President of each of the other
funds in the Fund Complex. Mr. Liotta serves as Vice President, Mr. Finelli
serves as Treasurer, Mr. Stoken serves as Secretary, and Ms. Collidge serves as
Assistant Secretary, respectively, for each of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have
had normal brokerage transactions with, the Distributor in the ordinary course
of business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and Directors of the Fund who are officers or
directors of the Distributor or the Sub-Advisor may be considered to have
received remuneration indirectly. As compensation for his services as director,
each Director who is not an "interested person" of the Fund (as defined in the
Investment Company Act) (a "Non-Interested Director") receives an aggregate
annual fee (plus reimbursement for reasonable out-of-pocket expenses incurred in
connection with his attendance at board and committee meetings) from all Flag
Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc. for which he serves.
In addition, the Chairman of the Fund Complex's Audit Committee receives an
aggregate annual fee from the Fund Complex. Payment of such fees and expenses is
allocated among all such funds described above in direct proportion to their
relative net assets. For the fiscal year ended October 31, 1996, Non-Interested
Directors' fees attributable to the assets of the Fund totalled approximately
$346. The following table shows aggregate compensation payable to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, and pension or
retirement benefits accrued as part of Fund expenses in the fiscal year ended
October 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
Pension or Total Compensation From the
Aggregate Compensation Retirement Fund and Fund Complex
From the Fund for the Benefits Accrued Payable to Directors for the
Name of Person, Fiscal Year Ended as Part of Fiscal Year Ended October
Position October 31, 1996 Fund Expenses 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Truman T. Semans $0 $0 $0
Chairman
*Richard T. Hale $0 $0 $0
Director
James J. Cunnane $96(1) + $39,000 for service on 12
Director Boards in the Fund Complex
N. Bruce Hannay** $33(1) + $13,071 for service on 12
Director Boards in the Fund Complex
John F. Kroeger $120(1) + $49,000 for service on 12
Director Boards in the Fund Complex
Louis E. Levy $96(1) + $39,000 for service on 12
Director Boards in the Fund Complex
Eugene J. McDonald $96(1) + $39,000 for service on 12
Director Boards in the Fund Complex
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Carl W. Vogt*** $96(1) + $29,250 for service on 5
Director Boards in the Fund Complex
Harry Woolf**** $96(1) + $39,000 for service on 12
Director Boards in the Fund Complex
</TABLE>
- ---------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Retired effective January 31, 1996 and is now deceased.
*** Appointed to the Board on January 30, 1996.
**** Retired effective January 31, 1996.
+ The Fund Complex has adopted a Retirement Plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund
for the period from January 1, 1996 through October 31, 1996 was
approximately $471.
(1) Of the amounts payable to Messrs. Cunnane, Hannay, Kroeger, Levy,
McDonald, Woolf and Vogt, nothing was deferred pursuant to the Fund's
deferred compensation plan in the year ended October 31, 1996.
The Fund Complex has adopted a Retirement Plan (the
"Retirement Plan") for Directors who are not employees of the Fund, the Fund's
Advisor or their respective affiliates (the "Participants"). After completion of
six years of service, each Participant will be entitled to receive an annual
retirement benefit equal to a percentage of the fee earned by him in his last
year of service. Upon retirement, each Participant will receive annually 10% of
such fee for each year that he served after completion of the first five years,
up to a maximum annual benefit of 50% of the fee earned by him in his last year
of service. The fee will be paid quarterly, for life, by each Fund for which he
serves. The Retirement Plan is unfunded and unvested. Mr. Kroeger has qualified
but has not received benefits. The Fund has two Participants, a Director who
retired effective December 31, 1994 and a Director who retired effective
December 31, 1996, each of whom has qualified for the Retirement Plan by serving
thirteen years and fourteen years, respectively, as Directors in the Fund
Complex and who will be paid a quarterly fee of $4,875 by the Fund Complex for
the rest of his life. Another participant, who retired on January 31, 1996 and
died on June 2, 1996, was paid fees of $8,090 by the Fund Complex under the
Retirement Plan in the fiscal year ended October 31, 1996. Such fees are
allocated to each fund in the Fund Complex based upon the relative net assets of
such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits
payable to a Participant upon retirement assuming various years of service and
payment of a percentage of the fee earned by such Participant in his last year
of service, as described above. The approximate credited years of service at
December 31, 1996 are as follows: for Mr. Cunnane, 2 years; for Mr. Kroeger, 14
years; for Mr. Levy, 2 years; for Mr. McDonald, 4 years; and for Mr. Vogt, 1
year.
Estimated Annual Benefits Payable By Fund Complex Upon
Retirement
Years of Service Chairman of Audit Committee Other Participants
- ---------------- --------------------------- ------------------
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
Any Director who receives fees from the Fund is permitted to
defer a minimum of 50%, or up to all, of his annual compensation pursuant to a
Deferred Compensation Plan.
-11-
<PAGE>
Messrs. Cunnane, Kroeger, Levy, McDonald and Vogt have each
executed a Deferred Compensation Agreement. Currently, the deferring Directors
may select various Flag Investors and Alex. Brown Cash Reserve Funds in which
all or part of their deferral account shall be deemed to be invested.
Distributions from the deferring Directors deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of
Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Code of
Ethics applies to the personal investing activities of directors and officers of
the Fund, as well as to designated officers, directors and employees of the
Advisors and the Distributor. As described below, the Code of Ethics imposes
significant restrictions on the Advisors' investment personnel, including the
portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The Code of Ethics requires that covered employees of the
Advisors, directors or officers of the Distributor, and all Fund Directors who
are "interested persons", preclear any personal securities investments (with
certain exceptions, such as non-volitional purchases or purchases which are part
of an automatic dividend reinvestment plan). The preclearance requirement and
associated procedures are designed to identify any substantive prohibition or
limitation applicable to the proposed investment. The substantive restrictions
applicable to investment personnel include a ban on acquiring any securities in
an initial public offering, a prohibition from profiting on short-term trading
in securities and special preclearance of the acquisition of securities in
private placements. Furthermore, the Code of Ethics provides for trading
"blackout periods" that prohibit trading by investment personnel and certain
other employees within periods of trading by the Fund in the same security.
Officers, directors and employees of the Advisors and the Distributor may comply
with codes of ethics instituted by those entities so long as they contain
similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
Investment Company Capital Corp. ("ICC" or the "Advisor")
serves as the Fund's investment advisor and The Glenmede Trust Company
("Glenmede" or the "Sub-Advisor") serves as the Fund's sub-advisor pursuant to
agreements approved by shareholders of the Fund on June 16, 1993 and effective
on August 16, 1993.
The Advisors
ICC is a wholly-owned subsidiary of Alex. Brown Financial
Corporation and an indirect subsidiary of Alex. Brown Incorporated. Glenmede, a
limited purpose trust company, provides fiduciary and investment services to
individuals, endowment funds, foundations, employee benefit plans and other
institutions. Glenmede is a wholly-owned subsidiary of The Glenmede Corporation.
Under the Investment Advisory Agreement, ICC supervises and
manages all aspects of the Fund's operations, except for distribution services;
formulates and implements continuing programs for the purchase and sale of
securities, consistent with the investment objective and policies of the Fund;
provides the Fund with such executive, administrative and clerical services as
are deemed advisable by the Fund's Board of Directors; provides the Fund with,
or obtains for it, adequate office space and all necessary office equipment and
services, including telephone service, utilities, stationery, supplies and
similar items for the
-12-
<PAGE>
Fund's principal office; obtains and evaluates pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the Fund, and
whether concerning the individual issuers whose securities are included in the
Fund's portfolio or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Fund's
portfolio; determines which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Fund's Board of Directors;
takes all actions necessary to carry into effect the Fund's purchase and sale
programs; supervises the operations of the Fund's custodian, transfer and
dividend disbursing agent, and accounting services agent; provides the Fund with
such administrative and clerical services for the maintenance of certain
shareholder records, as are deemed advisable by the Fund's Board of Directors;
and arranges, but does not pay for, the periodic updating of Prospectuses and
supplements thereto, proxy material, tax returns, reports to the Fund's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities. ICC has delegated certain of these responsibilities to Glenmede.
