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As Filed with the Securities and Exchange Commission on December 29, 1998
Registration No. 33-8479
811-4827
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 19 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 20 [X]
FLAG INVESTORS INTERNATIONAL FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
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(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
1701 Market Street
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b)
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on March 1, 1999 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)
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75 days after filing pursuant to paragraph (a)
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X on March 1, 1999 pursuant to paragraph (a)(2) of Rule 485.
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FLAG INVESTORS
INTERNATIONAL FUND, INC.
(Class A Shares)
Prospectus & Application -- March 1, 1999
This mutual fund (the "Fund") seeks long-term growth of capital
primarily through investment in a diversified portfolio of common stocks of
issuers located outside of the United States.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") of the Fund.
TABLE OF CONTENTS
Page
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Investment Summary........................................................... 2
Fees and Expenses of the Fund................................................ 4
Investment Program........................................................... 5
The Fund's Net Asset Value................................................... 7
How to Buy Shares............................................................ 7
How to Redeem Shares......................................................... 9
Telephone Transactions....................................................... 10
Sales Charges................................................................ 11
Dividends and Taxes.......................................................... 14
Investment Advisor and Sub-Advisor........................................... 15
Financial Highlights......................................................... 16
Application..................................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor
disapproved these securities nor has it passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal
offense.
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INVESTMENT SUMMARY
Objectives and Strategies
The Fund's investment objective is long-term growth of capital. The
Fund seeks to achieve this objective by investing primarily in common stocks of
companies located outside of the United States. The Fund's investment advisor
and sub-advisor use a disciplined, value-based approach in allocating the Fund's
assets among geographic regions and countries and in selecting individual
securities.
Risk Profile
The Fund is best suited for investors who are willing to accept the
increased risks of foreign investing in the hope of achieving above-average
long-term growth of capital. The value of an investment in the Fund will vary
from day-to-day based on changes in the prices of the securities that the Fund
holds. Those prices, in turn, reflect investor perceptions of the economy, the
markets, and the companies represented in the Fund's portfolio. Foreign
investing may entail different risks than investing in the United States. The
prices of foreign securities may be affected by news or events unique to a
country or region. Since the Fund's investments are denominated in foreign
currencies, any change in the value of those currencies in relation to the U.S.
dollar will result in a corresponding change in the value of the Fund's
investments and may cause the Fund's investments to lose money. An investment in
the Fund is not a bank deposit and is not guaranteed by the FDIC or any other
government agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
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Class A Shares*
For years ended December 31,
1989 24.43%
1990 -19.97
1991 4.17
1992 -10.31
1993 50.34
1994 - 7.4
1995 5.3
1996 15.09
1997 8.63
1998
* The bar chart does not reflect sales charges. If it did, returns would
be less than those shown.
During the 10-year period shown in the bar chart, the highest return for a
quarter was _____% (quarter ended _____________) and the lowest return for a
quarter was _____% (quarter ended _____________).
Average Annual Total Return (for periods ended December 31, 1998)
Morgan Stanley Capital
International Europe,
Australasia, Far East
Class A Shares(1) (EAFE) Index(R)(2)
----------------------- ----------------------
Past One Year .......... ____% _____%
Past Five Years......... ____% _____%
Past Ten Years.......... ____% _____%
Since Inception......... ____% (11/18/86) _____%(3)
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(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Morgan Stanley Capital International EAFE Index is an unmanaged index
that is widely recognized as a benchmark of general international equity
performance. The index is a passive measure of international stock
performance. It does not factor in the costs of buying, selling and holding
securities -- costs which are reflected in the Fund's results.
(3) For the period from __/__/86 through 12/31/98.
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FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Class A Shares.
Shareholder Transaction Expenses:
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price)..................................... 4.50%*
Maximum Deferred Sales Charge (Load) (as a percentage of
original purchase price or redemption proceeds, whichever is lower)
For purchases made before May 1, 1999............................. 0.50%*
For purchases made on or after May 1, 1999........................ 1.00%*
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......... None
Redemption Fee....................................................... None
Exchange Fee......................................................... None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees...................................................... 0.75%
Distribution and/or Service (12b-1) Fees............................. 0.25%
Other Expenses ...................................................... 1.78%
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Total Annual Fund Operating Expenses................................. 2.78%
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Less Fee Waivers and Expense Reimbursements.......................... (1.28%)**
Net Expenses (contractual limitation through February 29, 2000)...... 1.50%
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* You will pay no sales charge on purchases of $1 million or more of Class A
Shares but, unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem
your shares. (See "Sales Charges -- Redemption Price.")
** The Advisor has contractually agreed to limit its fees and reimburse
expenses to the extent necessary so that the Fund's Total Annual Fund
Operating Expenses do not exceed 1.50% of the Fund's average daily net
assets. This agreement will continue until at least February 29, 2000 and
may be extended.
Example
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Class A Shares for the
time periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
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1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
Class A Shares........ $718* $1,273* $1,853* $3,419*
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* Based on Total Annual Fund Operating Expenses after fee waivers and
reimbursements for year 1 only.
Assuming no redemption, expenses for Class A Shares would be the same as
in the above Example.
Federal regulations require that the table above reflect the maximum
sales charge. However, you may qualify for reduced sales charges or no sales
charge at all. (Refer to the section on sales charges.) If you hold your shares
for a long time, the combination of the initial sales charge you paid and the
recurring 12b-1 fees may exceed the maximum sales charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks long-term growth of capital primarily through investment
in a diversified portfolio of common stocks of issuers located outside of the
United States.
The Fund's investment advisor (the "Advisor") and the Fund's
sub-advisor (the "Sub-Advisor") (collectively, the "Advisors") are responsible
for managing the Fund's investments. (Refer to the sections on Investment
Advisor and Sub-Advisor.) The Fund's assets will normally be invested primarily
in common stocks of companies located outside the United States. These
securities will normally be traded on a recognized foreign securities exchange.
In selecting investments for the Fund's portfolio, the Advisors use a
disciplined, value-based approach. Using this approach, they compare foreign
securities markets and individual securities within each market on the basis of
value, quality, and prospective earnings potential. The Fund diversifies
investments by issuer and does not concentrate in any one industry. In selecting
investments for the Fund, the Advisors allocate investments among geographic
regions and individual issuers.
An investment in the Fund involves risk. Over time, common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be volatile. Stock prices are sensitive to developments
affecting particular companies and to general economic conditions that affect
particular industry sectors as a whole. No one can predict how the markets will
behave in the future. In addition, investing in foreign markets may have
different risks than investing in U.S. markets. An investment in a foreign
market may be affected by developments that are unique to that market. These
developments may not affect the U.S. economy or the prices of U.S. securities in
the same manner. Therefore, the prices of
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foreign common stocks may, at times, move in a different direction than the
prices of U.S. common stocks. In addition, the Fund's investments are usually
denominated in the currencies of the countries in which they are traded. As a
result, the Fund may be affected by the changes in the value of foreign
currencies in relation to the value of the U.S. dollar. The value of a foreign
currency may change in response to events that do not affect the value of the
foreign investment in its home country. There can be no guarantee that the Fund
will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in money market instruments, investments
that would not ordinarily be consistent with the Fund's objectives. While
engaged in a temporary defensive strategy, the Fund may not achieve its
investment objective. The Advisors would follow such a strategy only if they
believed that the risk of loss outweighed the opportunity for gain.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others, with which the Fund does business experience difficulties as a result
of year 2000 issues.
The Euro Conversion
On January 1, 1999, eleven countries of the European Economic and
Monetary Union (EMU) began implementing a plan to replace their national
currencies with a new currency, the euro. Full conversion to the euro is slated
to occur by July 1, 2002.
Although it is impossible to predict the impact of the conversion to
the euro on the Fund, the risks may include:
o changes in the relative strength and value of the U.S. dollar or
other major currencies;
o adverse effects on the business or financial condition of European
issuers that the Fund holds in its portfolio;
o that the systems used to purchase and sell securities may not work;
o uncertainty about how existing financial contracts will be treated
after euro implementation; and
o unpredictable effects on trade and commerce generally.
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These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Class A Shares,
the price you pay may be increased by a sales charge. When you redeem Class A
Shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. It is calculated by
subtracting the Fund's liabilities from its assets and dividing the result by
the Fund's outstanding shares.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem Class A Shares on any day the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that day,
the price you pay or receive will be based on the next Business Day's net asset
value per share. Prices for securities that trade on foreign exchanges can
change significantly on days when the New York Stock Exchange is closed and you
cannot buy or sell Fund shares.
The following sections describe how to buy and redeem Class A Shares.
HOW TO BUY SHARES
You may buy Class A Shares through your securities dealer or through
any financial institution that is authorized to act as a shareholder servicing
agent. Contact them for details on how to enter and pay for your order. You may
also buy Class A Shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
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Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental to
the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may
be as low as $1,000.
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. If you participate in the
monthly plan, your subsequent investments may be as low as $100. If
you participate in the quarterly plan, your subsequent investments
may be as low as $250. Refer to the section on the Fund's Automatic
Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the
following methods. If you wish to enroll in any of these programs or if you need
any additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or, if
you have an account with the Fund in your name, the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Class A Shares. The amount you decide upon will be
withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in Class A Shares
at that day's offering price. Either you or the Fund may discontinue your
participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Class A Shares at
net asset value. You may elect to receive your distributions in cash or to have
your distributions invested in shares of other Flag Investors funds. To make
either of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent,
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your securities dealer or your servicing agent at least five days before the
date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase Class A Shares through
a Systematic Purchase Plan. Contact your securities dealer or servicing agent
for details.
HOW TO REDEEM SHARES
You may redeem Class A Shares through your securities dealer or
servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If you have an account with the Fund
that is in your name, you may also redeem Class A Shares by contacting the
Transfer Agent by mail or (if you are redeeming less than $50,000) by telephone.
The Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Class A Shares:
1) A letter of instructions specifying your account number and the number
of Class A Shares or dollar amount you wish to redeem. The letter must
be signed by all owners of the Class A Shares exactly as their names
appear on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature
by a member of the Federal Deposit Insurance Corporation, a trust
company, broker, dealer, securities exchange or association, clearing
agency, savings association or (if authorized by state law) credit
union.
3) Any stock certificates representing the Class A Shares you are
redeeming. The certificates must be either properly endorsed or
accompanied by a duly executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
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Other Redemption Information
Any dividends payable on Class A Shares you redeem will be paid on the
next dividend payable date. If you have redeemed all of your Class A Shares by
that time, the dividend will be paid to you by check, whether or not that is the
payment option you have selected.
If you redeem sufficient Class A Shares to reduce your investment to
$500 or less, the Fund has the power to redeem the remaining shares after giving
you 60 days' notice. The Fund reserves the right to redeem shares in kind under
certain circumstances.
If you own Class A Shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves all
the tax and sales charge implications normally associated with Fund redemptions.
Contact your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your Class A Shares are in an account with the Transfer Agent, you
may redeem them in any amount up to $50,000 or exchange them for shares in
another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are
automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that they reasonably believe to be genuine.
Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your shares in
certificate form, you may not exchange or redeem them by telephone.
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SALES CHARGES
Purchase Price
The price you pay to buy Class A Shares will be the offering price
which is calculated by adding any applicable sales charges to the Class A
Shares' net asset value per share. The amount of any sales charge included in
your purchase price will be according to the following schedule:
Class A Sales Charge as % of
-------------------------------------
Offering Net Amount
Amount of Purchase Price Invested
- ------------------------------------ ------------------ ------------------
Less than $ 50,000 .............. 4.50% 4.71%
$ 50,000 - $ 99,999 .............. 3.50% 3.63%
$ 100,000 - $249,999 .............. 2.50% 2.56%
$ 250,000 - $499,999 .............. 2.00% 2.04%
$ 500,000 - $999,999 .............. 1.50% 1.52%
$1,000,000 and over ................ None None
- ------------------------------------ ------------------ ------------------
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares, you may pay a sales charge when you redeem
your shares. Refer to the section on sales charges on redemptions for details.
The sales charge you pay on your current purchase of Class A Shares may
be reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares
of this Fund or Class A shares of any other Flag Investors fund or if you
already have investments in Class A shares, you may combine the value of your
purchases with the value of your existing investments to determine whether you
qualify for a reduced sales charge. (For this purpose your existing investments
will be valued at the higher of cost or current value.) You may also combine
your purchases and investments with those of your spouse and your children under
the age of 21 for this purpose. You must be able to provide sufficient
information to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class
A Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
the amount you indicated, you will be required to pay the difference between the
sales charges you paid and the sales charges
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applicable to the amount you actually did purchase. Some of the shares you own
will be redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying
a sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
2) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
3) If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Advisors or a
broker-dealer authorized to sell shares of the Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
fiduciary or advisory services. You may be charged an additional fee
by your securities dealer or servicing agent if you buy shares in
this manner.
Purchases by Exchange
You may exchange Class A shares of any other Flag Investors fund with
the same sales charge structure for an equal dollar amount of Class A Shares
without payment of the sales charges described above or any other charge. If you
exchange Class A shares of any Flag Investors fund with a lower sales charge
structure into Class A Shares, you will be charged the difference in sales
charges unless (with the exception of Flag Investors Cash Reserve Prime Class A
Shares) you have owned the shares for at least 24 months. You may enter both
your redemption and purchase orders on the same Business Day or, if you have
already redeemed the shares of the other fund, you may enter your purchase order
within 90 days of the redemption. The Fund may modify or terminate these offers
of exchange upon 60 days' notice.
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You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will
be determined according to the following schedule.
Sales Charge as a Percentage of the
Dollar Amount Subject to Charge
Years Since Purchase (As % of Cost or Value)
- ------------------------------------- -----------------------------------------
First ........................... 1.00%*
Second .......................... 0.50%*
Thereafter ...................... None
- ------------------------------------- -----------------------------------------
* You will pay a sales charge when you redeem Class A Shares only if you
bought those shares at net asset value as part of an investment of $1
million or more. For purchases of $1 million or more of Class A Shares
made before May 1, 1999, you will pay a sales charge of 0.50% if you
redeem them within the first year of purchase instead of the 1.00%
reflected in the above table. Your securities dealer may be paid a
commission at the time of purchase for purchases of $1 million or more of
Class A Shares.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
3) If you acquired the shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase.
4) The sales charge is applied to the lesser of the cost of the shares or
their value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging Class A Shares for shares of another Flag Investors
fund with the same sales charge structure.
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2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver only applies if the annual withdrawals under your Plan
are 12% or less of your share balance.
4) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property, or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
5) If your original investment was at least $3,000,000 and your securities
dealer has agreed to return to the Fund's distributor any payments received
when you bought your shares.
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows the Fund to
pay your securities dealer or shareholder servicing agent distribution and other
fees for the sale of Class A Shares and for shareholder service. Class A Shares
pay an annual distribution fee equal to 0.25% of average daily net assets.
Because this fee is paid out of net assets on an on-going basis, it will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges.
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 and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary
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income and capital gains distributions are taxed at various rates based on how
long the Fund held the assets. You may be able to take a credit against your
taxes for any foreign income taxes paid by the Fund. The Fund will tell you
annually how to treat dividends and distributions.
If you redeem Class A Shares, you will be subject to tax on any gain.
The character of such gain will generally be based on your holding period for
the shares. An exchange of Class A Shares for Class A shares of another fund is
a sale of Class A Shares for tax purposes. More information about taxes is in
the Statement of Additional Information.
Because each investor's tax circumstances are unique and because the
tax laws are subject to change, you should consult your tax advisor about your
investment.
