<PAGE>
As Filed with the Securities and Exchange Commission on November 17, 1998
Registration No. 33-8479
811-4827
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 20 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 21 [X]
FLAG INVESTORS INTERNATIONAL FUND, INC.
---------------------------------------
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Copy to:
Edward J. Veilleux Richard W. Grant, Esquire
One South Street Morgan, Lewis & Bockius LLP
Baltimore, MD 21202 1701 Market Street
(Name and address of agent for service) Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on _____________ pursuant to paragraph (b)
_X_ 60 days after filing pursuant to paragraph (a)
___ 75 days after filing pursuant to paragraph (a)
___ on December 31, 1999 pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
[INSERT FLAG INVESTORS LOGO]
International Equity Fund, Inc.
(Class A, Class B and Class C Shares)
Prospectus & Application - [ ], 1999
- - - - - - - - - - - - - - - - - -
This mutual fund (the "Fund") seeks to achieve long-term capital
appreciation primarily through investment in stocks and other equity securities
of companies in developed countries outside of the United States. The Fund
invests substantially all of its assets in the International Equity Portfolio
(the "Portfolio"), a separate mutual fund managed by Bankers Trust Company (the
"Advisor").
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"), Flag Investors Class B Shares ("Class B
Shares"), and Flag Investors Class C Shares ("Class C Shares") of the Fund.
These separate classes give you a choice as to sales charges and fund expenses.
(Refer to the section on sales charges and the attached Application.)
TABLE OF CONTENTS
Investment Summary ........................
Fees and Expenses of the Fund .............
Investment Program ........................
Prior Performance of a Similar Fund..
The Fund's Net Asset Value ................
How to Buy Shares .........................
How to Redeem Shares ......................
Telephone Transactions ....................
Sales Charges .............................
How to Choose the Class
That Is Right for You......................
Dividends and Taxes .......................
Organizational Structure...................
Investment Advisor.........................
Administrator..............................
Financial Highlights ......................
Application ...............................
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
- --------------------------------------------------------------------------------
<PAGE>
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.
INVESTMENT SUMMARY
- ----------------------------------------------------
Objectives and Strategies
The Fund seeks to achieve long-term capital appreciation. The Fund
invests substantially all of its assets in the Portfolio, a separate mutual fund
with the same investment objective. The Fund, through the Portfolio, seeks to
achieve its objective by investing primarily in stocks and other equity
securities of companies in developed countries located outside of the United
States and may invest a portion of its assets in companies based in emerging
markets.
Risk Profile
The Fund may be suited for you if you are willing to accept the risks
of foreign investing in the hope of achieving long-term capital appreciation.
General Stock Risk. 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.
Style Risk. As with any investment strategy, the "growth at a
reasonable price" strategy used in managing the Fund will, at times, perform
better than or worse than other investment styles and the overall market. If the
Advisor overestimates the return potential of one or more common stocks, the
Fund may underperform the international equity markets. In addition, there are
certain potential risks related to the investment of substantially all of the
Fund's assets in the Portfolio.
Foreign Investing Risk. Foreign investing may entail different risks
than investing in the United States. The prices of foreign securities may be
affected by adverse political, economic or social developments unique to a
country or region. Accounting and financial reporting standards differ from
those in the U.S. and could convey incomplete information when compared to
information typically provided by U.S. companies.
Foreign Currency Risk. 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.
You may lose money by investing in the Fund. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
<PAGE>
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. Class B Shares and Class C Shares were
unavailable prior to the date of this prospectus.
Class A Shares*
For years ended December 31,
- --------------------------------------------------------------------------------
60.00%
50.34%
50.00%
40.00%
30.00%
20.00% 15.09% 13.93%
8.63%
10.00% 4.17% 5.30%
0.00%
- -10.00% -7.40%
-10.31%
- -20.00%
-19.97%
- -30.00%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
*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, 1999)
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)
- ------------
(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 11/30/86 through 12/31/99.
<PAGE>
FEES AND EXPENSES OF THE FUND
- --------------------------------------------------------------------------------
This table(1) describes the fees and expenses that you may pay if you buy and
hold Shares of the Fund.