Any investment program undertaken by ICC or Glenmede will at all times be
subject to the policies and control of the Fund's Board of Directors. Neither
ICC nor Glenmede shall be liable to the Fund or its shareholders for any act or
omission by ICC or Glenmede or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty.
As compensation for its services, ICC is entitled to receive a
fee from the Fund, calculated daily and paid monthly, at the annual rate of .75%
of the Fund's average daily net assets. This fee is higher than that paid by
most mutual funds, however, in ICC's opinion, is comparable to fees paid by
other investment companies with similar investment objectives and policies. As
compensation for its services, Glenmede is entitled to receive a fee from ICC,
payable from its advisory fee, calculated daily and paid monthly, at the annual
rate of .55% of the Fund's average daily net assets. The services of the
Advisors to the Fund are not exclusive and the Advisors are free to, and do,
render similar services to others.
Each of the Investment Advisory Agreement and Sub-Advisory
Agreement will continue in effect for an initial term of two years and from year
to year thereafter as specifically approved (a) at least annually by the Fund's
Board of Directors or by a vote of a majority of the outstanding Shares (as
defined under "Capital Shares") and (b) by the affirmative vote of a majority of
the Non-Interested Directors who have no direct or indirect financial interest
in each of such agreements by votes cast in person at a meeting called for such
purpose. Each of the Investment Advisory Agreement and Sub-Advisory Agreement
was most recently approved in the foregoing manner by the Fund's Board of
Directors on October 1, 1996. The Fund or ICC may terminate the Investment
Advisory Agreement upon sixty days' written notice, without penalty, by the vote
of a majority of the Directors who are not parties to the Investment Advisory
Agreement or interested persons of any such party or by the vote of a majority
of the outstanding Shares (as defined under "Capital Shares"). The Investment
Advisory Agreement will terminate automatically in the event of its assignment.
The Sub-Advisory Agreement has similar termination provisions. In the fiscal
year ended October 31, 1996, ICC waived all advisory fees ($98,672) and
reimbursed expenses of $7,066. During the same period and from its own
resources, ICC paid Glenmede sub-advisory fees of $6,149 (net of fee waivers of
$66,211). Glenmede's voluntary fee waiver was in effect through September 30,
1996. As compensation for investment advisory services for the fiscal years
ended October 31, 1995 and October 31, 1994, ICC was entitled to receive fees of
$98,840 and $114,033, respectively, and from such amounts waived fees of $68,946
and $19,363, respectively, and paid Glenmede fees of $26,600 and $31,274,
respectively. During the same period, Glenmede waived fees of $19,020 and
$52,350, respectively.
ICC also serves as the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. (See "Custodian, Accounting
Services, Transfer Agent.")
7. DISTRIBUTION OF FUND SHARES
The Distribution Agreement provides that Alex. Brown & Sons
Incorporated ("Alex. Brown" or the "Distributor") has the exclusive right to
distribute Shares either directly or through other broker-dealers and further
provides that Alex. Brown will: solicit and
-13-
<PAGE>
receive orders for the purchase of Shares, accept or reject such orders on
behalf of the Fund in accordance with the Fund's currently effective Prospectus
and transmit such orders as are accepted to the Fund's transfer agent as
promptly as possible, receive requests for redemption and transmit such
redemption requests to the Fund's transfer agent as promptly as possible,
respond to inquiries from the Fund's shareholders concerning the status of their
accounts with the Fund, provide the Fund's Board of Directors with quarterly
reports required by Rule 12b-1, and take all actions deemed necessary to carry
into effect the distribution of the Shares. Alex. Brown has not undertaken to
sell any specific number of Shares. The Distribution Agreement further provides
that, in connection with the distribution of Shares, Alex. Brown will be
responsible for all of the promotional expenses. The services by Alex. Brown to
the Fund are not exclusive, and Alex. Brown shall not be liable to the Fund or
its shareholders for any act or omission by Alex. Brown or any losses sustained
by the Fund or its shareholders except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
Alex. Brown and certain broker-dealers ("Participating
Dealers") have entered into Sub-Distribution Agreements with respect to the
Shares ("Sub-Distribution Agreements") pursuant to which Participating Dealers
have agreed to process investor purchase and redemption orders and to respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund.
Pursuant to Rule 12b-1 under the Investment Company Act, which
provides that investment companies may pay distribution expenses, directly or
indirectly, only pursuant to a plan adopted by the investment company's Board of
Directors and approved by its shareholders, the Fund has adopted a Plan of
Distribution (the "Plan"). The maximum amount payable under the Plan to Alex.
Brown for distribution and other shareholder servicing assistance is an amount
calculated on an average net asset basis and paid monthly, equal to .25% of the
Shares' average daily net assets, unless and until a change in payment is
authorized and approved by the Board of Directors. Alex. Brown is authorized to
make payments out of its fee to its investment representatives, Participating
Dealers and Shareholder Servicing Agents. Payments to Participating Dealers and
Shareholder Servicing Agents may not exceed fees payable to Alex. Brown under
the Plan.
As compensation for providing distribution services for the
Shares as described above, Alex. Brown receives an annual fee, paid monthly,
equal to .25% of the average daily net assets of the Class A Shares. Alex. Brown
expects to allocate a substantial portion of the annual distribution fee to its
investment representatives and up to all of its fee to Participating Dealers.
For the fiscal years ended October 31, 1996, October 31, 1995, and October 31,
1994, Alex. Brown received 12b-1 fees in the amount of $32,891, $32,947, and
$38,112, respectively. In return for such fees, Alex. Brown paid the
distribution-related expenses of the Fund including one or more of the
following: advertising expenses; printing and mailing of prospectuses to other
than current shareholders; compensation to dealers and sale personnel; and
interest, carrying or other financing charges.
The Distribution Agreement, including the form of
Sub-Distribution Agreement, and the Plan was most recently approved by the
Fund's Board of Directors, including a majority of the Non-Interested
Directors, on October 1, 1996. The Distribution Agreement and the Plan will
remain in effect from year to year as specifically approved (a) at least
annually by the Fund's Board of Directors or by a vote of a majority of the
outstanding Shares and (b) by the affirmative vote of a majority of the
Non-Interested Directors, by votes cast in person at a meeting called for such
purpose.
In approving the Plan, the Directors concluded, in the
exercise of reasonable business judgment, that there was a reasonable likelihood
that the Plan would benefit the Fund and its shareholders. The Plan will be
renewed only if the Directors make a similar determination in each subsequent
year. The Plan may not be amended to increase materially the fee to be paid
pursuant to the Distribution Agreement without the approval of the shareholders
of the Fund. The Plan may be terminated at any time and the Distribution
Agreement may be terminated at any time upon 60 days' notice, in either case
without penalty, by a vote of a majority of the Fund's Non-Interested Directors
or by a vote of a majority of the Fund's
-14-
<PAGE>
outstanding Shares (as defined under "Capital Shares"). Any Shareholder
Servicing Agreement may be terminated at any time, without penalty, upon ten
days' notice. Any Sub-Distribution Agreement may be terminated at any time,
without penalty, upon 10 days' notice or by the vote of a majority of the Fund's
Non- Interested Directors. The Distribution Agreement, the Plan, any
Sub-Distribution Agreement and any Shareholder Servicing Agreement shall
automatically terminate in the event of assignment.