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 BT Alex. Brown Cash
Reserve Fund, Inc. These funds, together with the Fund, had approximately $
billion of net assets as of December 31, 1998. Glenmede is a registered
investment advisor with approximately $ billion under management as of December
31, 1998.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of Glenmede. Glenmede is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates.
ICC received no fee from the Fund as compensation for its services for
the fiscal year ended October 31, 1998. ICC compensates Glenmede out of its
advisory fee or, if necessary, its own resources.
Portfolio Manager
Andrew B. Williams, CFA, has primary responsibility for managing the
Fund's assets. From April, 1993 through December, 1997, Mr. Williams shared
primary responsibility for managing the Fund's assets with John W. Church, Jr.,
formerly the Fund's President.
Mr. Williams is senior 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.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Deloitte & Touche LLP, independent auditors,
whose report, along with the Fund's financial statements for the Class A Shares,
is included in the Statement of Additional Information, which is available upon
request.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year. $16.36 $14.20 $12.69 $13.97 $13.05
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income................ 0.08 0.11 0.26 0.09 0.18
Net realized and unrealized gain/
(loss) on investments1.............. 0.76 2.34 1.28 (1.37) 1.58
------- ------- ------- ------- -------
Total from Investment Operations..... 0.84 2.45 1.54 (1.28) 1.76
------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment
income and short-term gains.......... (0.10) (0.18) (0.03) -- (0.84)
Distributions in excess of net
investment incomeand short-term gains (0.16) (0.11) -- -- --
------- ------- ------- ------- -------
Total distributions.................. (0.26) (0.29) (0.03) -- (0.84)
------- ------- ------- ------- -------
Net asset value at end of year ...... $16.94 $16.36 $14.20 $12.69 $13.97
====== ====== ======= ======= -------
Total Return(2).......................... 5.25% 17.48% 12.13% (9.16)% 13.98%
Ratios to Average Daily Net Assets:
Expenses(3).......................... 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income(4)............. 0.62% 1.18% 1.91% 0.68% 0.75%
Supplemental Data:
Net assets at end of year (000)...... $12,187 $13,982 $12,930 $12,483 $15,487
Portfolio turnover rate.............. 27% 21% 13% 35% 43%
- ---------------------------
(1) Includes net realized currency gain/(loss).
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 2.78%, 2.24%, 2.30%, 2.17% and 1.97% during the
periods ended October 31, 1998,1997, 1996, 1995 and 1994, respectively.
(4) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been (0.67)%, 0.44%,1.10%, 0.02% and
0.28% for the years ended October 31, 1998,1997, 1996, 1995 and 1994,
respectively.
</TABLE>
16
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________________________
<S> <C>
Make check payable to "Flag Investors International For assistance in completing this Application
Fund, Inc." and mail with this Application to: please call: 1-800-553-8080, Monday through
Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
Flag Investors Funds To open an IRA account, please call 1-800-767-3524
P.O. Box 419663 for an IRA information kit.
Kansas City, MO 64141-6663
Attn: Flag Investors International Fund, Inc.
------------------------------------------------------------------------
Your Account Registration (Please Print)
------------------------------------------------------------------------
Existing Account No., if any: ___________
Individual or Joint Tenant Gifts to Minors
_________________________________________________________ ____________________________________________________________________
First Name Initial Last Name Custodian's Name (only one allowed by law)
_________________________________________________________ ____________________________________________________________________
Social Security Number Minor's Name (only one)
_________________________________________________________ _______________________________ ____________________________________
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
under the ____________________ Uniform Gifts to Minors Act
(State of Residence)
Corporations, Trusts, Partnerships, etc. Mailing Address
_________________________________________________________ ____________________________________________________________________
Name of Corporation, Trust or Partnership Street
__________________________ _____________________________ ____________________________________________________________________
Tax ID Number Date of Trust City State Zip
_________________________________________________________ ( )________________________________________________________________
Name of Trustees (if to be included in the Registration) Daytime Phone
__________________________________________________
For the Benefit of
------------------------------------------------------------------------
Letter of Intent (Optional)
------------------------------------------------------------------------
|_| I agree to the Letter of Intent 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 that you or your immediate family already own that qualify you for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
------------------------------------------------------------------------
Distribution Options
------------------------------------------------------------------------
Please check appropriate boxes. If none of the options are 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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------
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.)
<S> <C> <C>
Minimum Initial Investment: $250
Subsequent Investments (check one): |_| Monthly ($100 minimum) |_| Quarterly ($250 minimum)
-----------------------------------------
Please attach a voided check.
_________________________________________________ ____________________________________________________________________________
Bank Name Depositor's Signature Date
_________________________________________________ ____________________________________________________________________________
Existing Flag Investors Fund Account No., if any Depositor's Signature (if joint acct., both must sign) Date
------------------------------------------------------------------------
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 per class.)
Frequency (check one): |_| Monthly |_| Quarterly (January, April, July and October)
------------------------------------------------------------------------
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 predesignated bank account, please provide the following information:
Bank:__________________________________ Bank Account No.:___________________________________________
Address:_______________________________ Bank Account Name:__________________________________________
------------------------------------------------------------------------
Signature and Taxpayer Certification
------------------------------------------------------------------------
___________________________________________________________________________________________________________________________________
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 your 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 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.
___________________________________________________________________________________________________________________________________
I acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
___________________________________________________________________________________________________________________________________
The Internal Revenue Service does not require your consent to any provision of this document other than the certifications
required to avoid backup withholding.
___________________________________________________________________________________________________________________________________
________________________________________________ _________________________________________________________________
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
</TABLE>
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
(Class A Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
THE GLENMEDE TRUST COMPANY ICC DISTRIBUTORS, INC.
One Liberty Place Two Portland Square
1650 Market Street Portland, Maine 04101
Philadelphia, PA 19103
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street University Square
Baltimore, Maryland 21202 117 Campus Drive
1-800-553-8080 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
________________________________________________________________________________
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion of
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. (Call 1-800-SEC-0330 to find out about the operation of the Public
Reference Room.) The Commission's Internet site at http://www.sec.gov has
reports and other information about the Fund and you may get copies of this
information by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or
servicing agent.
Investment Company Act File No. 811-4827
________________________________________________________________________________
INTLPRS
<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 SECURITIES
DEALER OR SHAREHOLDER SERVICING AGENT OR BY WRITING
OR CALLING THE FUND, ONE SOUTH STREET, BALTIMORE,
MARYLAND 21202, (800) 767-FLAG.
Statement of Additional Information Dated: March 1, 1999
Relating to the Prospectus Dated: March 1, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
1. GENERAL INFORMATION AND HISTORY...........................................1
2. INVESTMENT OBJECTIVE AND POLICIES.........................................1
3. VALUATION OF SHARES AND REDEMPTION........................................4
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS......................5
5. MANAGEMENT OF THE FUND....................................................9
6. INVESTMENT ADVISORY AND OTHER SERVICES...................................14
7. DISTRIBUTION OF FUND SHARES..............................................15
8. BROKERAGE................................................................18
9. CAPITAL STOCK............................................................20
10. SEMI-ANNUAL REPORTS......................................................21
11. CUSTODIAN, ACCOUNTING SERVICES AND TRANSFER AGENT........................21
12. INDEPENDENT AUDITORS.....................................................22
13. LEGAL MATTERS............................................................22
14. PERFORMANCE INFORMATION..................................................22
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......................23
16. FINANCIAL STATEMENTS.....................................................24
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors International Fund, Inc. (the "Fund") is an open-end
diversified 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 the Fund's distributor
(the "Distributor") 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 (predecessor to BT Alex. Brown Incorporated), Alex.
Brown & Sons 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
The investment objective of the Fund is long-term growth of capital.
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. 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 in equity securities of
companies located outside the United States. Equity securities consist not only
of common stock but of securities convertible into common stock and American
Depositary Receipts, which are securities issued in the United States that
represent ownership rights in foreign countries. The Fund diversifies
investments
-1-
<PAGE>
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.")
Any assets not invested in equity securities 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 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 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 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.
-2-
<PAGE>
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 actions of the Fund in some
foreign countries
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions that reflect self-imposed standards as well as federal 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 Fund's
outstanding Shares. The vote of a majority of the outstanding Shares of the Fund
means the lesser of: (i) 67% or more of the Shares present at a shareholder
meeting at which the holders of more than 50% of the Shares are present or
represented or (ii) more than 50% of the outstanding Shares of the Fund. The
percentage limitations contained in these restrictions apply at the time of
purchase of securities. 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. Invest more than 10% of the value of its net assets in illiquid
securities, including time deposits of over seven days' duration;
4. 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 equaling 5%
or more of the Fund's total assets are outstanding, the Fund will not purchase
securities;
5. 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);
6. Invest in real estate or mortgages on real estate;
7. Purchase or sell commodities or commodities contracts, except that
the Fund may enter into forward currency exchange contracts;
8. 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");
9. 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;
10. Issue senior securities;
11. 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;
12. Effect short sales of securities;
-3-
<PAGE>
13. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions); or
14. 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.
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 (or the days on which they are observed): New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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.
The Fund may enter into agreements that allow a third party, as agent
for the Fund, to accept orders from its customers up until the Fund's close of
business which is ordinarily 4:00 p.m. (Eastern Time). So long as a third party
receives an order prior to the Fund's close of business, the order is deemed to
have been received by the Fund and, accordingly, may receive the net asset value
computed at the close of business that day. These "late day" agreements are
intended to permit shareholders placing orders with a third party to place
orders up to the same time as other shareholders.
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
-4-
<PAGE>
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. If 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 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.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income
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.
The following general 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.
Qualification as Regulated Investment Company
The Fund intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things, (a)derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; and
(b)diversify its holdings so that, at the end of each fiscal quarter of the
Fund's taxable year, (i)at least 50% of the market value of the Fund's total
assets is represented by cash and cash items, United States Government
securities, securities of other RICs, and other securities, with such other
securities limited, in respect to any one issuer, to an amount not greater than
5% of the value of the Fund's total assets or 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than United States Government
securities or securities of other RICs) of any one issuer or two or more issuers
that the Fund controls and which are engaged in the same, similar, or related
trades or business. For purposes of the 90% of gross income requirement
described above, foreign currency gains that are not directly related to the
Fund's principal business of investing in stock or securities (or options or
futures with respect to stock or securities) may be excluded from income that
qualifies under the 90% requirement.
In addition to the requirement described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (that
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net long-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
-5-
<PAGE>
If the Fund fails to qualify for any taxable year as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate income tax 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. In this event, such distributions generally will be eligible for the
dividends-received deduction.
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 Internal Revenue Service that income from such currency transactions
may be considered "qualifying income" for purposes of the Income Requirement.
Some of the forward foreign currency exchange contracts entered into by
the Fund may be treated 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.
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.
In the case of corporate shareholders, Fund distributions (other than
capital gains distributions) generally qualify for the dividends-received
deduction to the extent of the gross amount 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
-6-
<PAGE>
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 its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders that are individuals at a maximum rate of 20%, whether
the distribution was paid in cash or reinvested in Shares. Shareholders will be
advised annually as to the U.S. federal income tax status of distributions made
during the year.
Conversely, if any such gains are retained, the Fund will pay federal
income tax thereon, and if the Fund makes an election, the shareholders will
include such gains in their income, will increase their basis in the Fund by the
difference between the amount of such includable gains and the tax deemed paid
by such shareholder and will be able to claim their share of the tax paid by the
Fund as a refundable credit.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in December of one year, but paid in January of the following year, will be
deemed for tax purposes to have been received by you and paid by the Fund in the
year in which the dividends were declared.
Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those investors 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 the Fund fails to qualify as a regulated investment company for any
taxable year, all of its taxable income will be subject to tax at regular
corporate income tax 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 be eligible for the dividends-received
deduction for corporate shareholders.
In certain cases, the Fund will be required to withhold and remit to
the United States Treasury 31% of distributions paid (or deemed to be paid) to
any shareholder who (1) has failed to provide a correct tax identification
number, (2) is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly, or (3)
has failed to certify to the Fund that he is not subject to backup withholding.
Miscellaneous Considerations
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending October 31 of that year (and any retained amount
from the prior calendar year), the Fund will be subject to a nondeductible 4%
Federal excise tax on the undistributed amounts. The Fund intends to make
sufficient distributions to avoid imposition of this tax, or to retain, at most,
its net capital gains and pay tax thereon.
Generally, any 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
twelve months, and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a rate of 20% and short-term capital gains
are
-7-
<PAGE>
currently taxed at ordinary income tax rates. However, 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 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 that 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 because the
amount of the Fund's assets to be invested within 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 to (i) 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 deduct their pro-rata
share of foreign taxes in computing their taxable income, or 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, a foreign corporation,
or a 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 plus the excess, if any, of net short-term capital gains over
net long-term capital losses 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 of the
Fund, distributions of net long-term capital gains, and amounts retained by the
Fund that 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 from the
Fund of any gains realized upon the sale of Shares of the Fund, will be subject
to U.S. federal income tax at the rates applicable to U.S. citizens or domestic
corporations.
-8-
<PAGE>
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.
State and 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
Directors and Officers
The overall business and 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 and
transfer agent.
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 (10/27/26)
Vice Chairman, Alex. Brown Capital Advisory & Trust Company; Director,
Investment Company Capital Corp. (registered investment advisor) and
Virginia Hot Springs, Inc. (property management); Formerly, Vice
Chairman and Managing Director, Alex. Brown & Sons Incorporated (now BT
Alex. Brown Incorporated).
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103. Managing Director,
CBC Capital (merchant banking), 1993-Present; Director, Net.World
(telecommunications), 1998-Present; Formerly, Senior Vice President and
Chief Financial Officer, General Dynamics Corporation (defense) 1989-
1993; and Director, The Arch Fund (registered investment company).
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, The Nevis Fund (registered
investment company) and Circon Corp. (medical instruments). Formerly,
President and Chief Executive Officer, The National Association of
Securities Dealers, Inc. and The NASDAQ Stock Market, Inc., 1987-1997;
Chief Operating Officer
- -----------------
* 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.
-9-
<PAGE>
of Alex. Brown & Sons Incorporated (now BT Alex. Brown Incorporated)
1985-1987; General Partner, Alex. Brown & Sons Incorporated (now BT
Alex. Brown Incorporated) 1976-1985.
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; and Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management
Company (investments); Executive Vice President, Duke University
(education, research and health care); Executive Vice Chairman and
Director, Central Carolina Bank & Trust (banking) and Director, Victory
Funds (registered investment companies). Formerly, Director, AMBAC
Treasures Trust (registered investment company) and DP Mann Holdings
(insurance).
CARL W. VOGT, Esq., 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) and American Science &
Engineering (x-ray detection equipment); Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak); and Member, Aviation System Capacity
Advisory Committee (Federal Aviation Administration).
HARRY WOOLF, President (8/12/23)
Institute for Advanced Study, Olden Lane, Princeton, New Jersey 08540.
Professor-at-Large Emeritus, Institute for Advanced Study; Director,
ATL and Spacelabs Medical Corp. (medical equipment) and Family Health
International (non-profit research and education); Director, Research
America (non-profit medical research); Formerly, Trustee, Reed College
(education) and Rockefeller Foundation; and Director, Merrill Lynch
Cluster C Funds and Flag Investors/ISI and BT Alex. Brown Cash Reserve
Fund, Inc. Family of Funds (registered investment companies).