Shareholder Fees:
(fees paid directly from your investment)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Initial Sales Deferred Deferred
Charge Sales Charge Sales Charge
Alternative Alternative Alternative
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) [5.50]% None None
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load) (as a
percentage of original purchase price or redemption
proceeds, whichever is lower) 1.00%(2) [5.00]%(3) 1.00%(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Redemption Fee None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
- ------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.65% 0.65% 0.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 0.75%
- ------------------------------------------------------------------------------------------------------------------------------------
Other Expenses [(including a 0.25% shareholder
servicing fee for Class B and Class C Shares)] [ ]% [ ]%(8) [ ]%(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses [ ]% [ ]% [ ]%
- ------------------------------------------------------------------------------------------------------------------------------------
Less: Fee Waivers or Expense Reimbursement(6) [ ]% [ ]% [ ]%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.50% 2.25% 2.25%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) Information on the annual operating expenses reflects the expenses of both
the Fund and the Portfolio, the master fund in which the Fund invests its
assets. (A further discussion of the relationship between the Fund and the
Portfolio appears in the Organizational Structure section of this
prospectus.
(2) 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.")
(3) Contingent deferred sales charges decline over time and reach zero after six
years. After seven years, Class B Shares convert automatically to Class A
Shares. (See "Sales Charges" and "How to Choose the Class That Is Right for
You.")
(4) You will be required to pay a contingent deferred sales charge if you redeem
your Class C Shares within one year after purchase. (See "Sales Charges -
Redemption Price.")
(5) A portion of the shareholder servicing fee is allocated to your securities
dealer and to qualified banks for services provided and expenses incurred in
maintaining your account, responding to your inquiries and providing you
with information about your investment.
(6) Bankers Trust, the Advisor to the Portfolio, and ICC have contractually
agreed to limit their fees and reimburse expenses to the extent necessary
so that the Fund's Total Annual Fund Operating Expenses do not exceed 1.50%
for Class A Shares and 2.25% for both Class B and Class C Shares. This
agreement will continue until at least February 28, 2001, and may be
extended.
<PAGE>
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 the Fund 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:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A Shares $[ ]* $[ ]* $[ ]* $[ ]*
Class B Shares $[ ]* $[ ]* N/A N/A
Class C Shares $[ ]* $[ ]* N/A N/A
You would pay the following expenses if you did not redeem your shares:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Class A Shares $[ ]* $[ ]* $[ ]* $[ ]*
Class B Shares $[ ]* $[ ]* N/A N/A
Class C Shares $[ ]* $[ ]* N/A N/A
- -----------
* Based on Total Annual Fund Operating Expenses after fee waivers and
reimbursements for year 1 only.
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.
<PAGE>
INVESTMENT PROGRAM
- -------------------------------------------------------------
Investment Objective, Policies and Risk Considerations
The Fund, through the Portfolio, seeks to achieve long-term capital
appreciation primarily by investing at least 65% of its total assets in stocks
and other securities with equity characteristics of companies in developed
countries outside of the United States, under normal circumstances. The Fund
invests for capital appreciation, not income; any dividend and interest income
is incidental to the pursuit of its objective. The investment objective of the
Portfolio, unlike that of the Fund, is not a fundamental policy and may be
changed without shareholder approval. The Advisor is responsible for managing
the Fund's investments. (Refer to the section on the Investment Advisor.) There
can be no guarantee that the Fund will achieve its goals.
The Advisor employs a strategy of growth at a reasonable price. The
Advisor seeks to identify companies outside the United States that combine
strong potential for earnings growth with reasonable investment value. Such
companies typically exhibit increasing rates of profitability and cash flow. Yet
their share prices compare favorably to other stocks in a given market and to
their global peers. In evaluating stocks, the Advisor considers factors such as
sales, earnings, cash flow and enterprise value (a company's market
capitalization plus the value of its net debt). The Advisor further considers
the relationship between these and other quantitative factors. Together, these
indicators of growth and value may identify companies with improving prospects
before the market in general has taken notice.
Almost all the companies in which the Fund invests are based in the
developed foreign countries that make up the EAFE Index, plus Canada. The Fund
may also invest a portion of its assets in companies based in the emerging
markets of Latin America, the Middle East, Europe, Asia and Africa if the
Advisor believes that the return potential of those markets more than
compensates for the extra risks. While the Fund has invested in emerging markets
in the past, under normal market conditions, the Advisor does not consider this
a central element of the Fund's strategy. Typically, the Fund would not hold
more than 15% of net assets in emerging markets.