During the continuance of the Plan, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plan to Alex. Brown pursuant to
the Distribution Agreement, to any Participating Dealers pursuant to
Sub-Distribution Agreements and to any Shareholder Servicing Agents pursuant to
Shareholder Servicing Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plan, the selection and nomination of the Fund's Non-Interested Directors shall
be committed to the discretion of the Non-Interested Directors then in office.
In addition, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which Alex. Brown will allocate a
portion of its distribution fee as compensation for such financial institutions'
ongoing shareholder services. Although banking laws and regulations prohibit
banks from distributing shares of open-end investment companies such as the
Fund, according to interpretations by various bank regulatory authorities,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as the shareholder servicing capacities described
above. Should future legislative, judicial or administrative action prohibit or
restrict the activities of the Shareholder Servicing Agents in connection with
the Shareholder Servicing Agreements, the Fund may be required to alter
materially or discontinue its arrangements with the Shareholder Servicing
Agents. Such financial institutions may impose separate fees in connection with
these services and investors should review the Prospectus and this Statement of
Additional Information in conjunction with any such institution's fee schedule.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
For the fiscal years ended October 31, 1996, October 31, 1995
and October 31, 1994, Alex. Brown received sales commissions of $11,908, $21,396
and $41,462 and from such amounts retained $11,878, $12,184 and $27,986 in each
such year, respectively.
Except as described elsewhere, the Fund pays or causes to be
paid all continuing expenses of the Fund, including, without limitation:
investment advisory and distribution fees; the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any transfer, dividend
or accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing
certificates representing Shares; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its Shares with the
SEC and various states and other jurisdictions (including filing fees, legal
fees and disbursements of counsel); the costs and expenses of printing,
including typesetting, and distributing Prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Non-Interested Directors and Non-Interested members
of any advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in Shares or in cash;
charges and expenses of any outside service used for pricing of the Shares; fees
and expenses of legal counsel, including counsel to the Non-Interested
Directors, and independent accountants, in connection with any matter relating
to the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including,
-15-
<PAGE>
but not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the Fund's
operations unless otherwise explicitly assumed by ICC or Alex.
Brown.
8. BROKERAGE
Glenmede is responsible for decisions to buy and sell
securities for the Fund, for the broker-dealer selection, and for negotiation of
commission rates, subject to the supervision of ICC. Purchases and sales of
securities on a securities exchange are effected through brokers who charge a
commission for their services. If the transaction is completed on a United
States securities exchange, the brokerage commissions are subject to negotiation
between Glenmede and the broker. Commission rates for brokerage commissions on
foreign stock exchanges are, however, generally fixed. Glenmede may direct
purchase and sale orders to any broker, including, to the extent and in the
manner permitted by applicable law, Alex. Brown.
In over-the-counter transactions orders are placed directly
with a principal market maker and such purchases normally include a mark-up over
the bid to the broker-dealer based on the spread between the bid and asked price
for the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market investments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown acts as a principal, that is, an
order will not be placed with Alex. Brown if execution of the trade involves
Alex. Brown serving as a principal with respect to any part of the Fund's order,
nor will the Fund buy or sell over-the-counter securities with Alex. Brown
acting as market maker.
If Alex. Brown is participating in an underwriting or selling
group, the Fund may not buy portfolio securities from the group except in
accordance with rules of the SEC. The Fund believes that the limitation will not
affect its ability to carry out its present investment objective.
Glenmede's primary consideration in effecting securities
transactions is to obtain the best price and execution of orders on an overall
basis. As described below, however, to the extent that the prices and execution
offered by more than one broker-dealer are comparable, Glenmede may, in its
discretion, effect transactions with dealers that furnish statistical research
or other information or services which are deemed by Glenmede to be beneficial
to the Fund's investment program. Certain research services furnished by
broker-dealers may be useful to Glenmede with clients other than the Fund.
Similarly, any research services received by Glenmede through placement of
portfolio transactions of other clients may be of value to Glenmede in
fulfilling its obligations to the Fund. No specific value can be determined for
research and statistical services furnished without cost to Glenmede by a
broker-dealer. Glenmede is of the opinion that, because the material must be
analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing the Advisors' research and
analysis. Therefore, such services may tend to benefit the Fund by improving
Glenmede's investment advice. Glenmede's policy is to pay a broker-dealer higher
commissions for particular transactions than might be charged if a different
broker had been chosen when, in the Advisor's opinion, this policy furthers the
overall objective of obtaining best price and execution. Subject to periodic
review by the Fund's Board of Directors, Glenmede is also authorized to pay
broker-dealers other than Alex. Brown higher commissions on brokerage
transactions for the Fund in order to secure research and investment services
described above. The allocation of orders among broker-dealers and the
commission rates paid by the Fund will be reviewed periodically by the Board.
For the fiscal year ended October 31, 1996, Glenmede directed $3,779,330 in
principal value of brokerage transactions to broker dealers and paid $10,872 of
related commissions because of research services provided to Glenmede.
Subject to the above considerations, the Board of Directors
has authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown pursuant to certain policies and
-16-
<PAGE>
procedures incorporating the standards of Rule 17e-1 of the SEC under the
Investment Company Act which requires that the commissions paid Alex. Brown must
be "reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
Rule 17e-1 also contains requirements for the review of such transactions by the
Board of Directors and requires ICC and Glenmede to furnish reports and to
maintain records in connection with such reviews. The Distribution Agreement
between Alex. Brown and the Fund does not provide for any reduction in the fees
to be received by Alex. Brown from the Fund as a result of profits resulting
from brokerage commissions on transactions of the Fund effected through Alex.
Brown. For the fiscal years ended October 31, 1996, October 31, 1995 and
October 31, 1994, the Fund paid no brokerage commissions to Alex. Brown. The
Fund is required to identify any securities of its "regular brokers or dealers"
(as such term is defined in the Investment Company Act) which the Fund has
acquired during its most recent fiscal year. As of October 31, 1996, the Fund
held a 5.45% repurchase agreement issued by Goldman Sachs & Co. valued at
$187,000. Goldman Sachs & Co. is a "regular broker or dealer" of the Fund.
The Advisors manage other investment accounts. It is possible
that, at times, identical securities will be acceptable for the Fund and one or
more of such other accounts; however, the position of each account in the
securities of the same issuer may vary and the length of time that each account
may choose to hold its investment in such securities may likewise vary. The
timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Fund or one or more of these accounts is considered
at or about the same time, transactions in such securities will be allocated
among the accounts in a manner deemed equitable by the Advisors. The Advisors
may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable execution.
Such simultaneous transactions, however, could adversely affect the ability of
the Fund to obtain or dispose of the full amount of a security which it seeks to
purchase or sell and may favorably or unfavorably affect the price received on
the purchase or sale of portfolio securities.
9. CAPITAL SHARES
Under the Fund's Articles of Incorporation, the Fund has 10
million authorized Shares of common stock, par value of $.001 per share. The
Board of Directors may increase or decrease the number of authorized Shares
without shareholder approval.