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Vice President,
Investment Company Capital Corp. (registered investment advisor),
1995-Present; Formerly, Vice President and Treasurer, The Delaware
Group of Funds (registered investment companies) and Vice President,
Delaware Management Company Inc. (investments), 1980-1995.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, 1997-Present. Formerly,
Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP), 1988 -1997.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, 1996-Present;
Formerly, Manager and Foreign Markets Specialist, Putnam Investments
Inc. (registered investment companies), 1994- 1996; and Supervisor,
Brown Brothers Harriman & Co. (domestic and global custody), 1991-1994.
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<PAGE>
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered or advised
by BT Alex. Brown Incorporated ("BT Alex. Brown") or its affiliates. There are
currently 12 funds in the Flag Investors/ISI Funds and BT Alex. Brown Cash
Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Semans serves as
Chairman of five funds and as a Director of five other funds in the Fund
Complex. Messrs. Cunnane, [Hardiman], Levy, McDonald and Vogt serve as Directors
of each fund in the Fund Complex. Mr. Woolf serves as President of 7 funds in
the Fund Complex. Ms. Olmert serves as Secretary, Mr. Finelli serves as
Treasurer and Mr. Liotta serves as Assistant Secretary 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, BT Alex. Brown 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.
With the exception of the Fund's President, 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 Advisors may be
considered to have received remuneration indirectly. As compensation for his
services, each Director who is not an "interested person" of the Fund (as
defined in the Investment Company Act) (an "Independent Director") and Mr.
Woolf, the Fund's President, effective December 18, 1998 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 each fund
in the Fund Complex for which he serves. In addition, the Chairmen of the Fund
Complex's Audit Committee and Executive Committee receive an aggregate annual
fee from the Fund Complex. Payment of such fees and expenses is allocated among
all such funds described above in proportion to their relative net assets. For
the fiscal year ended October 31, 1998, Independent Directors' fees attributable
to the assets of the Fund totaled approximately $369.
The following table shows aggregate compensation and retirement
benefits 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, 1998.
-11-
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation From
Aggregate Pension or the Fund and Fund
Compensation Retirement Complex Payable to
From the Fund for the Benefits Accrued Directors for the Fiscal
Name of Person, Fiscal Year Ended as Part of Year Ended
Position October 31, 1998 Fund Expenses October 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Truman T. Semans(1) $0 $0 $0
Chairman
Richard T. Hale(1,2) $0 $0 $0
Director
James J. Cunnane $69(3) (4) $39,000 for service on 13(5)
Director Boards in the Fund Complex
Joseph R. Hardiman(6) N/A N/A $9,750 for service on 9
Boards in the Fund Complex
John F. Kroeger(7) $87(3) (4) $49,000 for service on 13(5)
Director Boards in the Fund Complex
Louis E. Levy $73(3) (4) $44,000 for service on 13(5)
Director Boards in the Fund Complex
Eugene J. McDonald $69(3) (4) $39,000 for service on 13(5)
Director Boards in the Fund Complex
Carl W. Vogt, Esq. $71(3) (4) $39,000 for service on 11(5,8)
Director Boards in the Fund Complex
</TABLE>
- ---------------------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) Resigned effective November 26, 1998.
(3) Of the amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald and
Vogt nothing was deferred pursuant to the Fund's deferred compensation
plan in the year ended October 31, 1998.
(4) The Fund Complex has adopted a Retirement Plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the year ended October 31, 1998 was approximately $982.
(5) One of these funds ceased operations on July 29, 1998.
(6) Elected to the Fund's Board on [January 22], 1999.
(7) Deceased November 26, 1998.
(8) Mr. Vogt received proportionately higher compensation from each fund for
which he served.
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 the Participant 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 the Participant 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. The Fund has
two Participants, a Director who retired effective December 31, 1994 and Mr.
Woolf, who retired as a Director of the Fund 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.
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, 1998 are as follows: for Mr. Cunnane, 4 years; for Mr. Levy, 4
years; for Mr. McDonald, 6 years; for Mr. Vogt, 3 years; and for Mr. Hardiman, 0
years.
-12-
<PAGE>
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- --------------------------------------------------------------------
<S> <C> <C>
Chairmen of Audit and Other Participants
Executive Committees ------------------
---------------------
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
</TABLE>
Any Director who receives fees from the Fund is permitted to defer 50%
to 100% of his annual compensation pursuant to a Deferred Compensation Plan.
Messrs. Cunnane, Levy, McDonald and Vogt have each executed a Deferred
Compensation Agreement. Currently, the deferring Directors may select from among
various Flag Investors funds, BT Alex. Brown Cash Reserve Fund, Inc. and BT
International Equity Fund 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 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 all of the 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 additional 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 any officer, director, or employee of
the Fund or the Advisors preclear any personal securities investments (with
certain exceptions, such as non-volitional purchases or purchases that are part
of an automatic dividend reinvestment plan). The foregoing would apply to any
officer, director, or employee of the Distributor that is an access person. 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. Trading by investment personnel and certain other employees
of the Advisor or Sub-Advisor, as appropriate, would be exempt from this
"blackout period" provided that (1) the market capitalization of a particular
security exceeds $2 billion; and (2) orders of such entity do not exceed ten
percent of the daily average trading volume of the security for the prior 15
days. Officers, directors and employees of the Advisors and the Distributor may
comply with codes instituted by those entities so long as they contain similar
requirements and restrictions.
-13-
<PAGE>
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.
ICC is an indirect subsidiary of Bankers Trust Corporation. ICC is also
investment advisor to other Funds in the Flag Investors family of funds and BT
Alex. Brown Cash Reserve Fund Inc. 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 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 materials, 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.
Under the Investment Advisory Agreement, ICC is responsible for
obtaining and evaluating economic, statistical and financial information to
formulate and implement investment policies for the Fund. ICC has delegated this
responsibility to Glenmede, provided that ICC continues to supervise the
performance of Glenmede and report thereon to the Fund's Board of Directors. Any
investment program undertaken by ICC or Glenmede will at all times be subject to
policies and control of the Fund's Board of Directors. ICC will provide the Fund
with office space for managing its affairs, with the services of required
executive personnel and with certain clerical and bookkeeping services and
facilities. These services are provided by ICC without reimbursement by the Fund
for any costs. The services of ICC and Glenmede to the Fund are not exclusive
and ICC and Glenmede are free to render similar services to others.
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 0.75% 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 0.55% of the Fund's average daily net assets.
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
-14-
<PAGE>
under "Capital Stock") and (b) by the affirmative vote of a majority of the
Independent 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
September 29, 1998. 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 Stock"). The Investment
Advisory Agreement will terminate automatically in the event of its assignment.
The Sub-Advisory Agreement has similar termination provisions.
Advisory fees paid by the Fund to ICC and sub-advisory fees paid by ICC
to Glenmede for the last three fiscal years were as follows:
- --------------------------------------------------------------------------------
Year Ended October 31,
- --------------------------------------------------------------------------------
Fees Paid to: 1998 1997 1996
- --------------------------------------------------------------------------------
ICC $0(1) $ 1,461(2) $0(3)
- --------------------------------------------------------------------------------
Glenmede $73,399 $77,150 $6,149(4)
- --------------------------------------------------------------------------------
- ----------------
(1) Net of fee waivers of $98,993. During this period, ICC also reimbursed
expenses of $73,256.
(2) Net of fee waivers of $103,734.
(3) Net of fee waivers of $98,672. During this period, ICC also reimbursed
expenses of $7,066.
(4) Net of fee waivers of $66,211.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. An affiliate of ICC provides custody
services to the Fund. (See "Custodian, Accounting Services, Transfer Agent.")
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as the exclusive distributor of the Fund's Shares pursuant to a Distribution
Agreement (the "Distribution Agreement") effective August 31, 1997.
The Distribution Agreement provides that ICC Distributors shall; (i) use
reasonable efforts to sell Shares upon the terms and conditions contained in the
Distribution Agreement and the Fund's then current Prospectus; (ii) use its best
efforts to conform with the requirements of all federal and state laws relating
to the sale of the Shares; (iii) adopt and follow procedures as may be necessary
to comply with the requirements of the National Association of Securities
Dealers, Inc. and any other applicable self-regulatory organization; (iv)
perform its duties under the supervision of and in accordance with the
directives of the Fund's Board of Directors and the Fund's Articles of
Incorporation and By-Laws; and (v) provide the Fund's Board of Directors with a
written report of the amounts expended in connection with the Distribution
Agreement. ICC Distributors shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of ICC Distributors are not exclusive and ICC Distributors
shall not be liable to the Fund or its shareholders for any error of judgment or
mistake of law, for any losses arising out of any investment, or for any action
or inaction of ICC Distributors in the absence of bad faith, willful
misfeasance, or gross negligence in the performance of ICC Distributors' duties
or obligations under the Distribution Agreement or by reason of ICC
Distributors' reckless disregard of its duties and obligations under the
Distribution Agreement. The Distribution
-15-
<PAGE>
Agreement further provides that the Fund and ICC Distributors will mutually
indemnify each other for losses relating to disclosures in the Fund's
registration statement.
The Distribution Agreement may be terminated at any time upon 60 days'
written notice by the Fund, without penalty, by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the Fund (as defined under "Capital Stock") or upon 60
days' written notice by the Distributor and shall automatically terminate in the
event of an assignment. The Distribution Agreement has an initial term of one
year from the date of effectiveness. It shall continue in effect thereafter with
respect to the Fund provided that it is approved at least annually by (i) a vote
of a majority of the outstanding voting securities of the Fund or (ii) a vote of
a majority of the Fund's Board of Directors including a majority of the
Independent Directors and so long as the Fund's Plan of Distribution is approved
at least annually by the Independent Directors in person at a meeting called for
the purpose of voting on such approval. The Distribution Agreement, including
the form of Sub-Distribution Agreement, was most recently approved by the Board
of Directors, including a majority of the Independent Directors, on September
29, 1998.
ICC Distributors and certain broker-dealers ("Participating Dealers")
have entered into Sub-Distribution Agreements under which broker-dealers have
agreed to process investor purchase and redemption orders and respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund. Any Sub-Distribution Agreement may be terminated at any
time, in the same manner as the Distribution Agreement and shall automatically
terminate in the event of an assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, including BT Alex. Brown and certain banks,
to act as Shareholder Servicing Agents, pursuant to which ICC Distributors will
allocate a portion of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. The Fund may also enter into
Shareholder Servicing Agreements pursuant to which the Advisor or its affiliates
will provide compensation out of its own resources. 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 such
institution's fee schedule. In addition, state securities laws on this issue may
differ from interpretations of federal law expressed herein, and banks and
financial institutions may be required to register as dealers pursuant to state
law.
As compensation for providing distribution services for the Shares as
described above, ICC Distributors receives an annual fee, paid monthly, equal to
0.25% of the average daily net assets of the Class A Shares. ICC Distributors
expects to allocate up to all of its fee to Participating Dealers and
Shareholder Servicing Agents. In return for such fees, ICC Distributors pays 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 sales personnel; and
interest, carrying or other financing charges.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributor received fees
in the following amounts:
-16-
<PAGE>
- --------------------------------------------------------------------------------
Fiscal Year Ended October 31,
-----------------------------------------------
Fee
1998 1997 1996
- --------------------------------------------------------------------------------
Class A 12b-1 Fee $32,998(1) $ 35,065(2) $ 32,891(3)
- --------------------------------------------------------------------------------
- ------------
(1) Fees received by ICC Distributors, the Fund's distributor.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $29,898 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $6,167.
(3) Fees received by Alex. Brown, the Fund's distributor for the fiscal year
ended October 31, 1996.
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 ICC Distributors for
distribution and other shareholder servicing assistance is an amount calculated
on an average net asset basis and paid monthly, equal to 0.25% of the Shares'
average daily net assets, unless and until a change in payment is authorized and
approved by the Board of Directors. ICC Distributors is authorized to make
payments out of its fee to Participating Dealers and Shareholder Servicing
Agents. Payments to Participating Dealers and Shareholder Servicing Agents may
not exceed fees payable to ICC Distributors under the Plan. The Plan was most
recently approved by the Fund's Board of Directors, including a majority of the
Independent Directors, on September 29, 1998. 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 Independent 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 upon 60 days' notice, without penalty, by a
vote of a majority of the Fund's Independent Directors or by a vote of a
majority of the Fund's outstanding Shares (as defined under "Capital Stock").
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 ICC Distributors pursuant to the
Distribution Agreement, to broker-dealers pursuant to any 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 Independent Directors shall be committed
to the discretion of the Independent Directors then in office.
-17-
<PAGE>
The Fund's distributor received commissions on the sale of Class A
Shares (of which only a portion was retained) in the following amounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
Class 1998 1997 1996
--------------------------------------------------------------------------------------------
Received Retained Received Retained Received Retained
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Class A $2,056(1) $0 $10,338(2) $9,938(3) $11,908(4) $11,878(5)
Commissions
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) By ICC Distributors, the Fund's distributor.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $10,234 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $104.
(3) Of commissions received, Alex. Brown retained $9,938 and ICC Distributors
retained $0, respectively. 4 By Alex. Brown, the Fund's distributor for the
fiscal year ended October 31, 1996.
The Fund will pay all costs associated with its organization and
registration under the Securities Act and the Investment Company Act. 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 Independent Directors
and independent 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 Independent 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, 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 ICC Distributors.
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
-18-
<PAGE>
purchase and sale orders to any broker, including, to the extent and in the
manner permitted by applicable law, the Advisors or their affiliates or ICC
Distributors.
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 the
Advisors or their affiliates in any transaction in which the Advisors or their
affiliates act as a principal.
If the Advisors or their affiliates are 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 best price and execution of orders on an overall basis. As described
below, however, Glenmede may, in its discretion, effect agency transactions with
broker-dealers that furnish statistical, research or other information or
services that 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. In over-the-counter
transactions, Glenmede will not pay any commission or other remuneration for
research services. Therefore, it 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 the Advisors or their affiliates higher commissions
than another broker might have charged on brokerage transactions for the Fund
for brokerage or research services. The allocation of orders among
broker-dealers and the commission rates paid by the Fund will be reviewed
periodically by the Board. The foregoing policy under which the Fund may pay
higher commissions to certain broker-dealers in the case of agency transactions,
does not apply to transactions effected on a principal basis. In addition,
consistent with NASD Rules, and subject to seeking the most favorable price and
execution available and such other policies as the Board may determine, Glenmede
may consider services in connection with the sale of shares as a factor in the
selection of broker-dealers to execute portfolio transactions for the Fund.
ICC directed transactions to broker-dealers and paid related commissions
because of research services in the following amounts:
------------------------------------------------
Fiscal Year Ended October 31,
------------------------------------------------
1998 1997
------------------------------------------------
Transactions Directed $9,557,179 $6,272,458
- --------------------------------------------------------------------------------
Commissions Paid $ 22,749 $ 16,973
- --------------------------------------------------------------------------------
-19-
<PAGE>
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions through the Advisors or
their affiliates. At the time of such authorization, the Board adopted certain
policies and procedures incorporating the standards of Rule 17e-1 under the
Investment Company Act, which requires that the commissions paid the Advisor or
its affiliates 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. For the fiscal
year ended October 31, 1998 and the period from September 1, 1997 through
October 31, 1997 the Fund did not pay any brokerage commissions to BT Alex.
Brown or its affiliates. For the period from January 1, 1997 through August 31,
1997 and for the fiscal year ended October 31, 1996, 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, 1998,
the Fund held a 5.25% repurchase agreement issued by Goldman Sachs & Co. valued
at $455,000. Goldman & Sachs & Co. is one of the Fund's "regular brokers or
dealers."
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 that it seeks to purchase or sell.
9. CAPITAL STOCK
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. In the event separate series or classes are
established, all 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. 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, each series would be treated as
separate entities. Generally, each class of Shares issued by a particular series
would be identical to every other class 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.