The Advisor subjects a stock to intensive review if (i) its rate of
price appreciation begins to trail that of its national stock index; (ii) the
financial analysts who follow the stock cut their estimates of the stock's
future earnings; or (iii) the stock's price approaches the downside target set
when the Advisor first bought the stock (or as modified to reflect changes in
market and economic conditions).
Company research lies at the heart of the investment process, as it
does with many stock mutual funds. The Advisor tracks several thousand companies
to arrive at the approximately 100 stocks the Fund normally holds. The companies
are selected by an extensive tracking system plus the input of experts from
various financial disciplines. The Advisor draws on the insight of experts from
a range of financial disciplines--regional stock-market specialists, global
industry specialists,
<PAGE>
economists and quantitative analysts. They challenge, refine and amplify each
other's ideas. Their close collaboration is a critical element of the investment
process.
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 more volatile than other types of securities. 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 or stock prices will behave in the future.
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,
including political 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 foreign common stocks may, at times,
move in a different direction than the prices of U.S. common stocks. Financial
reporting standards for companies based in foreign markets may differ from those
in the United States.
From time to time, foreign capital markets may exhibit more volatility
than those in the United States. Stocks that trade less frequently can be more
difficult or more costly to buy or to sell than more liquid or active stocks. On
the whole, foreign exchanges are smaller and less liquid than the U.S. market.
Additionally, some foreign governments regulate their exchanges less
stringently, and the rights of shareholders may not be as firmly established.
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
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 investment in its home country.
To the extent that the Fund invests in emerging markets to enhance
overall returns, it may face higher political, information, and stock market
risks. In addition, profound social changes and business practices that depart
from norms in developed countries' economies have hindered the orderly growth of
emerging economies and their stock markets in the past. High levels of debt tend
to make emerging economies heavily reliant on foreign capital and vulnerable to
capital flight. For all these reasons, the Fund carefully limits and balances
its commitment to these markets.
Although the Fund generally invests in the shares of large,
well-established companies, it may occasionally take advantage of exceptional
opportunities presented by smaller companies. Such opportunities pose unique
risks, which the Advisor takes into account in considering an investment. Small
company stocks tend to experience steeper fluctuations in price than the stocks
of larger companies. A shortage of reliable information, the same information
gap that creates opportunity in small company investing, can also pose added
risk. Industrywide reversals have had a greater impact on small companies, since
they lack a large company's financial resources to deal with setbacks. Small
company managers typically have less experience coping with adversity or
capitalizing on opportunity than their counterparts at larger companies.
Finally, small company stocks are typically less liquid than large company
stocks.
<PAGE>
Although not one of its principal investment strategies, the Fund may
invest in futures contracts and options on futures contracts. These investments,
when made, are for hedging purposes. If the Fund invests in futures contracts
and options on futures contracts for non-hedging purposes, the margin and
premiums required to make those investments will not exceed 5% of the Fund's net
asset value after taking into account unrealized profits and losses on the
contracts. Futures contracts and options on futures contracts used for
non-hedging purposes involve greater risks than stock investments.
To protect the Fund under adverse market conditions, the Advisor may
make temporary defensive investments of up to 100% of the Fund's assets in U.S.
or foreign government money market instruments or other short-term bonds 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 Advisor would follow such a strategy only if it 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 or those of the Portfolio 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 and those
of the Portfolio whether they expect to have their computer systems adjusted for
the year 2000 transition, and has 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 or Portfolio 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
<PAGE>
o unpredictable effects on trade and commerce generally.
These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.
PRIOR PERFORMANCE OF A SIMILAR FUND
The information provided here presents the performance as of December
31, 1999, of the BT Investment International Equity Fund (the "BT Fund"), which
has invested its assets in the International Equity Portfolio since August 4,
1992. In managing the Fund, the Advisor will employ substantially the same
investment objectives, policies and strategies that the Advisor employed in
managing the BT Fund.
Management fees and expenses incurred in the operation of the BT Fund
resulted in an overall expense ratio of 1.50%. The performance results shown
below have been adjusted for the fees and expenses of the Fund.