The Fund's Articles of Incorporation provide for the
establishment of separate series or separate classes of Shares by the Directors
at any time without shareholder approval. The Fund currently has one Series and
the Board has designated two classes of shares: Flag Investors International
Fund Class A Shares (formerly known as the Flag Investors International Fund
Shares) and Flag Investors International Fund Class B Shares. The Class B Shares
are not currently being offered. Shares of the Fund, regardless of series or
class, would have equal rights with respect to voting, except that with respect
to any matter affecting the rights of the holders of a particular series or
class, the holders of each series or class, would vote separately. In general,
each such series would be managed separately and shareholders of each series
would have an undivided interest in the net assets of that series. For tax
purposes, the series would be treated as separate entities. Generally, each
class of Shares would be identical to every other class in a particular series
and expenses of the Fund (other than 12b-1 and any applicable service fees) are
prorated between all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively would be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights,
and therefore the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
-17-
<PAGE>
There are no preemptive, conversion or exchange rights
applicable to any of the Shares. The Fund's issued and outstanding Shares are
fully paid and non-assessable. In the event of liquidation or dissolution of the
Fund, each Share is entitled to its portion of the Fund's assets (or the assets
allocated to a separate series of shares if there is more than one series) after
all debts and expenses have been paid.
As used in this Statement of Additional Information the term
"majority of the outstanding Shares" means the vote of the lesser of (i) 67% or
more of the Shares present at the meeting if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent auditors.
11. CUSTODIAN, ACCOUNTING SERVICES AND TRANSFER AGENT
Boston Safe Deposit and Trust Company ("Boston Safe Deposit"),
located at One Boston Place, Boston, Massachusetts 02108, acts as custodian of
the Fund's assets. Boston Safe Deposit has presented information to the Fund's
Board of Directors regarding any non-branch correspondent institutions with
which it may enter into agreements to hold the Fund's assets abroad and, based
upon its review of such information, the Board has found such arrangements to
comply with the requirements of Rule 17f-5 under the Investment Company Act and
to be consistent with the best interests of the Fund and its shareholders.
Boston Safe Deposit receives such compensation from the Fund for its services as
may be agreed to from time to time by Boston Safe Deposit and the Fund.
Investment Company Capital Corp., One South Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080) has been retained to act as the Fund's transfer and
dividend disbursing agent. As compensation for providing these services, the
Fund pays ICC up to $10.12 per account per year, plus reimbursement for
out-of-pocket expenses incurred in connection therewith. For the fiscal year
ended October 31, 1996, such fees totalled $17,048.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
Average Net Assets Incremental Annual Accounting Fee
0 - $10,000,000 $25,000 (fixed fee)
$10,000,000 - $25,000,000 0.080%
$25,000,000 - $50,000,000 0.060%
$50,000,000 - $75,000,000 0.040%
$75,000,000 - $100,000,000 0.035%
$100,000,000 - $500,000,000 0.017%
$500,000,000 - $1,000,000,000 0.006%
over $1,000,000,000 0.002%
In addition, the Fund will reimburse ICC for the following out
of pocket expenses incurred in connection with ICC's performance of its services
under the Master Services Agreement: express delivery service, independent
pricing and storage. For the fiscal year ended October 31, 1996, ICC received
accounting fees of $27,527.
-18-
<PAGE>
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by
Deloitte & Touche LLP. Deloitte & Touche LLP has offices at 2 Hilton Court, P.O.
Box 319, Parsippany, New Jersey 07054.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the
Fund to that of other mutual funds and to stock or other relevant indices in
advertisements or in reports to shareholders, performance will be stated in
terms of total return, rather than in terms of yield. The total return
quotations, under the rules of the SEC must be calculated according to the
following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the
1, 5, or 10 year periods (or fractional
portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5 or
10 year periods.
Under the foregoing formula the time periods used in
advertising will be based on rolling calendar quarters, updated to the last day
of the most recent quarter prior to submission of the advertising for
publication, and will cover one, five, and ten year periods or a shorter period
dating from the effectiveness of the Fund's registration statement. In
calculating the ending redeemable value, the maximum sales load is deducted from
the initial $1,000 payment and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
Prospectus on the reinvestment dates during the period. Total return, or T in
the formula above, is computed by finding the average annual compounded rates of
return over the 1, 5 and 10 year periods (or fractional portion thereof) that
would equate the initial amount invested to the ending redeemable value. Any
sales loads that might in the future be made applicable at the time to
reinvestments would be included as would any recurring account charges that
might be imposed by the Fund.
The Fund may also from time to time include in such
advertising a total return figure that is not calculated according to the
formula set forth above in order to compare more accurately the Fund's
performance with other measures of investment return. For example, in comparing
the Fund's total return with data published by Lipper Analytical Services, Inc.,
CDA Investment Technologies, Inc. or Morningstar, Inc., or with the performance
of the Europe, Australia and Far East Index, the Standard & Poor's 500 Stock
Index or the Dow Jones Industrial Average, the Fund calculates its annual total
return for the specified periods of time by assuming the investment of $10,000
in Shares and assuming the reinvestment of each dividend or other distribution
at net asset value on the reinvestment date. For this alternative computation,
the Fund assumes that the $10,000 invested in Shares is net of all sales charges
(as distinguished from the computation required by the SEC where the $1,000
payment is reduced by sales charges before being invested in Shares). The Fund
will, however, disclose the maximum sales charge and will also disclose that the
performance data do not reflect sales charges and that inclusion of sales
charges would reduce the performance quoted. Such alternative total return
information will be given no greater prominence in such advertising than the
information prescribed under SEC rules and all advertisements containing
performance data will include a legend disclosing that such performance data
represent past performance and that the investment return and principal value of
an investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
Calculated according to the SEC rules, for the one year period
ended September 30, 1996, the ending redeemable value of a hypothetical $1,000
payment for Shares was $1,050, resulting in a
-19-
<PAGE>
total return for such Shares equal to 5.01%. For the five year period ended
September 30, 1996, the ending redeemable value of a hypothetical $1,000 payment
for Shares was $1,351, resulting in an average annual total return for such
Shares equal to 6.20%. For the period from the effectiveness of the Fund's
registration statement on November 18, 1986 through the end of the Fund's most
recent calendar quarter on September 30, 1996, the ending redeemable value of a
hypothetical $1,000 payment for Shares was $1,825, resulting in an average
annual total return for such Shares equal to 6.28%.
Calculated according to the alternative computation, which
assumes no sales charges and reinvestment of all distributions, for the one year
period ended October 31, 1996, the ending redeemable value of a hypothetical
$10,000 investment in Shares was $11,213, resulting in a total return equal to
12.13%. For the five year period ended October 31, 1996, the ending redeemable
value of a hypothetical $10,000 investment in Shares was $14,336, resulting in
an average annual total return equal to 7.47%. For the period from the
effectiveness of the Fund's registration statement on November 18, 1986 through
the end of the Fund's most recent fiscal year on October 31, 1996, the ending
redeemable value of a hypothetical $10,000 investment in Shares was $19,093,
resulting in an average annual total return equal to 6.71%.
The Fund's annual portfolio turnover rate (the lesser of the
value of the purchases or sales for the year divided by the average monthly
market value of the portfolio during the year, excluding securities with
maturities of one year or less) may vary from year to year, as well as within a
year, depending on market conditions. The Fund's portfolio turnover rate for the
fiscal years ended October 31, 1996 and October 31, 1995 was 13% and 35%,
respectively.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons owned of
record or beneficially 5% or more of the Fund's outstanding Shares, as of
January 31, 1997.
Name and Address Percentage of Ownership
- ---------------- -----------------------
Mercantile Safe Deposit & Trust Co., Custodian - 5.37%*
2 Hopkins Plaza
Baltimore, MD 21202-2930
The Directors and executive officers as a group owned less
than 1% of the Fund's total outstanding Shares, as of January 31, 1997.
15. FINANCIAL STATEMENTS
See next page.
-20-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
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>
-21-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
<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>
-22-
<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>
-23-
<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
======
</TABLE>
- ------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
See Notes to Financial Statements.
-24-
<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
----------
Netrealized 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.
-25-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
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.