-20-
<PAGE>
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.
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
Bankers Trust Company ("Bankers Trust") 130 Liberty Street, New York,
New York 10006, has been retained to act as custodian of the Fund's assets.
Bankers Trust 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. Bankers Trust receives
such compensation from the Fund for its services as Custodian as may be agreed
to from time to time by Bankers Trust and the Fund. For the period from June 16,
1998 through October 31, 1998, Bankers Trust was paid $8,008 as compensation for
providing custody services to the Fund. Investment Company Capital Corp., One
South Street, Baltimore, Maryland 21202, has been retained to act as transfer
and dividend disbursing agent. As compensation for providing these services, the
Fund pays ICC up to $15.12 per account per year, plus reimbursement for
out-of-pocket expenses incurred in connection therewith. For the fiscal year
ended October 31, 1998, such fees totaled $19,096.
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 Daily 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, 1998, ICC received
accounting fees of $27,558.
-21-
<PAGE>
12. INDEPENDENT AUDITORS
The annual financial statements of the Fund are audited by Deloitte &
Touche LLP whose report thereon appears elsewhere herein, and have been included
herein in reliance upon the report of such firm of accountants given on their
authority as experts in accounting and auditing. Deloitte & Touche LLP has
offices at University Square, 117 Campus Drive, Princeton, New Jersey 08540.
13. LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
14. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain 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:
P(1+T)(n)= 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.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 investment for the periods
ended October 31, 1998 were as follows:
-22-
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
One-Year Period Ended Five-Year Period Ended Ten-Year Period Ended
October 31, 1998 October 31, 1998 October 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Average
Ending Ending Annual Ending Annual
Class Redeemable Total Redeemable Total Redeemable Total
Value Return Value Return Value Return
- -----------------------------------------------------------------------------------------------------------------------------
Class A
*November 18, 1986 $1,054 0.51% $1,370 6.51% $1,794 6.02%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
* Inception Date
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
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 aggregate and average 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 does 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.
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 year 1998
was 27% and in fiscal year 1997 was 21%.
15. 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 December 1,
1998.
-23-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Name and Address Owned of Record Beneficially Owned Percentage Owned
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Timothy E. Toohig TR X 5.17%
U/A 06/24/96
Fairfield Jesuit
Community Corp
c/o Fairfield University
St. Ignatius Hall
Fairfield, CT 06430
- ---------------------------------------------------------------------------------------------
BT Alex. Brown X 5.87%
Incorporated
FBO 201-70188-19
P.O. Box 1346
Baltimore, MD 21203-
1346
- ---------------------------------------------------------------------------------------------
</TABLE>
The Directors and executive officers as a group (nine persons)
beneficially owned 1.17% of the Fund's total outstanding Shares, as of
November 30, 1998.
16. FINANCIAL STATEMENTS
See next page.
-24-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1998
No. of Percent of
Shares Security Value Net Assets
- --------------------------------------------------------------------------------
COMMON STOCK -- 95.6%?
UNITED KINGDOM -- 21.4%
12,500 Allied Zurich PLC* $ 147,913 1.2%
9,300 BOC Group PLC 136,042 1.1
12,500 British American Tobacco* 111,615 0.9
15,000 British Petroleum Co 221,305 1.8
60,000 British Steel PLC 102,430 0.9
36,562 BTR PLC 63,795 0.5
25,000 Caradon PLC 51,885 0.4
14,000 De La Rue PLC 40,888 0.4
38,750 Iceland Group PLC 127,442 1.1
20,000 Johnson Matthey PLC 112,640 0.9
84,000 Mirror Group Newspapers PLC 204,560 1.7
10,000 Rio Tinto PLC 121,762 1.0
35,100 Scottish Power PLC 344,257 2.8
25,000 Tate & Lyle PLC 143,624 1.2
75,000 Tomkins PLC 345,828 2.8
36,000 WH Smith Class A 330,790 2.7
----------- -----
2,606,776 21.4
JAPAN -- 19.2%
6,600 Acom Co., Ltd 370,556 3.0
6,000 Aoyama Trading Co., Ltd. 148,771 1.2
5,000 Canon Inc. 95,084 0.8
10,000 Chugai Pharmaceutical Co. 91,419 0.8
50 East Japan Railway Co. 297,973 2.5
20,000 Fuji Heavy Industry 100,043 0.8
4,000 Fuji Photo Film - Ord 147,305 1.2
4,000 Honda Motor Co. 120,742 1.0
12,000 Kao Corp. 244,243 2.0
2,000 Nintendo Corp. Ltd. 170,073 1.4
2,000 Rohm Company 177,663 1.5
1,600 Sony Corp. 102,113 0.8
5,000 Takefuji Corp. 267,788 2.2
----------- -----
2,333,773 19.2
-25-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1998
No. of Percent of
Shares Security Value Net Assets
- --------------------------------------------------------------------------------
COMMON STOCK -- continued=20
GERMANY -- 10.0%
5,500 Bayer AG $ 222,016 1.8%
3,000 Deutsche Bank AG 194,213 1.6
3,600 Deutsche Telekom AG 197,533 0.8
4,000 Hoechst AG 167,150 1.4
3,400 Siemens AG 206,846 1.7
6,000 Veba AG 329,826 2.7
----------- -----
1,217,584 10.0
FRANCE -- 9.1%
2,258 Elf Aquitaine 261,697 2.1
2,356 Lafarge SA 241,205 2.0
3,872 Lagardere Groupe 156,052 1.3
2,000 Pernod-Ricard 133,381 1.1
5,600 SCOR SA 321,586 2.6
----------- -----
1,113,921 9.1
SPAIN -- 6.8%
10,000 Dragados & Construcciones SA 298,258 2.4
6,000 Repsol SA 301,600 2.5
1,700 Telefonica de Espana ADR 232,794 1.9
----------- -----
832,652 6.8
ITALY -- 6.3%
9,631 Assicurazioni Generali 345,774 2.8
121,520 Bennetton Group SpA 204,020 1.7
30,665 Telecom Italia SpA 222,251 1.8
----------- -----
772,045 6.3
AUSTRALIA -- 5.0%
100,000 Fosters Brewing Group* 245,232 2.0
16,634 Lend Lease Corp., Ltd. 366,369 3.0
----------- -----
611,601 5.0
-26-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1998
No. of Percent of
Shares Security Value Net Assets
- --------------------------------------------------------------------------------
COMMON STOCK -- concluded
FINLAND -- 3.1%
4,000 Nokia AB - Series A ADR $ 372,250 3.1%
----------- -----
NETHERLANDS -- 3.0%
4,900 Akzo Nobel 190,623 1.6
9,456 Algemene Bank Nederland 177,344 1.4
----------- -----
367,967 3.0
SWEDEN -- 3.0%
11,000 Astra AB 173,256 1.4
5,000 SKF AB - B Shares 57,538 0.5
6,000 Volvo AB - B 129,990 1.1
----------- -----
360,784 3.0
NORWAY -- 2.3%
4,300 Kvaerner AS 93,549 0.8
4,300 Norsk Hydro 188,274 1.5
----------- -----
281,823 2.3
BELGIUM -- 2.1%
700 Electrabel, SA* 257,970 2.1
----------- -----
DENMARK -- 1.6
2,500 Uni-Danmark A/S 190,779 1.6
----------- -----
NEW ZEALAND -- 1.2%
28,000 Telecom Corp New Zealand 114,793 1.0
5,000 Tranz Rail Holdings 126,562 0.2
----------- -----
141,355 1.2
PORTUGAL -- 1.0%
5,000 Electricidade 125,855 1.0
----------- -----
SINGAPORE -- 0.5%
10,000 Singapore Airlines Ltd. F 61,633 0.5
----------- -----
Total Common Stock
(Cost $9,497,855) 11,648,768 95.6
----------- -----
-27-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1998
No. of Percent of
Shares Security Value Net Assets
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.7
$455 Goldman Sachs & Co., 5.25%
Dated 10/30/98 to be repurchased
on 11/02/98, collateralized by U.S.
Treasury Notes with a market value
of $464,102.76.
(Cost $455,000) $ 455,000 3.7%
----------- -----
Total Investments in Securities
(Cost $9,952,855)** 12,103,768 99.3
Other Assets in Excess of Liabilities 83,188 0.7
----------- -----
Net Assets $12,186,956 100.0%
=========== =====
Net Asset Value and Redemption Price Per Share
($12,186,956 / 719,333 shares outstanding) $16.94
======
Maximum Offering Price Per Share
($16.94 / 0.955) $17.74
======
- ----------
* Non-income producing security.
** Cost for federal tax purposes is $10,192,648.
See Notes to Financial Statements
-28-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
For the
Year Ended
October 31,
- -----------------------------------------------------------------------------------
<S> <C>
1998
Investment Income:
Dividends ........................................................ $ 294,725
Interest ......................................................... 20,698
Less: Foreign taxes withheld .................................. (33,349)
---------
Total income ............................................ 282,074
---------
Expenses:
Investment advisory fee .......................................... 98,993
Professional fee ................................................. 110,377
Distribution fee ................................................. 32,998
Accounting fee ................................................... 27,558
Printing and postage ............................................. 25,206
Registration fees ................................................ 24,658
Transfer agent fee ............................................... 19,096
Custodian fee .................................................... 19,091
Miscellaneous .................................................... 13,467
---------
TOTAL EXPENSES .......................................... 371,444
Less: Fees waived ................................................ (172,249)
---------
Net expenses ............................................ 199,195
---------
Net investment income ............................................ 82,879
---------
Net realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions ..................... 813,915
Net realized foreign exchange loss ............................... (61,533)
Change in unrealized appreciation/depreciation
of investments ................................................ (99,666)
Change in unrealized appreciation/depreciation on translation
of assets and liabilities, excluding investments denominated in
foreign currencies ............................................ 2,524
---------
Net gain on investments ................................. 655,240
---------
Net increase in net assets resulting from operations ................ $ 738,119
=========
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS INTERNATIONAL FUND
- ----------------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Years Ended October 31,
- ----------------------------------------------------------------------------------------
<S> <C> <C>
1998 1997
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ........................... $ 82,879 $ 165,758
Net realized gain from security transactions and
foreign exchange transactions ................ 752,382 1,730,841
Change in unrealized appreciation/depreciation
of investments ............................... (99,666) 348,203
Change in unrealized appreciation/depreciation
on translation of other assets and liabilities
denominated in foreign currencies ............ 2,524 (438)
------------ ------------
Net increase in net assets resulting
from operations .............................. 738,119 2,244,364
------------ ------------
Dividends to Shareholders from:
Net investment income and short-term gains ...... (82,879) (165,758)
Distributions in excess of net investment
income and short-term gains .................. (127,834) (94,471)
------------ ------------
Total distributions ............................. (210,713) (260,229)
Capital Share Transactions:
Proceeds from sale of 61,500 and
83,957 shares, respectively .................. 1,076,733 1,258,732
Value of 11,538 and 15,155 shares issued in
reinvestment of dividends, respectively ...... 182,302 223,079
Cost of 208,269 and 155,119 shares
repurchased, respectively .................... (3,581,124) (2,414,563)
------------ ------------
Total decrease in net assets derived
from capital share transactions .............. (2,322,089) (932,752)
------------ ------------
Total increase/(decrease) in net assets ......... (1,794,683) 1,051,383
Net Assets:
Beginning of year ............................... 13,981,639 12,930,256
------------ ------------
End of year ..................................... $ 12,186,956 $ 13,981,639
============ ============
Distributions in excess of net investment income ... $ (192,053) $ 437
============ ============
</TABLE>
See Notes to Financial Statements.
-30-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
For the Year Ended
October 31,
- --------------------------------------------------------------------------------
<S> <C>
1998
Per Share Operating Performance:
Net asset value at beginning of year .................... $ 16.36
-------
Income from Investment Operations:
Net investment income ................................... 0.08
Net realized and unrealized gain/(loss) on investments(1) 0.76
-------
Total from Investment Operations ........................ 0.84
Less Distributions:
Distributions from net investment income
and short-term gains .................................... (0.10)
Distributions in excess of net investment income
and short-term gains .................................... (0.16)
-------
Total distributions ..................................... (0.26)
-------
Net asset value at end of year .......................... $ 16.94
=======
Total Return(2) ............................................ 5.25%
Ratios to Average Daily Net Assets:
Expenses(3) ............................................. 1.50%
Net investment income(4) ................................ 0.62%
Supplemental data:
Net assets at end of year (000) ......................... $12,187
Portfolio turnover rate ................................. 27%
</TABLE>
- ----------
(1) The years ended October 31, 1998, 1997, 1996, 1995 and 1994 include net
realized currency gain/(loss).
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.78%, 2.24%, 2.30%, 2.17% and
1.97% for the years ended October 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been (0.67)%, 0.44%, 1.10%,
0.02% and 0.28% for the years ended October 31, 1998, 1997, 1996, 1995 and
1994, respectively.
-31-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 1996 1995 1994
Per Share Operating Performance:
Net asset value at beginning of year .................... $14.20 $ 12.69 $ 13.97 $ 13.05
------- ------- ------- -------
Income from Investment Operations:
Net investment income ................................... 0.11 0.26 0.09 0.18
Net realized and unrealized gain/(loss) on investments(1) 2.34 1.28 (1.37) 1.58
------- ------- ------- -------
Total from Investment Operations ........................ 2.45 1.54 (1.28) 1.76
Less Distributions:
Distributions from net investment income
and short-term gains .................................... (0.18) (0.03) -- (0.84)
Distributions in excess of net investment income
and short-term gains .................................... (0.11) -- -- --
------- ------- ------- -------
Total distributions ..................................... (0.29) (0.03) -- (0.84)
------- ------- ------- -------
Net asset value at end of year .......................... $16.36 $ 14.20 $ 12.69 $ 13.97
======= ======= ======= =======
Total Return(2) ............................................ 17.48% 12.13% (9.16)% 13.98%
Ratios to Average Daily Net Assets:
Expenses(3) ............................................. 1.50% 1.50% 1.50% 1.50%
Net investment income(4) ................................ 1.18% 1.91% 0.68% 0.75%
Supplemental data:
Net assets at end of year (000) ......................... $13,982 $12,930 $12,483 $15,487
Portfolio turnover rate ................................. 21% 13% 35% 43%
</TABLE>
Notes to Financial Statements
-32-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors International Fund, Inc. (the "Fund"), which commenced
operations on November 18, 1986 is a Maryland Corporation. The Fund is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. Its objective is to seek long-term growth of
capital primarily through investment in a diversified portfolio of marketable
equity securities of issuers located outside of the United States.
The Fund consists of one share class, Class A Shares, which is subject to a
4.50% maximum front-end sales charge and a 0.25% distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported for the
day. When the security is listed on more than one exchange, the Fund uses the
last price on the exchange where the security is primarily traded. If there are
no sales or the security is not traded on a listed exchange, the Fund values the
security at the last bid price in the over-the-counter market. When a market
quotation is not readily available, the Investment Advisor determines a fair
value using procedures that the Board of Directors establishes and monitors. The
Fund values short-term obligations with maturities of 60 days or less at
amortized cost.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase agreement is a
short-term investment in which the Fund buys a debt security that the broker
agrees to repurchase at a set time and price. The third party, which is the
broker's custodial bank, holds the collateral in a separate account until the
repurchase agreement matures. The agreement ensures that the collateral's market
value, including any accrued interest, is sufficient if the broker defaults. The
Fund's access to the collateral may be delayed or limited if the broker defaults
and the value of the collateral declines or if the broker enters into an
insolvency proceeding.