Year BT Fund Returns with Fees MSCI EAFE Index Returns
- --------------------------------------------------------------------------------
1993 29.82% 32.56%
- --------------------------------------------------------------------------------
1994 -1.62% 7.78%
- --------------------------------------------------------------------------------
1995 9.72% 11.21%
- --------------------------------------------------------------------------------
1996 14.64% 6.05%
- --------------------------------------------------------------------------------
1997 10.91% 1.78%
- --------------------------------------------------------------------------------
1998 14.18% 20.00%
- --------------------------------------------------------------------------------
1999 _____% _____%
FOOTNOTE: The performance data represents the prior performance of the BT Fund,
not the prior performance of the Fund, and should not be considered an
indication of future performance of the Fund.
<PAGE>
Year BT Fund Returns with Fees MSCI EAFE Index Returns
- --------------------------------------------------------------------------------
1 year 14.18% 20.00%
- --------------------------------------------------------------------------------
5 years 14.46% 9.19%
- --------------------------------------------------------------------------------
Since inception (8/4/92) 16.30% 11.93%
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 any class
of 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
<PAGE>
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 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 shares.
HOW TO BUY SHARES
- ---------------------------------------
You may buy any class of the Fund's 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 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.
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].
<PAGE>
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 the
Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in any class of 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 the class of
shares selected 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 Fund 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, 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 any class of shares
through a Systematic Purchase Plan. Contact your securities dealer or servicing
agent for details.
HOW TO REDEEM SHARES
- ------------------------------------
You may redeem any class of the Fund's 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 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.
<PAGE>
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. The letter must be signed by
all owners of the shares exactly as their names appear on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature. You
can obtain one from most banks or securities dealers.
3) Any stock certificates representing the 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.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be paid to you in cash whether or not that is the payment option
you have selected.
If you redeem sufficient 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 Fund 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 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.
<PAGE>
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 it reasonably believes 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.
SALES CHARGES
- -----------------------------
Purchase Price
The price you pay to buy shares will be the Fund's offering price which
is calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A Sales Charge
as % of
--------------------------
Offering Net Amount Class B Sales Class C Sales
Amount of Purchase Price Invested Charge Charge
------------------ -------- ---------- ------------- -------------
<S> <C> <C> <C>
Less than $ 50,000 5.50% 5.82% None None
$ 50,000 - $ 99,999 4.50% 4.71% None None
$ 100,000 - $ 249,999 3.50% 3.63% None None
$ 250,000 - $ 499,999 2.50% 2.56% None None
$ 500,000 - $ 999,999 2.00% 2.04% None None
$1,000,000 and over None None None None
- ----------------------------------------------------------------------------------------------------
</TABLE>
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares or when you buy any amount of Class B or
Class C Shares, you may pay a sales charge when you redeem your shares. Refer to
the section on redemption price for details. Your securities dealer may be paid
a commission at the time of your purchase.
The sales charge you pay on your current purchase of Class A Shares may
be reduced under the circumstances listed below.
<PAGE>
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 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 prior 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 Advisor 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.
<PAGE>
Purchases by Exchange
You may exchange Class A, B or C Shares of any other Flag Investors
fund for an equal dollar amount of Class A, B or C Shares, respectively, without
payment of the sales charges described above or any other charge. You may not
exchange shares of Flag Investors Cash Reserve Prime Class A Shares unless you
acquired those shares through a prior exchange.] 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.
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.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of the Dollar Amount
Subject to Charge (as % lower of Cost or Value)
-------------------------------------------------------------------------------------
Years Since Purchase Class A Sales Charge Class B Sales Charge Class C Sales Charge
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First 1.00%* 5.00% 1.00%
Second 0.50%* 4.00% None
Third None 3.00% None
Fourth None 3.00% None
Fifth None 2.00% None
Sixth None 1.00% None
Thereafter None None None
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
* You will pay a sales charge when you redeem Class A Shares if your shares were
purchased at net asset value only because they were part of an investment of $1
million or more. If you purchased your shares 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.
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.
<PAGE>
3) If you acquired your 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. If you bought your shares prior to
January 18, 2000, you will pay the sales charge in effect at the time of your
original 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 your Class A, B or C Share for Class A, B or C
Shares, respectively, of another Flag Investors fund.