-26-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)(1)
- --------------------------------------------------------------------------------
<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.
See Notes to Financial Statements.
-27-
<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.
-28-
<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.
-29-
<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.
-30-
<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.
-31-
<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
-32-
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Part A of the Registration Statement:
- Financial Highlights for the fiscal years ended October 31,
1996, October 31, 1995, October 31, 1994, October 31, 1993,
October 31, 1992, October 31, 1991, October 31, 1990, October
31, 1989 and October 31, 1988 and for the period November 18,
1986 (commencement of operations) through October 31, 1987
(2) Included in Part B of the Registration Statement:
- Statement of Net Assets as of October 31, 1996
- Statement of Operations for the fiscal year ended October
31, 1996
- Statements of Changes in Net Assets for the fiscal years ended
October 31, 1996 and October 31, 1995
- Financial Highlights for the fiscal years ended October 31,
1996, October 31, 1995, October 31, 1994, October 31, 1993 and
October 31, 1992
- Notes to Financial Statements
(3) All required financial statements are included in Parts A and B
hereof. All other financial statements and schedules are
inapplicable.
C-1
<PAGE>
(b) Exhibits:
Exhibit
Number Description
-------- -------------
(1) (a) Registrant's Articles of Incorporation.(2)
(b) Registrant's Articles Supplementary.(2)
(c) Registrant's Articles Supplementary.(2)
(2) Registrant's By-laws as amended through December 18,
1996, filed herewith.
(3) None
(4) Specimen Security with respect to Flag Investors
Shares.(1)
(5) (a) Investment Advisory Agreement between Registrant and
Investment Company Capital Corp.(2)
(b) Sub-Advisory Agreement among Registrant, Investment
Company Capital Corp. and The Glenmede Trust
Company.(2)
(6) (a) Distribution Agreement with respect to Flag Investors
International Fund Class A Shares between Registrant
and Alex. Brown & Sons Incorporated.(2)
(b) Form of Sub-Distribution Agreement between Alex.
Brown & Sons Incorporated and Participating Dealers,
filed herewith.
(c) Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents.(2)
(7) None.
(8) (a) Custody Agreement between Registrant and Boston Safe
Deposit and Trust Company.(2)
(b) Form of Sub-Custody Agreement between Boston Safe
Deposit and Trust Company and Sub-Custodians.(2)
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp., with Appendices for the
provision of Transfer Agency and Accounting Services.(2)
(10) Opinion of Counsel.(2)
(11) Consent of Deloitte & Touche LLP, filed herewith.
C-2
<PAGE>
(12) None.
(13) Form of Subscription Agreement between Flag
Investors International Fund and Investors.(2)
(14) None.
(15) Registrant's Distribution Plan with respect to Flag
Investors International Fund Class A Shares.(2)
(16) Schedule of Computation of Performance Quotations
(unaudited).(2)
(18) (a) Rule 18f-3 Plan(2).
(b) Rule 18f-3 Plan, filed herewith.
(24) Powers of Attorney, filed herewith.
(27) Financial Data Schedule, filed herewith.
- -----------------
(1) Incorporated by reference to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28479), filed with
the Securities and Exchange Commission on February 24, 1994.
(2) Incorporated by reference to Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28479), filed with
the Securities and Exchange Commission on February 27, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities.
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders of
each class of securities of the Registrant.
The following information is given as of January 31, 1997:
C-3
<PAGE>
Number of
Title of Class Record Holders
--------------- ----------------
Common Stock Class A 672
---
Item 27. Indemnification.
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1(b) to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of
the Corporation shall have any liability to the Corporation or
its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such
person is a director or officer at the time of any proceeding
in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to
the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for
indemnification of directors, officers, employees and agents
in the By-Laws of the Corporation or by resolution or
agreement to the fullest extent permitted by the Maryland
General Corporation law.
Section 3. No provision of this Article VIII shall be
effective to protect or purport to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law
in this Article VIII are to such law as from time to time
amended. No further amendment to the Charter of the
Corporation shall decrease, but may expand, any right of any
person under this Article VIII based on any event, omission or
proceeding prior to such amendment.
C-4
<PAGE>
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue. In the absence of a
determination by a court of competent jurisdiction, the determinations that
indemnification against such liabilities is proper, and advances can be made,
are made by a majority of a quorum of the disinterested, non-party directors of
the Fund, or an independent legal counsel in a written opinion, based on review
of readily available facts.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which each investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
(a) Investment Advisor
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Fund's Investment Advisor, has engaged in any other
business, profession, vocation or employment of a substantial nature other than
that of the business of investment management and, through affiliates,
investment banking.
(b) Sub-Advisor
Set forth below are the names and business connections of the directors
and principal executive officers of The Glenmede Trust Company who are engaged
in any other business, profession, vocation, or employment of a substantial
nature.
Name and Position with Glenmede Business Connections
- ------------------------------- ---------------------
Susan W. Catherwood - Director Director, The Glenmede Corporation; Board
Member, Philadelphia Electric Company.
James L. Kermes - Director, President President and Chief Executive Officer,
and Chief Executive Officer The Glenmede Corporation
Thomas W. Langfitt, M.D. - Director, Chairman and Chief Executive Officer, The
Chairman, Chief Executive Officer Glenmede Corporation; Board Member,
New York Life Insurance Company,
SmithKline Beecham Corporation and Sun
Company, Inc.
Arthur E. Pew, III - Director Director, The Glenmede Corporation
C-5
<PAGE>
G. Thompson Pew, Jr. - Director Principal, Philadelphia Investment
Banking Company.
J. Howard Pew II - Director Director, The Glenmede Corporation
J.N. Pew 3rd - Director Director, The Glenmede Corporation
J.N. Pew IV, M.D. - Director Internal Medicine, Private
Practice; Director,The Glenmede
Corporation.
R. Anderson Pew - Director Chief Executive Officer, Radnor
Corporation; Director,
The Glenmede Corporation.
Richard F. Pew - Director Businessman/Rancher; Director,
The Glenmede Corp.
Rebecca W. Rimel - Director, President Executive Vice President, The
and CEO, The Pew Charitable Trusts Glenmede Corporation.
(Division of Glenmede)
Graham McKelvy Walker - Director Director, The Glenmede Corporation
Robert G. Williams - Director Director, The Glenmede Corporation
Ethel Benson Wister - Director Director, The Glenmede Corporation
John W. Church, Jr.- Executive Vice Executive Vice President,
President, Chief Investment Officer The Glenmede Corporation
J. Thomas Dunlevy - Executive Vice Executive Vice President,
President, Director of Client Services The Glenmede Corporation
A.E. Piscopo - Executive Vice President, Executive Vice President,
Chief Operating Officer The Glenmede Corporation.
John E. Peiffer, III - Senior Vice President Senior Vice President,
The Glenmede Corporation
William H. Pope, Jr. - Senior Vice Senior Vice President,
President The Glenmede Corporation
Warren A. Reintzel - Senior Vice President Senior Vice President,
The Glenmede Corporation
Kathleen Crenny - Vice President and Vice President and Controller,
Controller The Glenmede Corporation.
Mary V. Burke - Secretary Secretary, The Glenmede
Corporation.
Katherine E. Koch - Treasurer Treasurer, The Glenmede
Corporation.
Item 29. Principal Underwriters.
C-6
<PAGE>
(a) Alex. Brown & Sons Incorporated acts as distributor for the Alex.
Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag
Investors Emerging Growth Fund, Inc., the Flag Investors Shares class of Total
Return U.S. Treasury Fund, Inc., the Flag Investors Shares class of Managed
Municipal Fund, Inc., Flag Investors Short-Intermediate Income Fund, Inc.