-33-
<PAGE>
NOTE 1--concluded
C. Foreign Currency Translation--The Fund's books and records are
maintained in U.S. dollars. Transactions denominated in foreign currencies are
recorded in the Fund's records at the effective exchange rate 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 that are a result of 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.
The Fund is authorized to enter into forward foreign exchange contracts as
a hedge against either specific transactions or portfolio positions. These
contracts are not reflected in the Fund's financial statements. However, the net
income or loss from these contracts is recorded from the contract's inception
date. Premiums or discounts are amortized over the life of the contracts.
D. Federal Income Taxes--The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and gains that
are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially all of
its taxable net investment income and net realized capital gains, it will be
exempt from most, if not all, federal income and excise taxes. As a result, the
Fund has made no provisions for federal income taxes.
E. Security Transactions, Investment Income, Distributions and Other--The
Fund uses the trade date to account for security transactions and the specific
identification method for financial reporting and income tax purposes to
determine the gain or loss on investments sold or redeemed. Interest income is
recorded on an accrual basis and includes the pro rata scientific method for
amortization of premiums and accretion of discounts when appropriate. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
-34-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Notes to Financial Statemnents (continued)
Note 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor and The Glenmede Trust
Company ("Glenmede") is the Fund's subadvisor. As compensation for advisory
services, the Fund pays ICC an annual fee based on the Fund's average daily net
assets. This fee is calculated daily and paid monthly at the annual rate of
0.75%. As compensation for subadvisory services, ICC pays Glenmede an annual fee
based on the Fund's average daily net assets. This fee is calculated monthly and
paid quarterly at the annual rate of 0.55%.
ICC has agreed to waive up to all of its fees and reimburse expenses if
necessary so that the Fund's total operating expenses are no more than 1.50% of
the Fund's average daily net assets. For the year ended October 31, 1998, ICC
waived fees of $98,993 and reimbursed expenses of $73,256. At October 31, 1998,
the Fund was owed $34,417 from the advisor for waived advisory fees of $7,400
and reimbursed expenses of $27,017. ICC paid Glenmede $73,399 for subadvisory
services for the year ended October 31, 1998.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or subadvisor.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $27,558 for accounting services for the year ended
October 31, 1998. At October 31, 1998, accrued accounting services fees amounted
to $2,233.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $19,096 for
transfer agent services for the year ended October 31, 1998. At October 31,
1998, the Fund owed $3,865 in transfer agent fees.
Effective June 16, 1998, Bankers Trust Company became the Fund's custodian.
Prior to June 16, 1998, Mellon Trust served as the Fund's custodian. From June
16, 1998 to October 31, 1998, the Fund paid $8,008 in custody fees.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors"), an annual fee that is calculated daily
and paid monthly at an annual rate equal to 0.25% of the Fund's average daily
net assets. The Fund paid $32,998 for distribution services for the year ended
October 31, 1998. At October 31, 1998, the Fund owed $2,467 in distribution
fees.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
October 31, 1998 was $982, and the accrued liability was $489.
-35-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 9 million shares of $.001 par value
capital stock (8 million Flag Investors Class A and 1 million undesignated).
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $3,461,505 and sales of investment securities
aggregated $6,119,807 for the year ended October 31, 1998.
On October 31, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $3,134,217 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $983,304.
NOTE 5--Foreign Investment Risk
Foreign investments involve substantial and different risks than
investments in companies in the United States. In general, less information is
publicly available about foreign companies than is available about companies in
the United States. Most foreign 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.
-36-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 6--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, permanent book/tax differences related
to foreign exchange losses of $64,656 have been reclassified from the
accumulated net realized loss from security and foreign exchange transactions to
distributions in excess of net investment income. These reclassifications have
no effect on net assets or net asset values per share.
On October 31, 1998, there was a tax capital loss carryforward of
approximately $1,774,000, of which $1,185,000 expires in 2000 and $589,000 in
2001. This carryforward will be used to offset future net capital gains.
NOTE 7--Net Assets
On October 31, 1998, net assets consisted of:
Paid-in capital ............................................ $11,998,931
Distribution in excess of net investment income ............ (192,053)
Accumulated net realized loss from security and
foreign exchange transactions ........................... (1,774,119)
Unrealized appreciation of investments ..................... 2,150,913
Unrealized translation gain ................................ 3,284
------------
$12,186,956
============
NOTE 8--Personal Income Tax Information for the Shareholder (Unaudited)
The following information summarizes all distributions paid by the
Fund
during the taxable period ended October 31, 1998.
Domestic Ordinary Income ................................... $ 28,367
Foreign Source Income ...................................... 182,346
--------
Total Ordinary Income ................................... 210,713
========
Long-Term Capital Gains .................................... --
Total Distributions ..................................... 210,713
========
Foreign Tax Paid or Withheld ............................... $ 45,153
========
The foreign taxes paid or withheld represent taxes incurred by the Fund on
interest and 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.
-37-
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Flag Investors International Fund, Inc.:
We have audited the accompanying statements of net assets of Flag Investors
International Fund, Inc. as of October 31, 1998, 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
the 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 as of
October 31, 1998 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
International Fund, Inc. as of October 31, 1998, 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
Princeton, New Jersey
November 30, 1998
-38-
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits:
(a) (1) Articles of Incorporation incorporated by
reference to Exhibit (1)(a) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(2) Articles Supplementary incorporated by
reference to Exhibit (1)(b) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(3) Articles Supplementary incorporated by
reference to Exhibit (1)(c) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(b) By-Laws as amended through December 18, 1996
incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-97-000357) on February 25, 1997.
(c) Specimen Security with respect to Flag Investors
Shares incorporated by reference to Exhibit 1
(Articles of Incorporation), as amended to date, to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-8479) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000106)
on February 28, 1996 and Exhibit 2 (By-Laws) as
amended to date, to Post-Effective Amendment No. 17
to such Registration Statement, filed with the
Securities and Exchange commission via EDGAR
(Accession No. 950116-97-000357) on February 25,
1997.
(d) (1) Investment Advisory Agreement between
Registrant and Investment Company Capital
Corp. incorporated by reference to Exhibit
(5)(a) to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(2) Sub-Advisory Agreement among Registrant,
Investment Company Capital Corp. and The
Glenmede Trust Company incorporated by
reference to Exhibit (5)(b) to
Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(3) Expense Limitation Agreement dated March 1,
1999, filed herewith.
(e) (1) Distribution Agreement dated August 31, 1997
between Registrant and ICC Distributors,
Inc. incorporated by reference to Exhibit
(6)(a) to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000474) on
February 25, 1998.
C-1
<PAGE>
(2) Form of Sub-Distribution Agreement between
ICC Distributors, Inc. and Participating
Dealers incorporated by reference to Exhibit
(6)(b) to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000474) on
February 25, 1998.
(3) Form of Shareholder Servicing Agreement
between Registrant and Shareholder Servicing
Agents incorporated by reference to Exhibit
(6)(c) to Post-Effective Amendment No. 18 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000474) on
February 25, 1998.
(f) None.
(g) Custodian Agreement dated June 5, 1998 between
Registrant and Bankers Trust Company, filed herewith.
(h) Master Services Agreement between Registrant and
Investment Company Capital Corp., with Appendices for
the provision of Transfer Agency and Accounting
Services incorporated by reference to Exhibit (9) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000106)
on February 28, 1996.
(i) Opinion of Counsel incorporated by reference to
Exhibit (10) to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the Securities
and Exchange Commission via EDGAR (Accession No.
950116-96-000106) on February 28, 1996.
(j) Consent of Deloitte & Touche LLP, filed herewith.
(k) None.
(l) Form of Subscription Agreement between Registrant and
Investors incorporated by reference to Exhibit (13)
to Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000106)
on February 28, 1996.
(m) (1) Distribution Plan with respect to Flag
Investors International Fund Class A Shares
incorporated by reference to Exhibit (15)(a)
to Post-Effective Amendment No. 16 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(2) Amended Distribution Plan with respect to
Flag Investors International Fund Class A
Shares incorporated by reference to Exhibit
(15)(b) to Post-Effective Amendment No. 18
to Registrant's Registration Statement on
Form N-1A (Registration No. 33-8479), filed
with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000474)
on February 25, 1998.
(n) Financial Data Schedule, filed herewith.
(o) (1) Rule 18f-3 Plan incorporated by reference to
Exhibit (18)(a) to Post-Effective Amendment
No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-96-000106) on February 28, 1996.
C-2
<PAGE>
(2) Rule 18f-3 Plan, amended through March 26,
1997 incorporated by reference to Exhibit
18(b) to Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form
N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-000357) on
February 25, 1997.
(3) Amended Rule 18f-3 Plan, filed herewith.
(p) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant.
Provide a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant. For any
person controlled by another person, disclose the percentage of voting
securities owned by the immediately controlling person or other basis
of that person's control. For each company, also provide the state or
sovereign power under the law of which the company is organized.
None.
Item 25. 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 against any liability incurred in their official
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.
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
C-3
<PAGE>
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 26. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor and each director, officer or
partner of the investment advisor, is or has been engaged within the last two
fiscal years for his or her own account or in the capacity of director, officer,
employee, partner or trustee. (Disclose the name and principal business address
of any company for which a person listed above serves in the capacity of
director, officer, employee, partner or trustee, and the nature of the
relationship.)
(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.
<TABLE>
<CAPTION>
Name and Position with Glenmede Business Connections
- ------------------------------- --------------------
<S> <C>
Susan W. Catherwood - Director Director, The Glenmede Corporation; Board
Member, Philadelphia Electric Company.
James L. Kermes - Director, President President and Chief Executive Officer, The
and Chief Executive Officer Glenmede Corporation
Thomas W. Langfitt, M.D. - Director, Chairman, Chairman and Chief Executive Officer, The
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
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.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 and Executive Vice President, The Glenmede
CEO, The Pew Charitable Trusts (Division of Corporation.
Glenmede)
Robert G. Williams - Director Director, The Glenmede Corporation
Ethel Benson Wister - Director Director, The Glenmede Corporation
J. Thomas Dunlevy - Executive Vice President, Executive Vice President, The Glenmede
Director of Client Services Corporation
A.E. Piscopo - Executive Vice President, Chief Executive Vice President, The Glenmede
Operating Officer Corporation.
William H. Pope, Jr. - Senior Vice President Senior Vice President, The Glenmede
Corporation
Warren A. Reintzel - Senior Vice President Senior Vice President, The Glenmede
Corporation
Kathleen Crenny - Vice President and Controller Vice President and Controller, The Glenmede
Corporation.
Mary V. Burke - Secretary Secretary, The Glenmede Corporation.
Katherine E. Koch - Treasurer Treasurer, The Glenmede Corporation.
</TABLE>
Item 27. Principal Underwriters.
(a) State the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor or investment
advisor.
ICC Distributors, Inc. acts as distributor for BT Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc. (formerly Flag Investors
Telephone Income Fund, Inc.), Flag Investors Emerging Growth Fund, Inc., the
Flag Investors Total Return U.S. Treasury Fund Shares of Total Return U.S.
Treasury Fund, Inc., the Flag Investors Managed Municipal Fund Shares 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 Real Estate Securities Fund,
Inc. and Flag Investors Equity Partners Fund, Inc., all registered open-end
management investment companies.
(b) Provide the information with respect to each director, officer or
partner of each principal underwriter named in answer to Item 21.
Name and Principal Position and Offices with Position and Offices
Business Address* Principal Underwriters with Registrant
- ------------------ ------------------------- --------------------
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
C-5
<PAGE>
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
- --------------
* Two Portland Square
Portland, Maine 04101
(c) Not Applicable.
Item 28. Location of Accounts and Records.
State the name and address of each person maintaining principal possession
of 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] thereunder.
Investment Company Capital Corp. ("ICC"), One South Street, Baltimore,
Maryland 21202, the Registrant's investment advisor, transfer agent, dividend
disbursing agent and accounting services provider, 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 ICC Distributors, Inc.,
Two Portland Square, Portland, Maine 04101 relating to its functions as the
Registrant's distributor, or the records maintained by Bankers Trust Company,
130 Liberty Street, New York, New York 10006 relating to its functions as the
Registrant's custodian.
In particular, with respect to the records required by Rule 31a-1(b)(1),
ICC and Glenmede each maintains physical possession of all journals containing
itemized daily records of all purchases and sales of securities, including sales
and redemptions of Fund securities and Bankers Trust Company maintains physical
possession of all receipts and deliveries of securities (including certificate
numbers if such detail is not recorded by the custodian or transfer agent), all
receipts and disbursements of cash, and all other debts and credits.
Item 29. Management Services.
Provide a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form disclosing the
parties to the contract and the total amount paid and by whom, for the
Registrant's last three fiscal years.
None.
Item 30. 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-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 19 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 29th day of December, 1998.
FLAG INVESTORS INTERNATIONAL
FUND, INC.
By: /s/ Harry Woolf
-----------------------------
Harry Woolf
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:
* Chairman and Director December 29, 1998
- ----------------------- -----------------
Truman T. Semans Date
* Director December 29, 1998
- ----------------------- -----------------
James J. Cunnane Date
* Director December 29, 1998
- ----------------------- -----------------
Louis E. Levy Date
* Director December 29, 1998
- ----------------------- -----------------
Eugene J. McDonald Date
* Director December 29, 1998
- ----------------------- -----------------
Carl W. Vogt Date
/s/ Harry Woolf President December 29, 1998
- ----------------------- -----------------
Harry Woolf Date
/s/ Joseph A. Finelli Chief Financial December 29, 1998
- ----------------------- and Accounting -----------------
Joseph A. Finelli Officer Date
*By: /s/ Amy M. Olmert
---------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
EDGAR
Exhibit
Number
EXHIBIT INDEX
(a) (1) Articles of Incorporation incorporated by
reference to Exhibit (1)(a) to Post-Effective
Amendment No. 16 to Registrant's Registration
Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-96-000106) on February 28, 1996.
(2) Articles Supplementary incorporated by reference
to Exhibit (1)(b) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000106) on February 28,
1996.
(3) Articles Supplementary incorporated by reference
to Exhibit (1)(c) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000106) on February 28,
1996.
(b) By-Laws as amended through December 18, 1996 incorporated
by reference to Exhibit 2 to Post-Effective Amendment No.
17 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-97-000357) on February 25, 1997.
(c) Specimen Security with respect to Flag Investors Shares
incorporated by reference to Exhibit 1 (Articles of
Incorporation), as amended to date, to Post-Effective
Amendment No. 16 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-8479) filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 950116-96-000106) on February 28, 1996 and Exhibit 2
(By-Laws) as amended to date, to Post-Effective Amendment
No. 17 to such Registration Statement, filed with the
Securities and Exchange commission via EDGAR (Accession
No. 950116-97-000357) on February 25, 1997.
(d) (1) Investment Advisory Agreement between Registrant
and Investment Company Capital Corp.
incorporated by reference to Exhibit (5)(a) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000106) on February 28,
1996.
(2) Sub-Advisory Agreement among Registrant,
Investment Company Capital Corp. and The
Glenmede Trust Company incorporated by reference
to Exhibit (5)(b) to Post-Effective Amendment
No. 16 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000106) on February 28,
1996.
Ex-99.B (3) Expense Limitation Agreement dated March 1,
1999, filed herewith.
(e) (1) Distribution Agreement dated August 31, 1997
between Registrant and ICC Distributors, Inc.
incorporated by reference to Exhibit (6)(a) to
Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000474) on February 25,
1998.
(2) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers
incorporated by reference to Exhibit (6)(b) to
Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the
Securities and Exchange
C-7
<PAGE>
EDGAR
Exhibit
Number
Commission via EDGAR (Accession No. 950116-98-
000474) on February 25, 1998.