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 applies only 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 you are redeeming Class A Shares, 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.
Automatic Conversion of Class B Shares. Your Class B Shares, along with
any reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares seven years after your purchase. If
you purchased your shares prior to January __, 2000 your Shares will be
converted to Class A Shares six years after your purchase. This conversion will
be made based on the relative net asset values of the classes and will not be a
taxable event to you.
<PAGE>
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
- --------------------------------------------------------------------------------
Your decision as to which class of the Fund's shares is best for you
should be based upon a number of factors including the amount of money you
intend to invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy
your shares but the amount of the charge declines as the amount of your
investment increases. You will pay lower expenses while you hold the shares and,
except in the case of investments of $1,000,000 or more, no sales charge if you
redeem them.
If you choose Class B Shares, you will pay no sales charge when you buy
your shares but your annual expenses will be higher than Class A Shares. You
will pay a sales charge if you redeem your shares within six years of purchase,
but the amount of the charge declines the longer you hold your shares and, at
the end of seven years, your shares convert to Class A Shares thus eliminating
the higher expenses.
If you choose Class C Shares, you will pay no sales charge when you buy
your shares or if you redeem them after holding them for at least a year. On the
other hand, expenses on Class C Shares are the same as those on Class B Shares
and, since there is no conversion to Class A Shares at the end of seven years,
the higher expenses continue for as long as you own your shares.
In general, if you intend to invest more than $100,000, your combined
sales charges and expenses are lower with Class A Shares. If you intend to
invest less than $100,000 and expect to hold your shares for more than six
years, your combined sales charges and expenses are lower with Class B Shares.
If you intend to invest less than $100,000 and expect to hold your shares for
less than six years, your combined sales charges and expenses are lower with
Class C Shares.
Your securities dealer is paid a fee when you buy your shares and an
annual fee as long as you hold your shares. For Class A and Class B Shares, this
fee begins when you purchase your shares. For Class C Shares, this fee begins
one year after you purchase your shares. The total amount of these fees may
differ depending upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay
your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its shares and for shareholder services. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Class B
and Class C Shares pay an annual distribution fee of 0.75% of average daily net
assets of the respective class and an annual shareholder servicing fee of 0.25%
of average daily net assets of the respective class. Because these fees are paid
out of net assets on an on-going basis, they will, over time, increase the cost
of your investment and may cost you more than paying other types of sales
charges.
<PAGE>
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.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive are subject to federal, state
and local taxation, depending upon your tax situation. Distributions you receive
from the Fund may be taxable whether or not you reinvest them. Each sale or
exchange of the Fund's shares is a taxable event.
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.
ORGANIZATIONAL STRUCTURE
- --------------------------------------------------------------------------------
The fund is a "feeder fund" that invests substantially all of its
assets in the International Equity Portfolio. The Fund and the Portfolio have
the same investment objective. The Portfolio is advised by Bankers Trust. (See
the section on Investment Advisor.)
The Portfolio may accept investments from other feeder funds. A feeder
fund bears the Portfolio's expenses in proportion to its assets. Each feeder
fund can set its own transaction minimums, fund-specific expenses, and other
conditions. This arrangement allows the Fund's Directors to withdraw the Fund's
assets from the Portfolio if they believe doing so is in the shareholder's best
interests. If the Directors withdraw the Fund's assets, they would then consider
whether the Fund should hire its own investment advisor, invest in a different
master portfolio, or take other action.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Bankers Trust Company serves as investment advisor to the Portfolio.
Subject to the supervision of the Portfolio's Board of Trustees, the Advisor
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments.
<PAGE>
Bankers Trust is dedicated to servicing the needs of corporations,
governments, financial institutions, and private clients and has invested
retirement assets on behalf of the nation's largest corporations and
institutions for more than 50 years. The scope of the firm's capability is
broad: it is a leader in both the active and passive quantitative investment
disciplines and maintains a major presence in stock and bond markets worldwide.
As of June 30, 1999, Bankers Trust had total assets under management of
approximately $287 billion.