(formerly known as Flag Investors Intermediate-Term Income Fund, Inc.), Flag
Investors Value Builder Fund, Inc., Flag Investors Maryland Intermediate
Tax-Free Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc. and
Flag Investors Equity Partners Fund, Inc., all registered open-end management
investment companies.
(b)
Name and Principal Position and Officers with Position and Offices
Business Address* Principal Underwriters with Registrant
- ------------------ ---------------------------- ---------------------
Alvin B. Krongard Chairman, Chief Executive None
Officer, Director
Benjamin Howell Director None
Griswold, IV
Mayo A. Shattuck III President, Director None
Robert E. Price Secretary and General None
Counsel
Beverly L. Wright Chief Financial Officer and None
Treasurer
- ------------
* One South Street, Baltimore, Maryland 21202
(c) Not Applicable.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
Investment Company Capital Corp., the Registrant's investment advisor,
transfer and dividend disbursing agent and accounting services provider, One
South Street, Baltimore, Maryland 21202, will maintain physical possession of
each such account, book or other document of Registrant except for the records
maintained by The Glenmede Trust Company, One Liberty Place, 1650 Market Street,
Philadelphia, Pennsylvania, 19103 relating to its functions as the Registrant's
sub-advisor, the records maintained by Alex. Brown & Sons Incorporated, One
South Street, Baltimore, Maryland 21202 relating to its functions as the
Registrant's distributor, the records maintained by Boston Safe Deposit and
C-7
<PAGE>
Trust Company, One Boston Place, Boston, Massachusetts 02108 relating to its
functions as the Registrant's custodian.
Item 31. Management Services.
Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form (because the
contract was not believed to be of interest to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom, for the last three
fiscal years.
None.
Item 32. Undertakings.
Furnish the following undertakings in substantially the following form in
all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's latest Annual Report to Shareholders is
available upon request, without charge by contacting Registrant at
(800) 767-3524.
C-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post- Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 25th day of February, 1997.
FLAG INVESTORS INTERNATIONAL
FUND, INC.
By: /s/ John W. Church, Jr.
-------------------------
John W. Church, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities on the date(s) indicated:
* Director February 25, 1997
- -------------------- ------------------
Truman T. Semans Date
* Director February 25, 1997
- -------------------- ------------------
Richard T. Hale Date
* Director February 25, 1997
- -------------------- ------------------
James J. Cunnane Date
* Director February 25, 1997
- -------------------- ------------------
John F. Kroeger Date
* Director February 25, 1997
- -------------------- ------------------
Louis E. Levy Date
* Director February 25, 1997
- -------------------- ------------------
Eugene J. McDonald Date
* Director February 25, 1997
- -------------------- ------------------
Carl W. Vogt Date
/s/ John W. Church, Jr. President February 25, 1997
- ----------------------- ------------------
John W. Church, Jr. Date
/s/ Joseph A. Finelli Chief Financial
- ----------------------- and Accounting
Joseph A. Finelli Officer
*By: /s/ Edward J. Stoken
-------------------------
Edward J. Stoken
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
---------------
EDGAR
Exhibit
Number Description
- ------- -------------
(1) (a) Registrant's Articles of Incorporation.(2)
(1) (b) Registrant's Articles Supplementary.(2)
(1) (c) Registrant's Articles Supplementary.(2)
EX-99.B (2) Registrant's By-Laws as amended through December
18, 1996, filed herewith.
(3) None.
(4) Specimen Security with respect to Flag Investors
Shares.(1)
(5) (a) Investment Advisory Agreement between
Registrant and Investment Company Capital
Corp.(2)
(5) (b) Sub-Advisory Agreement among Registrant,
Investment Company Capital Corp. and The
Glenmede Trust Company.(2)
(6) (a) Distribution Agreement with respect to Flag
Investors International Fund Class A Shares
between Registrant and Alex. Brown & Sons
Incorporated.(2)
EX-99.B (6) (b) Form of Sub-Distribution Agreement between
Alex. Brown & Sons Incorporated and
Participating Dealers, filed herewith.
(6) (c) Shareholder Servicing Agreement between
Registrant and Shareholder Servicing
Agents.(2)
(7) None.
(8) (a) Custody Agreement between Registrant and
Boston Safe Deposit and Trust Company.(2)
<PAGE>
EDGAR
Exhibit
Number Description
- ------- -------------
(8) (b) Form of Sub-Custody Agreement between
Boston Safe Deposit and Trust Company and
Sub-Custodians.(2)
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp. with Appendices for
the provision of Transfer Agency and Accounting
Services.(2)
(10) Opinion of Counsel.(2)
EX-99.B (11) Consent of Deloitte & Touche LLP, filed herewith.
(12) None.
(13) Form of Subscription Agreement between Registrant
Fund and Investors.(2)
(14) None.
(15) Registrant's Distribution Plan with respect to Flag
Investors International Fund Class A Shares.(2)
(16) Schedule of Computation of Performance Quotations
(unaudited).(2)
(18) (a) Rule 18f-3 Plan(2).
EX-99.B (b) Rule 18f-3 Plan, filed herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
EX-27 Financial Data Schedule, filed herewith.
- -----------------------
(1) Incorporated by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-28479), filed with the Securities and Exchange Commission on February
24, 1994.
(2) Incorporated by reference to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-28479), filed with the Securities and Exchange Commission on February
27, 1996.
<PAGE>
EX-99.B(2)
As amended through
December 18, 1996
BY-LAWS
OF
FLAG INVESTORS INTERNATIONAL FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of
the Corporation shall be in the city of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive office of the Corporation shall be in the City of Baltimore,
State of Maryland.
Section 3. Other Offices. The Corporation may have
such other offices in such places as the Board of Directors may
from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of the
shareholders of the Corporation shall not be required to be held in any year in
which shareholders are not required to elect directors under the Investment
Company Act of 1940, as amended (the "1940 Act") even if the Corporation is
holding a meeting of the shareholders for a purpose other than the election of
directors. If the Corporation is required by the 1940 Act to hold a meeting to
elect directors, the meeting shall be designated as the Annual Meeting of
shareholders for that year and shall be held within 120 days after the
occurrence of an event requiring the election of directors. The Board of
Directors may, in its discretion, hold a meeting to be designated as the Annual
Meeting of shareholders on a date within the month of March, in any year where
an election of directors by shareholders is not required under the 1940 Act. The
date of an Annual Meeting shall be set by appropriate resolution of the Board of
Directors, and shareholders shall vote on the election of directors and transact
any other business as may properly be brought before the Annual Meeting.
<PAGE>
Section 2. Special Meetings. Special meetings of the
shareholders, unless otherwise provided by law or by the Charter of the
Corporation, may be called for any purpose or purposes by a majority of the
Board of Directors or the President, and shall be called by the President or
Secretary on the written request of the shareholders as provided by the Maryland
General Corporation Law. Such request shall state the purpose or purposes of the
proposed meeting and the matters proposed to be acted on at it; provided,
however, that unless requested by shareholders entitled to cast a majority of
all the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the shareholders held during the preceding twelve
(12) months.
Section 3. Place of Meetings. The regular meeting, if any, and
any special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder
List. (a) Notice of the place, date and time of the holding of each regular and
special meeting of the shareholders and the purpose or purposes of the meeting
shall be given personally or by mail, not less then ten nor more than ninety
days before the date of such meeting, to each shareholder entitled to vote at
such meeting and to each other shareholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid. The notice of every
meeting of shareholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of such actions or persons as the Board of Directors
may select.
(b) Notice of any meeting of shareholders shall
be deemed waived by any shareholder who shall attend such meeting in person or
by proxy, or who shall, either before or after the meeting, submit a signed
waiver of notice which is filed with the records of the meeting. A meeting of
shareholders convened on the date for which it was called may be adjourned from
time to time without further notice to a date not more than 120 days after the
original record date.