(3) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agents
incorporated by reference to Exhibit (6)(c) to
Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000474) on February 25,
1998.
(f) None.
EX-99.B (g) Custodian Agreement dated June 5, 1998 between
Registrant and Bankers Trust Company, filed herewith.
(h) Master Services Agreement between Registrant and
Investment Company Capital Corp., with Appendices for the
provision of Transfer Agency and Accounting Services
incorporated by reference to Exhibit (9) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(i) Opinion of Counsel incorporated by reference to Exhibit
(10) to Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
EX-99.B (j) Consent of Deloitte & Touche LLP, filed herewith.
(k) None.
(l) Form of Subscription Agreement between Registrant and
Investors incorporated by reference to Exhibit (13) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000106) on
February 28, 1996.
(m) (1) Distribution Plan with respect to Flag Investors
International Fund Class A Shares incorporated
by reference to Exhibit (15)(a) to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000106) on February 28,
1996.
(2) Amended Distribution Plan with respect to Flag
Investors International Fund Class A Shares
incorporated by reference to Exhibit (15)(b) to
Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000474) on February 25,
1998.
EX-99.B (n) Financial Data Schedule, filed herewith.
(o) (1) Rule 18f-3 Plan incorporated by reference to
Exhibit (18)(a) to Post-Effective Amendment No.
16 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-8479), filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000106) on February 28,
1996.
C-8
<PAGE>
EDGAR
Exhibit
Number
(2) Rule 18f-3 Plan, amended through March 26, 1997
incorporated by reference to Exhibit 18(b) to
Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A
(Registration No. 33-8479), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-97-000357) on February
25, 1997.
EX-99.B (3) Amended Rule 18f-3 Plan, filed herewith.
EX-99.B (p) Powers of Attorney, filed herewith.
C-9
<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 1st day of March,
1999 by and between FLAG INVESTORS INTERNATIONAL FUND, INC., a Maryland
corporation (the " Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation (the "Advisor"), with respect to the following:
WHEREAS, the Advisor serves as the Fund's investment advisor pursuant
to an Investment Advisory Agreement dated August 16th, 1993; and
WHEREAS, the Advisor has voluntarily agreed to waive its fees and
reimburse expenses so that the Fund's total annual operating expenses do not
exceed 1.50% of its average daily net assets; and
WHEREAS, the Fund and the Advisor desire to formalize this voluntary
fee waiver and expense reimbursement arrangement for a one year period beginning
on March 1, 1999 and ending on February 29, 2000.
NOW THERETOFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. The Advisor agrees to waive its fees and reimburse expenses for a
one year period from March 1, 1999 to February 29, 2000 to the extent necessary
so that the Fund's total annual operating expenses do not exceed 1.50% of its
average daily net assets.
2. Upon the termination of the Investment Advisory Agreement this
Agreement shall automatically terminate.
3. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or provision
of the 1940 Act shall be resolved by reference to such term or provision of the
1940 Act and to interpretations thereof, if any, by the United States Courts or
in the absence of any controlling decision of any such court, by rules,
regulations or orders of the SEC issued pursuant to said Act. In addition, where
the effect of a requirement of the 1940 Act reflected in any provision of this
Agreement is revised by rule, regulation or order of the SEC, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
Otherwise the provisions of this Agreement shall be interpreted in accordance
with the laws of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL]
FLAG INVESTORS INTERNATIONAL
FUND, INC.
Attest:/s/Amy M. Olmert by:/s/Harry Woolf
-------------------- ----------------------
By: Harry Woolf
Title: President
INVESTMENT COMPANY CAPITAL
CORP.
Attest:/s/Amy M. Olmert by:/s/Edward J. Veilleux
-------------------- ----------------------
By: Edward J. Veilleux
Title: Executive Vice President
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of June 5, 1998 between BANKERS TRUST COMPANY (the
"Custodian") and FLAG INVESTORS INTERNATIONAL FUND, INC. (the "Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
("Property") pursuant to the terms and conditions set forth herein. For purposes
of this Agreement, "delivery" of Property shall include the acquisition of a
security entitlement (as that term is defined in the New York Uniform Commercial
Code ("UCC")) with respect thereto. Without limitation, such Property shall
include stocks and other equity interests of every type, evidences of
indebtedness, other instruments representing same or rights or obligations to
receive, purchase, deliver or sell same and other non-cash investment property
of the Customer ("Securities") and cash from any source and in any currency
("Cash"), provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept as Property any property of a Customer that the
Custodian considers not to be appropriate or in proper form for deposit for any
reason. The Custodian shall not be responsible for any property of the Customer
held or received by the Customer or others and not delivered to the Custodian or
any Subcustodian.
2. Maintenance of Property at Custodian and Subcustodian Locations.
Pursuant to Instructions, the Customer shall direct the Custodian to (a) settle
Securities transactions and maintain cash in the country or other jurisdiction
in which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are acquired
and (b) maintain Cash and Cash equivalents in such countries in amounts
reasonably necessary to effect the Customer's transactions in such Securities.
Instructions to settle Securities transactions in any country shall be deemed to
authorize the holding of such Property in that country.
3. Custody Account. The Custodian agrees to establish and maintain a
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Customer acknowledges its
responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the Account any Property received therefor by the Custodian or a
Subcustodian and to give, and authorize others to give, instructions relative
thereto. The Custodian may deliver securities of the same class in place of
those deposited in the Account.
- 1 -
<PAGE>
The Custodian shall hold, keep safe and protect as custodian for
Account, on behalf of the Customer, all Property in such Account and, to the
extent such Property constitutes financial assets for purposes of the New York
UCC, shall maintain those financial assets in such Account as security
entitlements in favor of the Customer. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions, except that until
the Custodian receives Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the Account;
(b) present for payment all Securities held in the Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment
upon presentation to the extent that the Custodian or
Subcustodian is actually aware of such opportunities and hold
the cash received in the Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
the Account, endeavor to receive Instructions, provided that
if such Instructions are not received in time for the
Custodian to take timely action, no action shall be taken with
respect thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for the Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in the Account;
(f) pay for the Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in the Account by any
governmental authority. In the event there is insufficient
Cash available in the
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Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the
Customer, at its option, may deposit additional Cash in the
Account or take steps to have sufficient Cash available. The
Customer agrees, when and if requested by the Custodian and
required in connection with the payment of any such taxes to
cooperate with the Custodian in furnishing information,
executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to maintain the Property in the Account directly in one
of its U.S. branches or indirectly through custody accounts which have been
established by the Custodian with the following other securities intermediaries:
(a) one of its U.S. branches or another U.S. bank or trust company or branch
thereof located in the U.S. which is itself qualified under the Investment
Company Act of 1940, as amended ("1940 Act"), to act as custodian (individually,
a "U.S. Subcustodian"), or a U.S. securities depository or clearing agency or
system in which the Custodian or a U.S. Subcustodian participates (individually,
a "U.S. Securities System") or (b) one of its non-U.S. branches or
majority-owned non-U.S. subsidiaries, a non-U.S. branch or majority-owned
subsidiary of a U.S. bank or a non-U.S. bank or trust company, acting as
custodian (individually, a "non-U.S. Subcustodian"; U.S. Subcustodians and
non-U.S. Subcustodians, collectively, "Subcustodians"), or a non-U.S. depository
or clearing agency or system in which the Custodian or any Subcustodian
participates (individually, a "non-U.S. Securities System"; U.S. Securities
System and non-U.S. Securities System, collectively, "Securities System"),
provided that in each case in which a U.S. Subcustodian or U.S. Securities
System is employed, each such Subcustodian or Securities System shall have been
approved by Instructions; provided further that in each case in which a non-U.S.
Subcustodian or non-U.S. Securities System is employed, (a) such Subcustodian or
Securities System either is (i) a "qualified U.S. bank" as defined by Rule 17f-5
under the 1940 Act ("Rule 17f-5") or (ii) an "eligible foreign custodian"
within the meaning of Rule 17f-5 or such Subcustodian or Securities System is
the subject of an order granted by the U.S. Securities and Exchange Commission
("SEC") exempting such agent or the subcustody arrangements thereto from all or
part of the provisions of Rule 17f-5 and (b) the agreement between the Custodian
and such non-U.S. Subcustodian has been approved by Instructions; it being
understood that the Custodian shall have no liability or responsibility for
determining whether the approval of any Subcustodian or Securities System has
been proper under the 1940 Act or any rule or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this
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Section. In addition, the Custodian may, at any time in its discretion, upon
written notification to the Customer, terminate the employment of any
Subcustodian or Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S. Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in the Account which
is maintained by the Custodian through a Subcustodian employed pursuant to
Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer, any Property maintained through such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a
Subcustodian with respect to maintaining Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities so
maintained will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of such
Subcustodian or its creditors except a claim for payment in
accordance with such agreement for their safe custody or
administration and expenses related thereto, (iii) beneficial
ownership of such Securities will be freely transferable
without the payment of money or value other than for safe
custody or administration and expenses related thereto; and
(iv) adequate records will be maintained identifying the
Property maintained pursuant to such agreement as belonging to
the Custodian, on
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behalf of its customers and (v) to the extent permitted by
applicable law, officers of or auditors employed by, or other
representatives of or designated by, the Custodian, including
the independent public accountants of or designated by, the
Customer be given access to the books and records of such
Subcustodian relating to its actions under its agreement
pertaining to any Property held by it thereunder or
confirmation of or pertinent information contained in such
books and records be furnished to such persons designated by
the Custodian.
6. Use of Securities System. With respect to Property in the Account
which is maintained by the Custodian or any Subcustodian through a Securities
System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian shall be required by
its agreement with the Custodian to, identify on its books
such Property as being maintained for the account of the
Custodian or Subcustodian for its customers.
(b) Any Property maintained through a Securities System for the
account of the Custodian or a Subcustodian will be subject
only to the instructions of the Custodian or such
Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
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8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether maintained directly by the
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on the Custodian's books as
belonging to the Account and not for the Custodian's own interest. The Custodian
shall keep accurate and detailed accounts of all investments, receipts,
disbursements and other transactions for the Account. All accounts, books and
records of the Custodian relating thereto shall be open to inspection and audit
at all reasonable times during normal business hours by any person designated by
the Customer. All such accounts shall be maintained and preserved in the form
reasonably requested by the Customer. The Custodian will supply to the Customer
from time to time, as mutually agreed upon, a statement in respect to any
Property in the Account maintained by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by the Customer of
exceptions or objections to any such statement within sixty (60) days of the
mailing thereof, the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of any such statement,
such statement shall be presumed to be for all purposes correct with respect to
all information set forth therein.
(b) The Custodian shall take all reasonable action as the Customer may
request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and with
respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to the
Customer a written report prepared by the Custodian's independent certified
public accountants with respect to the services provided by the Custodian under
this Agreement, including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for safeguarding Property,
including Property deposited and/or maintained in a securities system or with a
Subcustodian. Such report shall be of sufficient scope and in sufficient detail
as may reasonably be required by the Customer and as may reasonably be obtained
by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on a hard copy various reports of Account activity and of Property being
held in the Account. To the extent that such service shall include market values
of Securities in the Account, the Customer hereby acknowledges that the
Custodian now obtains and may in the future obtain information on such values
from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii) shall
be without liability in selecting and utilizing such service or furnishing any
information derived therefrom.
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<PAGE>
9. Holding of Securities, Nominees, etc. Securities in the Account
which are maintained by the Custodian or any Subcustodian may be held directly
by such entity in the name of the Customer or in bearer form or maintained in
the Custodian's or Subcustodian's name, or in the name of the Custodian's or
Subcustodian's nominee. Securities that are maintained through a Subcustodian or
which are eligible for deposit in a Securities System as provided above may be
maintained with the Subcustodian or the Securities System in an account for the
Custodian's or Subcustodian's customers, unless prohibited by law, rule, or
regulation. The Custodian or Subcustodian, as the case may be, may combine
certificates representing Securities held in the Account with certificates of
the same issue held by it as fiduciary or as a custodian. In the event that any
Securities in the name of the Custodian or its nominee or held by a Subcustodian
and registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of Security in
any manner the Custodian deems to be fair and equitable. Securities maintained
with a Securities System shall be maintained subject to the rules of that
Securities System governing the rights and obligations among the Securities
System and its participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit A
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") or (iii) as may otherwise be agreed upon between the
Custodian and the Customer. The liability and responsibility of the Custodian in
connection with the Proxy Service referred to in (ii) of the immediately
preceding sentence and in connection with any additional services which the
Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in the
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of the Customer.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for the Account and delivery of Securities
out of the Account may be effected in accordance with the
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customary or established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering Securities to the purchaser thereof or
to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such Securities from
such purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, the Account, on a contractual basis, as outlined
in the applicable Service Standards as defined below and provided to the
Customer by the Custodian, the Custodian may, at its sole option, reverse such
credits or debits to the Account in the event that the transaction does not
settle, or the income is not received in a timely manner, and the Customer
agrees to hold the Custodian harmless from any losses which may result
therefrom.
The applicable Service Standards shall be defined as the Global Guide,
the Policies and Standards Manual, and any other documents issued by the
Custodian from time to time specifying the procedures for communicating with the
Customer, the terms of any additional services to be provided to the Customer,
and such other matters as may be agreed between the Customer and the Custodian
from time to time.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any Instructions to settle the
purchase of any securities for the Account, unless there are sufficient
immediately available funds in the relevant currency in the Account, provided
that, if, after all expenses, debits and withdrawals of Cash in the relevant
currency ("Debits") applicable to the Account have been made and if after all
Conditional Credits, as defined below, applicable to the Account have been made
final entries as set forth in (c) below, the amount of immediately available
funds in the relevant currency in such Account is at least equal to the
aggregate purchase price of all Securities for which the Custodian has received
Instructions to settle on that date ("Settlement Date"), the Custodian, upon
settlement, shall credit the Securities to the Account by making a final entry
on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable to
the Account have been made, there remains outstanding any Conditional Credit (as
defined below) applicable to the Account or the amount of immediately available
funds in a given currency in such Account are less than the aggregate purchase
price in such currency of all securities for which the Custodian has received
Instructions to settle on the Settlement Date, the Custodian, upon settlement,
may provisionally credit the Securities to the Account by making a conditional
entry on its books and
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<PAGE>
records ("Conditional Credit"), pending receipt of sufficient immediately
available funds in the relevant currency in the Account.
(c) If, within a reasonable time after the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds in the relevant currency at least equal to the
aggregate purchase price in such currency of all securities subject to a
Conditional Credit on a Settlement Date are deposited into the Account, the
Custodian shall make the Conditional Credit a final entry on its books and
records. In such case, the Customer shall be liable to the Custodian only for
late charges at a rate which the Custodian customarily charges for similar
extensions of credit.
(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not on deposit in the Account, or (ii) any Proceeding shall
occur, the Custodian may sell such of the Securities subject to the Conditional
Credit as it selects in its sole discretion and shall apply the net proceeds of
such sale to cover such Debit, including related late charges, and any remaining
proceeds shall be credited to the Account. If such proceeds are insufficient to
satisfy such debt in full, the Customer shall continue to be liable to the
Custodian for any shortfall. The Custodian shall make the Conditional Credit a
final entry on its books as to the Securities not required to be sold to satisfy
such Debit. Pending payment in full by the Customer of the purchase price for
Securities subject to a Conditional Credit, and the Custodian's making a
Conditional Credit a final entry on its books, and unless consented to by the
Custodian, the Customer shall have no right to give further Instructions in
respect of Securities subject to a Conditional Credit. The Custodian shall have
the sole discretion to determine which Securities shall be deemed to have been
paid for by the Customer out of funds available in the Account. Any such
Conditional Credit may be reversed (and any corresponding Debit shall be
canceled) by the Custodian unless and until the Custodian makes a final entry on
its books crediting such Securities to the Account. The term "Proceeding" shall
mean any insolvency, bankruptcy, receivership, reorganization or similar
proceeding relating to the Customer, whether voluntary or involuntary.