(c) At least five (5) days prior to each meeting
of shareholders, the officer or agent having charge of the share transfer books
of the Corporation shall make a complete list of shareholders entitled to vote
at such meeting, in alphabetical order with the address of and the number of
shares held by each shareholder.
- 2 -
<PAGE>
Section 5. Organization. At each meeting of the shareholders,
the Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute
or the Charter of the Corporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any
meeting of shareholders may authorize another person or persons to act for him
by a proxy signed by such shareholder or his attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be revocable at the pleasure
of the shareholder executing it, except in those cases where such proxy states
that it is irrevocable and where an irrevocable proxy is permitted by law.
Except as otherwise provided by statute, the Charter or the Corporation or these
By-Laws, any corporate action to be taken by vote of the shareholders shall be
authorized by a majority of the total votes cast at a meeting of shareholders at
which a quorum is present by the holders of shares present in person or
represented by proxy and entitled to vote on such action, except that a
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
(c) If a vote shall be taken on any question
other than the election of directors, which shall be by written ballot, then
unless required by statute or these By-Laws, or determined by the chairman of
the meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the shareholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
- 3 -
<PAGE>
Section 7. Inspectors. The Board may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of shareholders' meetings: (i) a unanimous written consent which sets
forth the action and is signed by each shareholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the shareholders by law or by the Charter
of the Corporation or these By-Laws.
- 4 -
<PAGE>
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. Election and Term of Directors. Directors shall be
elected by plurality vote of a quorum cast by written ballot at the regular
meeting of shareholders, if any, or at a special meeting held for that purpose.
The term of office of each director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed as hereinafter provided in these By-Laws, or as otherwise provided by
statute or the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the shareholders by a vote of a majority of the
votes entitled to be cast for the election of directors.
Section 6. Vacancies. The shareholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of Directors; provided, however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
- 5 -
<PAGE>
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the
Board may be held with notice at such times and places as may be
determined by the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services addressed to him at his residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that
- 6 -
<PAGE>
the approval of any contract with an investment adviser or principal
underwriter, as such terms are defined in the 1940 Act, which the Corporation
enters into or any renewal or amendment thereof, the approval of the fidelity
bond required by the 1940 Act, and the selection of the Corporation's
independent public accountants shall each require the affirmative vote of a
majority of the Directors who are not interested persons, as defined in the 1940
Act, of the Corporation. In the absence of a quorum at any meeting of the Board,
a majority of the Directors present thereat may adjourn the meeting from time to
time, but not for a period greater than thirty (30) days at any one time, to
another time and place until a quorum shall attend. Notice of the time and place
of any adjourned meeting shall be given to the Directors who were not present at
the time of the adjournment and, unless such time and place were announced at
the meeting at which the adjournment was taken, to the other Directors. At any
adjourned meeting at which a quorum is present, any business may be transacted
which might have been transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; provided, however, that for so long as
the Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
- 7 -
<PAGE>
Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time; provided, however, that for so
long as the Corporation is registered as an investment company under the 1940
Act, this Section shall be inapplicable to the approval of any investment
advisory agreement, sub-advisory agreement or any plan (or agreement containing
a plan) pursuant to Rule 12b-1 under the 1940 Act.
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee, Audit Committee and Nomination Committee,
each of which shall consist of two or more of the directors of the Corporation,
which committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than as set forth in Section 3 of this
Article IV.
- 8 -
<PAGE>
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the
Board shall have power or authority to:
(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or take any other action required to be taken by the Board of
Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new
By-Laws;
(d) declare dividends or other distributions or
issue capital stock of the Corporation; and
(e) approve any merger or share exchange which
does not require shareholder approval.
Section 4. General. One-third, but not less than two members,
of the members of any committee shall be present in person at any meeting of
such committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
- 9 -
<PAGE>
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board may from time to time elect or appoint, or
delegate to the President the power to appoint, such other officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer. Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
- 10 -
<PAGE>
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
Section 6. Bonds or other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex-officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be
responsible for, all the funds and securities of the Corporation, except those
which the Corporation has placed in the custody of a bank or trust company or
member of a national securities exchange (as that term is defined in the
Securities Exchange Act of 1934) pursuant to a written agreement designating
such bank or trust company or member of a national securities exchange as
custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts
and disbursements in books belonging to the corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
- 11 -
<PAGE>
(d) receive, and give receipts for, moneys due
and payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by
the Board, taking proper vouchers therefor; and
(f) in general, perform all the duties incident
to the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 12. Assistant Secretaries. In the absence or
disability of the Secretary, or when so directed by the Secretary, any Assistant
Secretary may perform any or all of the duties of the Secretary, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Secretary. Each Assistant Secretary shall perform such other duties as
- 12 -
<PAGE>
from time to time may be conferred upon or assigned to him by the Board of
Directors, the President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly
- 13 -
<PAGE>
executed and filed with the Secretary or with a transfer agent or transfer
clerk, and on surrender of the certificate or certificates, if issued, for such
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise either rights. The record date
may not be more than ninety (90) days before the date on which the action
requiring the determination will be taken; and, in the case of a meeting of
shareholders, the record date shall be at least ten (10) days before the date of
the meeting. The Board of Directors shall not close the books of the Corporation
against transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such
- 14 -
<PAGE>
owner or his legal representatives to give to the Corporation a bond in such
sum, limited or unlimited, and in such form and with such surety or sureties, as
the Board in its absolute discretion shall determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss or destruction of any such certificate, or issuance of a new
certificate. Anything herein to the contrary notwithstanding, the Board, in its
absolute discretion, may refuse to issue any such new certificate, except
pursuant to legal proceedings under the laws of the State of Maryland.
Section 8. Stock Leaders. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of October in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
- 15 -
<PAGE>
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the Board of Directors or the shareholders in
accordance with the provisions of the 1940 Act.
- 16 -
<PAGE>
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify
its directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify its Directors
and officers who while serving as Directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. This Article XIII shall not protect any such person against any liability
to the Corporation or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former director
or officer of the Corporation claiming indemnification within the scope of
- 17 -
<PAGE>
this Article XIII shall be entitled to advances from the Corporation for payment
of the reasonable expenses incurred by him in connection with proceedings to
which he is a party in the manner and to the full extent permissible under the
Maryland General Corporation Law, the Securities Act of 1933 (the "1933 Act")
and the 1940 Act, as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former
director or officer requesting indemnification or an advance under this Article
XIII, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, the 1933 Act and
the 1940 Act, as such statutes are now or hereafter in force, whether the
standards required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this
Article XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland
General Corporation Law in this Article XIII are to such law as
from time to time amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
- 18 -
<PAGE>
EX-99.B(6)(b)
FLAG INVESTORS FAMILY OF FUNDS
One South Street
Baltimore, Maryland 21202
FORM OF
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
<PAGE>
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the NASD's Conduct Rules,
including, without limitation, the provisions of Rule 2830. You agree that you
will not combine customer orders to reach breakpoints in commissions for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of Shares of a particular class or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the Prospectus and provisions of the
Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where
<PAGE>
registration or qualification is required. We will inform you as to the states
or other jurisdictions in which we believe the Shares have been qualified for
sale under, or are exempt from the requirements of, the respective securities
laws of such states. You agree that you will offer Shares to your customers only
in those states where such Shares have been registered, qualified, or an
exemption is available. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction. We will file with the Department of
State in New York a State Notice and a Further State Notice with respect to the
Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
---------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
EX-99.B(11)
INDEPENDENT AUDITORS' CONSENT
Flag Investors International Fund, Inc.