(e) The Customer agrees that it will not intentionally use the Account
to facilitate the purchase of securities without sufficient funds in the Account
(which funds shall not include the expected proceeds of the sale of the
purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
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<PAGE>
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed or in order
to satisfy requirements for additional or substitute collateral.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer against
delivery of the shares to be redeemed to the Custodian, a Subcustodian or the
Customer's transfer agent.
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Portfolio's investment advisor and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission or of any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only upon
payment to the Custodian of monies for the premium due and a receipt for the
Securities which are to be held in escrow. Upon exercise of the option, or at
expiration, the Custodian will receive the Securities previously deposited from
broker. The Custodian will act strictly in accordance with Instructions in the
delivery of Securities to be held in escrow and will have no responsibility or
liability for any such Securities which are not returned promptly when due other
than to make proper request for such return.
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<PAGE>
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 21.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian in accordance with Section 22 below (i) in writing
(including, without limitation, facsimile transmission) or by tested telex
signed or given by such one or more person or persons as the Customer shall have
from time to time authorized in writing to give the particular class of
Instructions in question and whose name and (if applicable) signature and office
address have been filed with the Custodian, or (ii) which have been transmitted
electronically through an electronic on-line service and communications system
offered by the Custodian or other electronic instruction system acceptable to
the Custodian, or (iii) a telephonic or oral communication by one or more
persons as the Customer shall have from time to time authorized to give the
particular class of Instructions in question and whose name has been filed with
the Custodian; or (iv) upon receipt of such other form of instructions as the
Customer may from time to time authorize in writing and which the Custodian has
agreed in writing to accept. Instructions in the form of oral communications
shall be confirmed by the Customer by tested telex or writing in the manner set
forth in clause (i) above, but the lack of such confirmation shall in no way
affect any action taken by the Custodian in reliance upon such oral instructions
prior to the Custodian's receipt of such confirmation. Instructions may relate
to specific transactions or to types or classes of transactions, and may be in
the form of standing instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in the Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant
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to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be counsel for the Customer) on
all matters and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in the Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution; strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian or
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hurricane, cyclone, earthquake, volcanic eruption, nuclear fusion, fission or
radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer pursuant to any contract or any law or regulation.
The provisions of this Section shall survive termination of this Agreement.
18. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit B. Such fees will not be abated by, nor shall the Custodian be required
to account for, any profits or commissions received by the Custodian in
connection with its provision of custody services under this Agreement. The
Customer hereby agrees to hold the Custodian harmless from any liability or loss
resulting from any taxes or other governmental charges, and any expense related
thereto, which may be imposed, or assessed with respect to any Property in the
Account and also agrees to hold the Custodian, its Subcustodians, and their
respective nominees harmless from any liability as a record holder of Property
in the Account. The Custodian is authorized to charge the Account for such items
and the Custodian shall have a lien on the Property in the Account for any
amount payable to the Custodian under this Agreement, including but not limited
to amounts payable pursuant to Section 13 and pursuant to indemnities granted by
the Customer under this Agreement. The provisions of this Section shall survive
the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in the Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit C attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit C. Such standard of care shall not be
affected by any other term of this Agreement.
- 13 -
<PAGE>
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
21. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' written notice to the other; provided that
notice by the Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If notice of termination is given by the Custodian,
the Customer shall, within ninety (90) days following the giving of such notice,
deliver to the Custodian a written notice specifying the names of the persons to
whom the Custodian shall deliver the Securities in the Account and to whom the
Cash in the Account shall be paid. In either case, the Custodian will deliver
such Property to the persons so specified, after deducting therefrom any amounts
which the Custodian determines to be owed to it hereunder. In addition, the
Custodian may in its discretion withhold from such delivery such Property as may
be necessary to settle transactions pending at the time of such delivery. The
Customer grants to the Custodian a lien and right of setoff against the Account
and all Property held therein from time to time in the full amount of the
foregoing obligations. If within ninety (90) days following the giving of a
notice of termination by the Custodian, the Custodian does not receive from the
Customer a written notice specifying the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid, the Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company doing business in the
State of New York to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to the Custodian, provided that the Custodian's
obligations shall be limited to safekeeping.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, the Custodian shall be
entitled to use available Cash in the Account, and to dispose of Securities in
the Account as is necessary. In any such case and without limiting the
foregoing, the Custodian shall be entitled to
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<PAGE>
take such other actions or exercise such other options, powers and rights as the
Custodian now or hereafter has as a secured creditor under the New York UCC or
any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to the Account as herein provided, is not
prohibited by law or any governing documents or contracts to which it is
subject;
(ii) the terms of this Agreement do not violate any obligation
by which it is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms; and
(iv) it will deliver to the Custodian a duly executed
Secretary's Certificate in the form of Exhibit D attached hereto or such other
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any obligation
by which it is bound, whether arising by contract, operation of law or
otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms;
(iii) it will deliver to the Customer such evidence of such
authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section 26(a)
of the 1940 Act and warrants that it will remain so qualified or upon ceasing to
be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
26. Publicity. Customer shall furnish to Custodian in accordance with
Section 22 above, prior to any distribution thereof, copies of any material
prepared for distribution to any persons who
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<PAGE>
are not parties hereto that refer in any way to the Custodian. Customer shall
not distribute or permit the distribution of such materials if Custodian
reasonably objects in writing within ten (10) business days of receipt thereof
(or such other time as may be mutually agreed) after receipt thereof. The
provisions of this Section shall survive the termination of this Agreement.
27. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
29. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable law or regulation. The
provisions of this Section shall survive the termination of this Agreement.
30. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
31. Entire Agreement. This Agreement together with any Exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
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<PAGE>
33. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
FLAG INVESTORS INTERNATIONAL
FUND, INC.
By: /s/ Amy M. Olmert
--------------------
Name: Amy M. Olmert
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ Richard Fogarty
--------------------
Name: Richard Fogarty
Title: Vice President
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<PAGE>
EXHIBIT A
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors International Fund, Inc..
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the applicable Service Standards.
For the United States and Canada, the term "corporate communications" means the
proxy statements or meeting agenda, proxy cards, annual reports and any other
meeting materials received by the Custodian. For countries other than the United
States and Canada, the term "corporate communications" means the meeting agenda
only and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless
requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
<PAGE>
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian will not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account unless other
arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
applicable Service Standards. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit A will be deemed to be automatically
amended to include or delete such countries as the case may be.
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<PAGE>
EXHIBIT B
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors International Fund, Inc.
BANKERS TRUST CUSTODY FEE SCHEDULE
FOR
BT ALEX. BROWN MUTUAL FUNDS
(FLAG INVESTORS FUNDS AND ISI FUNDS)
Effective October 1, 1997
CUSTODY FEES
1. DOMESTIC SAFEKEEPING FEES
ANNUAL ASSET FEE (BY FUND- EXCEPT CASH RESERVE)
Market Value Basis Point
$0 - $100 million 1.00
Over $100 million 0.75
ANNUAL ASSET FEE (CASH RESERVE FUND)
Market Value Basis Point
$0 - $1 billion 1.00
$1 billion - $3 billion 0.75
Over $3 billion 0.50
2. DOMESTIC TRANSACTION FEES
TRANSACTION TYPE $USD
AUTOMATED DEPOSITORY: DTC/PTC/FED 10.00
MANUAL DEPOSITORY: DTC/PTC/ FED 15.00
PHYSICAL AUTOMATED 15.00
PHYSICAL MANUAL 20.00
P&I PAYMENTS 5.00
REDEMPTIONS 10.00
REORGANIZATIONS Included in safekeeping charge
- 1 -
<PAGE>
3. GLOBAL SAFEKEEPING AND ASSET FEES
Receive and
Annual Deliver
Country Asset Fee Transactions
- ------- --------- ------------
Argentina 35 Basis Points $100
Australia 3 Basis Points $50
Austria 5 Basis Points $75
Bangladesh 40 Basis Points $150
Belgium 4 Basis Points $60
Botswana 50 Basis Points $150
Brazil 30 Basis Points $70
Canada 2 Basis Points $20
Cedel/Euroclear 3 Basis Points $20
Chile 30 Basis Points $80
China 30 Basis Points $75
Columbia 35 Basis Points $100
Czech Republic 20 Basis Points $70
Denmark 4 Basis Points $50
Ecuador 45 Basis Points $100
Egypt 45 Basis Points $80
Finland 10 Basis Points $75
France 5 Basis Points $50
Germany 3 Basis Points $30
Ghana 50 Basis Points $150
Greece 35 Basis Points $120
Hong Kong 5 Basis Points $30
Hungary 45 Basis Points $150
India (Physical) 60 Basis Points $200
India (Dematerialized) 25 Basis Points $140
Indonesia 8 Basis Points $35
Ireland 5 Basis Points $50
Israel 40 Basis Points $50
Italy 3 Basis Points $50
Japan 3 Basis Points $35
Jordan 30 Basis Points $100
Kenya 50 Basis Points $150
Luxembourg 4 Basis Points $60
Malaysia 7 Basis Points $50
- 2 -
<PAGE>
Mauritius 50 Basis Points $140
Mexico 5 Basis Points $30
Morocco 30 Basis Points $130
Netherlands 4 Basis Points $45
New Zealand 4 Basis Points $50
Norway 5 Basis Points $50
Pakistan 30 Basis Points $150
Peru 50 Basis Points $100
Philippines 8 Basis Points $30
Poland 45 Basis Points $100
Portugal 4 Basis Points $75
Russia 50 Basis Points $300
Singapore 7 Basis Points $50
Slovakia 25 Basis Points $100
South Africa 5 Basis Points $30
South Korea 15 Basis Points $50
Spain 6 Basis Points $50
Sri Lanka 12 Basis Points $60
Sweden 4 Basis Points $50
Switzerland 3 Basis Points $50
Taiwan 15 Basis Points $100
Thailand 7 Basis Points $100
Tunisia 45 Basis Points $50
Turkey 15 Basis Points $50
United Kingdom 2 Basis Points $15
Venezuela 35 Basis Points $100
Zambia 50 Basis Points $150
Zimbabwe 50 Basis Points $150
4. DDA RELATED CHARGES
Cash Connector Services $25 per month per account
(MTC, MTD, EBR, BTC Reporting)
Statement Rendition (CDS) Services
Account Maintenance $50 per month per account
Debit Postings $0.35 per posting
Credit Postings $0.35 per posting
Money Transfer Charges*
- 3 -
<PAGE>
Outgoing Payments $6.00
Incoming Payments No Charge
Book to Book Transfers No Charge
*Above Money Transfer Charges assume electronic instruction via bank-provided
software. Manual instructions received via facsimile, etc. will incur a charge
of $25 per transaction.
Overdraft Rate: Prime + 1.00%
NOTES
o Market Values will be provided by the Fund Accountant at
month-end to determine monthly assets for billing purposes.
o A manual transaction is an instruction that is received in
writing, i.e. facsimile
o The standard Global Custody Service includes: asset
safekeeping, trade settlement, income collection, corporate
action processing including proxy voting and tax reclaims
where appropriate.
o Third party FX transactions and other cash movements with no
associated security transaction (e.g. free payments/receipts)
are charged at $10 per U.S. wire and $25 per non-U.S. wire. No
fee is levied for FX transactions executed with Bankers Trust.
o Fees are billed monthly in arrears.
This Exhibit B shall be amended upon delivery by the Custodian of a new Exhibit
B to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
- 4 -
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors International Fund, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in the Account in
the countries specified in the applicable Service Standards. Terms used herein
as defined terms shall unless otherwise defined have the meanings ascribed to
them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian, counsel or other professional tax advisers and
shall be without liability to the Customer for any action reasonably taken or
omitted pursuant to information contained in such services or such advice.
<PAGE>
EXHIBIT D
[Name of Entity]
Certificate of the Secretary
I,_____________________________________________[Name of
Secretary], hereby certify that I am the Secretary of [Name of Entity], a
______________________[type of entity] organized under the laws of
________________________[jurisdiction] (the "Customer"), and as such I am duly
authorized to, and do hereby, certify that:
1. Good Standing. The Customer's organizational documents, and
all amendments thereto, have been filed with the appropriate governmental
officials of _____________________[jurisdiction], the Customer continues to be
in existence and is in good standing, and no action has been taken to repeal
such organizational documents, the same being in full force and effect on the
date hereof.
2. Organizational Documents. The Customer's [name of
organizational documents - i.e., Bylaws, Articles of Incorporation, etc.] have
been duly adopted and no action has been taken to repeal such [name of
organizational documents], the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf
of the Customer, which resolutions (i) have not in any way been revoked or
rescinded, (ii) have been in full force and effect since their adoption, to and
including the date hereof, and are now in full force and effect, and (iii) are
the only corporate proceedings of the Customer now in force relating to or
affecting the matters referred to therein, including, without limitation,
confirming that the Customer is duly authorized to appoint Bankers Trust Company
as Custodian of assets delivered to it by the Customer and enter into a certain
custody agreement with Bankers Trust Company (the "Agreement") setting forth the
terms and conditions of such appointment, and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
(a) execute said Agreement in such form as the officers executing the same have
approved, such approval to be conclusively evidenced by their execution and
delivery thereof, and (b) execute any instructions in connection with the
Agreement, in conformity with the requirements of the Customer's [name of
organizational documents], and other pertinent documents to which the Customer
may be bound.
4. Incumbency. The following named individuals are duly
elected (or appointed), qualified and acting officers of the Customer holding
those offices set forth opposite their respective names as of the date hereof,
each having full authority, acting individually, to bind the Customer, as a
legal matter, with respect to all matters pertaining to the Agreement, and to
execute and deliver said Agreement on behalf of the Customer, and the signatures
set forth opposite the respective names and titles of said officers are their
true, authentic signatures:
- 2 -
<PAGE>
Name Title Signature
- ----------------- -------------------- ------------------
_____________________ ______________________ _________________________
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day
of _______________[Date], 1997.
By: __________________________
Name: __________________________
Title: Secretary
I, __________________________[Name of Confirming Officer],
__________________[Title] of the Customer, hereby certify that on this ___ day
of _______________[Date], 19__, _____________________[NAME OF SECRETARY] is the
duly elected Secretary of the Customer and that the signature above is his/her
genuine signature.
By: __________________________
Name: __________________________
Title:
- 3 -
<PAGE>
EXHIBIT E
CASH MANAGEMENT ADDENDUM (this "Addendum") to the CUSTODIAN
AGREEMENT (the "Agreement") between BANKERS TRUST COMPANY (the "Custodian") and
FLAG INVESTORS INTERNATIONAL FUND, INC. (the "Customer").
WHEREAS, the Custodian will provide cash management services
to the Customer, and the Custodian and the Customer desire to confirm their
understanding with respect to such services;
NOW, THEREFORE, the Custodian and the Customer agree as
follows:
1. Until the Custodian receives Instructions to the contrary,
the Custodian will hold all Cash received for the Account in deposit accounts
maintained with Subcustodians for the benefit of the Custodian's clients, will
credit to the Account interest on such Cash at rates and times the Custodian
shall from time to time determine and will receive compensation therefor out of
any amounts paid by Subcustodians in respect of such Cash.