We consent to the use in Post-Effective Amendment No. 17 to the Registration
Statement No. 33-28479 of Flag Investors International Fund, Inc. of our report
dated November 22, 1996, appearing in the Statement of Additional Information,
which is a part of such Registration Statement, and to the reference to us under
the caption "Financial Highlights" appearing in the Prospectus, which also is a
part of such Registration Statement.
/s/ Deloitte & Touche LLP
- ------------------------------------
DELOITTE & TOUCHE LLP
Parsippany, NJ
February 24, 1997
<PAGE>
EX-99.B(18)(b)
Flag Investor International Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A and Flag Investors Class B
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors International
Fund, Inc. (the "Fund"), including a majority of the Directors of the Fund who
are not "interested persons" of the Fund (the "Independent Directors") pursuant
to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for two classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A and Flag Investors Class B) and
future classes of Fund shares. The Flag Investors Class A Shares have been
offered since the Fund's inception on November 18, 1986. The Flag Investors
Class B Shares have not yet been offered.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
<PAGE>
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")(1); and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating
- --------
(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
to implementing such plans or any amendment thereto) will be borne exclusively
by that class; (ii) any incremental transfer agency fees relating to a
particular class will be borne exclusively by that class; and (iii) Class
Expenses relating to a particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
<PAGE>
Date Approved: March 1993
Resolutions Renaming Flag Investors Shares
------------------------------------------
WHEREAS, the Board of Directors of Flag Investors International Trust,
Inc. has previously designated one class of the Fund's shares: "Flag Investors
International Trust Shares";
NOW THEREFORE BE IT RESOLVED, that such Shares be, and they hereby are,
further designated and classified as the Fund's Class A Shares.
Date Approved: March 1993
Resolutions Approving Flag Investors Distribution Agreement and Plan
--------------------------------------------------------------------
RESOLVED, that the proposed Distribution Agreement, between the Fund
and Alex. Brown & Sons Incorporated for distribution of the Fund's shares be,
and the same hereby is, approved, in substantially the form presented to this
meeting, and that the appropriate officers of the Fund be, and they hereby are,
authorized and directed to enter into and execute such Distribution Agreement
with such modifications as said officers shall deem necessary or appropriate or
as may be required to conform with the requirements of any applicable statute,
regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
is determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the Plan be, and the same hereby is, approved;
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement
be, and the same hereby is, approved.
Date Approved: December 1993
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file Articles Supplementary to the
Fund's Articles of Incorporation to designate and classify shares in accordance
with the foregoing resolutions.
<PAGE>
Date Approved: September 1994
Resolutions of Board Creating Flag Investors Class B Shares
-----------------------------------------------------------
FURTHER RESOLVED, that an additional class of shares of each of Flag
Investors International Fund, Inc. (the "Fund") be, and hereby is, classified
and designated as the "Flag Investors Class B Shares" (the "Class B Shares") and
that unissued shares of common stock, par value $.001 per share of the Fund be,
and the same hereby are, reclassified as follows:
TOTAL # OF SHARES CLASS A CLASS B UNCLASSIFIED
- ------------------ --------- -------- ------------
10,000,000 8,000,000 1,000,000 1,000,000
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated for the Class B Shares be, and the same hereby is,
approved;
FURTHER RESOLVED, that at such time as the Fund offers the Class B
Shares, the Plan of Distribution presented at this meeting shall govern the
payment of 12b-1 fees by that class;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
<PAGE>
Flag Investors International Fund, Inc.
18f-3 Plan Exhibits
1. Registrant's Articles of Incorporation filed as Exhibit (1)(a) to
Post-Effective Amendment No. 16 to the Registrant's Registration Statement on
Form N-1A (Registration No. 33-28479), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000106) on February 27, 1996
is herein incorporated by reference.
2. Registrant's Articles Supplementary to its Articles of Incorporation filed as
Exhibit (1)(c) to Post-Effective Amendment No. 16 to the Registrant's
Registration Statement on Form N-1A (Registration No. 33-28479), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0000950116-96-000106) on February 27, 1996 is herein incorporated by reference.
3. Registrant's By-Laws are filed as Exhibit (2) to this Registration Statement
on Form N-1A (Registration No. 33-28479) and are herein incorporated by
reference.
4. Registrant's Distribution Agreement with respect to Flag Investors
International Fund Class A Shares filed as Exhibit (6)(a) to Post-Effective
Amendment No. 16 to the Registrant's Registration Statement on Form N-1A
(Registration No. 33-28479), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000950116-96-000106) on February 27, 1996 is herein
incorporated by reference.
5. Registrant's Distribution Plan with respect to Flag Investors International
Fund Class A Shares filed as Exhibit (15) to Post-Effective Amendment No. 16 to
the Registrant's Registration Statement on Form N-1A (Registration No.
33-28479), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-96-000106) on February 27, 1996 is herein incorporated
by reference.
6. Registrant's Form of Sub-Distribution Agreement between Alex. Brown & Sons
Incorporated and Participating Dealers is filed as Exhibit (6)(c) to this
Registration Statement on Form N-1A (Registration No. 33-28479) and is herein
incorporated by reference.
7. Registrant's Prospectus relating to its Class A Shares is filed as part of
this Registration Statement on Form N-1A (Registration No. 33-28479) and, as
amended from time to time, is herein incorporated by reference.
<PAGE>
EX-99.B(24)
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John W. Church, Jr., whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John W. Church, Jr.
-------------------------
John W. Church, Jr.
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
-------------------------
James J. Cunnane
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chief Financial and
Accounting Officer of the Fund such Registration Statement and any and all such
pre- and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
-------------------------
Joseph A. Finelli
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
--------------------------
Richard T. Hale
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
--------------------------
John F. Kroeger
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
--------------------------
Louis E. Levy
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
-------------------------
Eugene J. McDonald
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
--------------------------
Truman T. Semans
Date: December 18, 1996
--------------------
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Edward
J. Stoken, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors International Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
--------------------------
Carl W. Vogt
Date: December 18, 1996
--------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000800074
<NAME> FLAG INVESTORS INTERNATIONAL FUND, INC.
<SERIES>
<NUMBER> 01
<NAME> FLAG INVESTORS INTERNATIONAL FUND, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 11,064,064
<INVESTMENTS-AT-VALUE> 12,966,440
<RECEIVABLES> 83,696
<ASSETS-OTHER> 42,681
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,092,817
<PAYABLE-FOR-SECURITIES> 96,821
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,210
<TOTAL-LIABILITIES> 160,031
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,253,772
<SHARES-COMMON-STOCK> 910,571
<SHARES-COMMON-PRIOR> 983,508
<ACCUMULATED-NII-CURRENT> 625,259
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,852,349)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,903,574
<NET-ASSETS> 12,930,256
<DIVIDEND-INCOME> 414,359
<INTEREST-INCOME> 26,100
<OTHER-INCOME> 7,770
<EXPENSES-NET> 197,429
<NET-INVESTMENT-INCOME> 250,800
<REALIZED-GAINS-CURRENT> 571,223
<APPREC-INCREASE-CURRENT> 653,075
<NET-CHANGE-FROM-OPS> 1,475,098
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,601
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,997
<NUMBER-OF-SHARES-REDEEMED> 182,530
<SHARES-REINVESTED> 1,596
<NET-CHANGE-IN-ASSETS> 447,112
<ACCUMULATED-NII-PRIOR> 103,231
<ACCUMULATED-GAINS-PRIOR> (5,423,572)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,672
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 303,167
<AVERAGE-NET-ASSETS> 13,156,340
<PER-SHARE-NAV-BEGIN> 12.69
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.20
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