2. To the extent the Custodian may from time to time inform
the Customer with respect to one or more currencies, the Custodian will sweep
Cash in such currencies to deposit accounts maintained with one or more
Subcustodians until the Custodian notifies the Customer otherwise or receives
Instructions to the contrary.
3. The Customer acknowledges that it has received and reviewed
the current policies of the Custodian regarding cash management services, which
are attached to this Addendum.
4. Capitalized terms used but not defined in this Addendum are
used with the respective meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, this Addendum has been executed as of the
date of the Agreement.
BANKERS TRUST COMPANY
By: /s/ Richard Fogarty
--------------------
FLAG INVESTORS INTERNATIONAL FUND,
INC.
By: /s/ Amy M. Olmert
--------------------
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<PAGE>
Global Custody Cash Management Program
In the Global Custody cash management program, currencies on
which Bankers Trust pays interest are divided into two categories: (1)
currencies on which we pay interest based on a market benchmark rate for
overnight deposits, and (2) currencies on which we pay interest based on a rate
paid by the London branch of Bankers Trust Company or the local subcustodian.
Currencies on which we pay interest based on a market
benchmark rate for overnight deposits (which we call "Benchmark Rate
Currencies"):
o For each of these currencies, the interest rate we pay is
based on a specific market benchmark (such as Effective Fed
Funds) and is calculated by taking an average of the benchmark
rate and subtracting a spread. (See Schedule A)
o Currently, the only Benchmark Rate Currency is the U.S.
Dollar. Over time we will be considering additional currencies
to include in this category.
o Operationally, most balances in Benchmark Rate Currencies are
swept overnight into deposits at the London branch of Bankers
Trust Company. Where you have selected a short-term investment
fund, your U.S. Dollar balances in the U.S. will be swept
overnight in accordance with your instructions.
Currencies on which we pay interest based on a rate paid by
the London branch of Bankers Trust Company or the local subcustodian (which we
call "Base Rate Currencies"):
o For each of these currencies, the interest rate we pay is
based on the rate paid by the London branch or the local
subcustodian on overnight deposits in the currency. In either
case, interest is calculated by using the overnight rate
(which will be the actual overnight, a weekly average, or
monthly average rate, depending on the currency) and
subtracting a spread. (See Schedule A)
o Currencies that are part of the sweep program will earn
interest based on the base rate, which will be the higher of
the rate offered by the London branch of Bankers Trust Company
or the local subcustodian.
o Currencies that are not part of the sweep program will
generally earn interest based on the rate paid by the local
subcustodian. We may at times be able to sweep certain
currency balances into deposits of Bankers Trust Company's
London branch in order to be able to earn a higher rate for
you. On those days, any such currency will be
- 1 -
<PAGE>
treated as part of the sweep program, and you will earn
interest on all of your balances in that currency at the
higher rate for that day.
o Currently, there are 39 Base Rate Currencies, 21 of which are
included in our sweep program to the London branch.
o Operationally, most balances in Base Rate Currencies that are
part of our sweep program are swept overnight into deposits at
the London branch, while balances in Base Rate Currencies that
are not part of our sweep program remain with the local
subcustodian.
For each currency on which we pay interest:
o We will notify you periodically in writing of changes in
spreads and updates to the cash management program. These
program updates also will be available through Global Custody
Flash Notices.
o You earn interest at the calculated rate on your entire
contractual balance without any action on your part and
without any minimum balance requirements. This is the case
regardless of whether we are able to invest your balances at
or near the applicable benchmark or base rate and regardless
of whether your contractual balance may exceed your actual
balance.
o Our program generally requires that overnight balances in each
currency remain with (or are swept to) a subcustodian we
designate for that currency. Nevertheless, we pay our stated
rate of interest on any balances that, because of transactions
in your account, are held overnight with an alternate
subcustodian if we receive interest on that currency from that
subcustodian. If the alternate subcustodian does not pay
interest, however, these balances are excluded from our
program.
o The minimum rate paid is 0.50%, except for the Japanese Yen
(for which it is 0.05%) and the Singapore Dollar (for which it
is 0.25%). Please note that this is also subject to change as
appropriate for any currency.
o You will have continuous access through GlobeView, BTWorld, or
GlobeLink or other agreed electronic on-line system to the
interest rate earned during the previous "rate averaging
period". Because we may use weekly or monthly average rates to
calculate the interest you earn, we do not know the actual
interest rate until the weekly or monthly period is completed.
o For swept currencies, from time to time we may not be able to
sweep the full amount of your balances to the London branch
because of operational constraints
- 2 -
<PAGE>
or because your balance on a contractual basis temporarily
exceeds your actual balance. You will, however, always receive
credit for interest based on your entire contractual balance.
To the extent you would have earned a lower rate on balances
not swept, we will make up the difference. To the extent that
actual balances are higher than contractually posted balances
due to purchase fails or otherwise, we will retain the
interest earned as compensation.
o The effective rate we pay on overnight balances will generally
differ from the effective rate we receive (whether from the
London branch or the local subcustodian). Any difference
between the effective rate we receive and the effective rate
we pay (which may be positive or negative, but is generally
positive) is kept by us and covers our fee for running the
cash management program and the related costs we absorb.
Obviously, there will be currencies on which we will not pay
interest because of local regulations, insufficient scale, or other reasons.
However, we hope to identify additional currencies where we can begin paying
interest and we will announce those to you as soon as practical.
Although currently most cash balances in our overnight sweep
program are swept into deposits at the London branch of Bankers Trust Company,
we reserve the right to utilize other branches or affiliates for the overnight
sweep program.
As you know, overdrafts are not permitted in the normal course
of business in any currency. Should they occur in any currency, your account
will be charged a fee to settle transactions in advance of receipt of funds. If
the overdraft is not promptly cured (and in any event upon the expiration of 30
days) after the investment manager has been notified of the outstanding
overdraft, the account's home currency will be used to cure the overdraft and
the associated foreign exchange will be done by Bankers Trust at market rates.
(Other currencies may be utilized to the extent the home currency is
insufficient.) Investment managers that have not cured overdrafts within such
period will be deemed to have directed such foreign exchange transaction.
Accounts subject to ERISA will be deemed to have engaged in the transaction
under the authority of the class exemptions available to qualified professional
asset managers and in-house investment managers. To the extent that the
overdraft is less than the U.S. dollar equivalent of $50,000, Bankers Trust's
foreign exchange desk will bundle the transaction with other small amounts for
other clients.
- 3 -
<PAGE>
Schedule A
New Cash Management Program - Global Custody
Overnight Uninvested Cash Balances
(* - Denotes currencies in sweep program)
Currencies Rates
---------- -----
Argentine Peso Base Rate less 100
Australian Dollar* Base Rate less 130
Austrian Schilling* Base Rate less 125
Belgian Franc* Base Rate less 225
British Pound Sterling* Base Rate less 165
Canadian Dollar* Base Rate less 150
Czech Koruna Base Rate less 75
Danish Krone* Base Rate less 100
Deutsche Mark* Base Rate less 150
Dutch Guilder* Base Rate less 175
European Currency Unit* Base Rate less 125
Finnish Markka* Base Rate less 150
French Franc* Base Rate less 110
Greek Drachma Base Rate less 75
Hong Kong Dollar* Base Rate less 225
Hungarian Forint Base Rate less 75
Indonesian Rupiah Base Rate less 100
Irish Punt* Base Rate less 100
Israeli Shekel Base Rate less 75
Italian Lira* Base Rate less 125
Japanese Yen Base Rate less 75
Jordanian Dinar Base Rate less 150
Korean Won Base Rate less 75
Malaysian Ringgit Base Rate less 150
Mexican Peso Base Rate less 150
New Taiwan Dollar Base Rate less 75
New Zealand Dollar* Base Rate less 100
Norwegian Krone* Base Rate less 150
Philippine Peso Base Rate less 100
Polish Zloty Base Rate less 150
Portuguese Escudo* Base Rate less 125
- 4 -
<PAGE>
Singapore Dollar Base Rate less 150
Slovak Koruna Base Rate less 100
South African Rand* Base Rate less 200
Spanish Peseta* Base Rate less 200
Swedish Krona* Base Rate less 200
Swiss Franc* Base Rate less 100
Thai Baht Base Rate less 150
Turkish Lira Base Rate less 75
U.S. Dollar* Effective Fed Funds less 100(1)
We reserve the right, in our sole discretion, to adjust the base rates and
benchmark rates used and the spreads charged at any time and for any reason. We
will notify you periodically in writing of changes in spreads and updates to the
cash management program. These program updates also will be available through
Global Custody Flash Notices.
(1) Not applicable if U.S. Dollars are swept to a short-term investment fund.
- 5 -
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Flag Investors International Fund, Inc.
We consent to the use in Post-Effective Amendment No. 19 to the Registration
Statement No. 33-8479 of the Flag Investors International Fund, Inc. of our
report dated November 30, 1998 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 part of such Registration Statement.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Princeton, NJ
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000800074
<NAME> FLAG INVESTORS INTERNATIONAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 9,952,855
<INVESTMENTS-AT-VALUE> 12,103,768
<RECEIVABLES> 63,697
<ASSETS-OTHER> 49,985
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,217,450
<PAYABLE-FOR-SECURITIES> 8,100
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,394
<TOTAL-LIABILITIES> 30,494
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,998,931
<SHARES-COMMON-STOCK> 719,333
<SHARES-COMMON-PRIOR> 854,564
<ACCUMULATED-NII-CURRENT> (192,053)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,770,835)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,150,913
<NET-ASSETS> 12,186,956
<DIVIDEND-INCOME> 261,376
<INTEREST-INCOME> 20,698
<OTHER-INCOME> 0
<EXPENSES-NET> 199,195
<NET-INVESTMENT-INCOME> 82,879
<REALIZED-GAINS-CURRENT> 752,382
<APPREC-INCREASE-CURRENT> (97,142)
<NET-CHANGE-FROM-OPS> 738,119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (210,713)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 61,500
<NUMBER-OF-SHARES-REDEEMED> 208,269
<SHARES-REINVESTED> 11,538
<NET-CHANGE-IN-ASSETS> (1,794,683)
<ACCUMULATED-NII-PRIOR> 437
<ACCUMULATED-GAINS-PRIOR> (2,590,397)
<OVERDISTRIB-NII-PRIOR> (94,471)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 371,444
<AVERAGE-NET-ASSETS> 13,345,184
<PER-SHARE-NAV-BEGIN> 16.36
<PER-SHARE-NII> 0.080
<PER-SHARE-GAIN-APPREC> 0.760
<PER-SHARE-DIVIDEND> (0.260)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.94
<EXPENSE-RATIO> 1.5
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Flag Investor International Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A and Flag Investors Class B Shares
Adopted December 13, 1995
Amended through August 4, 1997
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. 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.
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, 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
<PAGE>
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 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.
- --------
(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>
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.
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.
<PAGE>
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.
Date Approved: August 4, 1997
Resolutions of Board Approving New
Distribution Agreement with ICC Distributors, Inc.
RESOLVED, that ICC Distributors, Inc. ("ICC ") be, and it hereby is,
appointed distributor for all classes of Alex. Brown Cash Reserve Fund, Inc.,
Flag Investors Telephone Income Fund, Inc., Flag Investors International Fund,
Inc., Flag Investors Emerging Growth Fund, Inc., Flag Investors
Short-Intermediate 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.,
and for the Flag Investors classes of each of Managed Municipal Fund, Inc. and
Total Return U.S. Treasury Fund, Inc., such appointment to be effective upon the
consummation of the merger of Alex. Brown Incorporated with and into a
subsidiary of Bankers Trust New York Corporation (the "Merger"), or at such
other time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc. and ICC Distributors, Inc. with
respect to all shares except the Flag Investors 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 negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel 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 Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Total Return U.S. Treasury Fund, Inc. (for Flag Investors
Shares), Managed Municipal Fund, Inc. (for the Flag Investors Shares), Flag
Investors Short-Intermediate 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
Partner Fund, Inc., and ICC Distributors, Inc. be, and the same hereby is,
approved in substantially the form presented to this meeting and that the
appropriate officers of the Funds be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body.
Date Approved: August 4, 1997
<PAGE>
Resolutions of Board Approving New
Plans of Distribution for
Flag Investors Class A and Flag Investors Class B Shares
RESOLVED, that the Plan of Distribution for the Flag Investors Class A
Shares of Flag Investors International Fund, Inc. be, and hereby is, amended to
reflect the change in distributor effected at this meeting, such amendment to be
effective upon the consummation of the Merger, or such other time as the proper
officers of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan 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 other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class B Shares of said Fund be, and hereby is, amended to reflect the
change in distributor effected at this meeting, such amendment to be effective
upon the consummation of the Merger, or such other time as the proper officers
of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans; and
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved; and
FURTHER RESOLVED, that at such time as the Fund offers the
Flag Investors Class B Shares, the amended Plan of Distribution presented at
this meeting shall govern the payment of 12b-1 fees by that class.
Date Approved: March 27, 1998
Approval of Restated Distribution Agreement and Form of
Sub-Distribution and Shareholder Servicing Agreement
RESOLVED, that the proposed Restated Distribution Agreement
between Flag Investors International Fund, Inc. and ICC Distributors, Inc. for
each class 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 and appropriate or as may be required to conform
with the requirements of any applicable statute, regulation or regulatory body.
RESOLVED, that the proposed form of Sub-Distribution Agreement
for the Flag Investors Family of Funds be, and hereby is, approved in
substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proposed form of Shareholder
Servicing Agreement for the Flag Investors Family of Funds be, and the same
hereby is, approved in substantially the form submitted to this meeting.
FURTHER RESOLVED,, that the proper officers of Flag Investors
International Fund, Inc. be, and they hereby are, authorized and directed in the
name and on behalf of their respective fund, to take all necessary or
appropriate actions to effect the purposes of the foregoing resolutions.
<PAGE>
Flag Investors International Fund, Inc.
18f-3 Plan Exhibits
1. Registrant's Articles of Incorporation and Articles Supplementary filed as
Exhibits (1)(a) and (1)(b), respectively, to Post-Effective Amendment No. 16 to
the Registrant's Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-96-000106) on February 27, 1996 are 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. 33-8479), 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 Post-Effective Amendment No.
17 to Registrant's Registration Statement on Form N-1A (Registration No.
33-8479) filed with the Securities and Exchange Commission via EDGAR (Accession
No. 0000950116-97-000357) on February 25, 1997 and are herein incorporated by
reference.
4. Registrant's Distribution Agreement dated as of August 31, 1997 with ICC
Distributors Inc. filed as Exhibit (6)(a) to Post-Effective Amendment No. 18 to
the Registrant's Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000474) and is herein incorporated by reference.
5. Registrant's Distribution Plan with respect to Flag Investors International
Fund Class A Shares filed as Exhibit (15)(b) to Post-Effective Amendment No. 18
to the Registrant's Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000474) and is herein incorporated by reference.
6. Registrant's Form of Sub-Distribution Agreement between ICC Distributors Inc.
and Participating Dealers is filed as Exhibit (6)(c) to Post-Effective Amendment
No. 18 to Registrant's Registration Statement on Form N-1A (Registration No.
33-8479) filed with the Securities and Exchange Commission via EDGAR (Accession
No. 950116-98-000474) 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. 33-8479) and, as
amended from time to time, is herein incorporated by reference.
<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 Amy M. Olmert, 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 29, 1998
-----------------
<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 Amy M. Olmert, 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 29, 1998
-----------------
<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 Amy M. Olmert, 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 29, 1998
-----------------
<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 Amy M. Olmert, 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 29, 1998
-----------------
<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 Amy M.
Olmert, 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 29, 1998
-----------------