At a Special Meeting of Shareholders held on October 8, 1999,
shareholders of the Portfolio approved a new investment advisory agreement with
Morgan Grenfell, Inc. On October 6, 1999, Morgan Grenfell, Inc. was renamed
Deutsche Asset Management Inc. ("DAMI"). The new investment advisory agreement
with DAMI may be implemented within two years of the date of the Special Meeting
upon approval of a majority of the members of the Board of Trustees who are not
"interested persons", generally referred to as Independent Trustees.
Shareholders of the Portfolio also approved a new sub-investment advisory
agreement among the Trust, DAMI and Bankers Trust under which Bankers Trust may
perform certain of DAMI's responsibilities, at DAMI's expense, upon approval of
the Independent Trustees, within two years of the date of the Special Meeting.
Under the new investment advisory agreements and new sub-advisory agreement, the
compensation paid and the services provided would be the same as those under the
existing advisory agreement with Bankers Trust.
DAMI is located at 885 Third Avenue, 32nd Floor, New York, New York
10022. DAMI provides a full range of investment advisory services to
institutional clients. DAMI serves as investment advisor to ten other investment
companies and as sub-advisor to five other investment companies.
On March 11, 1999, Bankers Trust announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and early 1996. Bankers Trust pleaded guilty to misstating entries in the bank's
books and records and agreed to pay a $63.5 million fine to state and federal
authorities. On July 26, 1999, the federal criminal proceedings were concluded
with Bankers Trust's formal sentencing. The events leading up to the guilty
pleas did not arise out of the investment advisory or mutual fund management
activities of Bankers Trust or its affiliates.
As a result of the plea, absent an order from the SEC, Bankers Trust
would not be able to continue to provide investment advisory services to the
Fund. The SEC has granted a temporary order to permit Bankers Trust and its
affiliates to continue to provide investment advisory services to registered
investment companies. There is no assurance that the SEC will grant a permanent
order.
Portfolio Managers
The Fund's portfolio managers are Michael Levy, Robert Reiner and Julie
Wang of Bankers Trust Company.
<PAGE>
Mr. Levy, Co-Lead Manager of the Fund, has 17 years of investment
experience. He is a Managing Director with Bankers Trust Company and has been
with Bankers Trust and the Portfolio since 1993. Mr. Levy is Bankers Trust's
international equity strategist, overseeing the design and implementation of the
firm's proprietary stock selection process. Mr. Levy received degrees in both
mathematics and geophysics from the University of Michigan.
Mr. Reiner, Co-Lead Manager of the Fund, has 17 years of investment
industry experience. He is a Managing Director of Bankers Trust and has been
with Bankers Trust and the Portfolio since 1994. Mr. Reiner specializes in
Japanese and European stock and market analysis. Prior to joining Bankers Trust,
Mr. Reiner served as a Senior Financial Analyst at Scudder, Stevens & Clark from
1993 to 1994. Mr. Reiner received degrees from University of Southern California
and Harvard University.
Ms. Wang, Co-Manager of the Fund, has 10 years of investment management
experience. She is a Principal of Bankers Trust and has been with Bankers Trust
and the Portfolio since 1994. Ms. Wang focuses on the Fund's Asia-Pacific
investments and its emerging-markets exposure. Prior to joining Bankers Trust,
Ms. Wang served as Investment Manager for American International Group's
Southeast Asia portfolio from 1991 to 1994. Ms. Wang received a Bachelors degree
in economics from Yale University, and an MBA from The Wharton School,
University of Pennsylvania.
ADMINISTRATOR
Investment Company Capital Corp. ("ICC") provides administration
services to the Fund. ICC supervises the day-to-day operations of the Fund,
including the preparation of registration statements, proxy materials,
shareholder reports, compliance with all requirements of securities laws in the
states in which Shares are distributed and, subject to the supervision of the
Fund's Board of Directors, oversight of the relationship between the Fund and
its other service providers. ICC is also the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund.
<PAGE>
FINANCIAL HIGHLIGHTS - [TO BE UPDATED]
- --------------------------------------------------------------------------------
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 __________________, 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. Class B Shares and Class C Shares were not available prior to the date
of this prospectus.
(For a Class A Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended October 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <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 investments(1)............................ 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
income and 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%
</TABLE>
- -----------
(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.
<PAGE>
Distributor
ICC DISTRIBUTORS, INC.
Two Portland Square
Portland, Maine 04101
Administrator and Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Suite 2100
1-800-553-8080 Baltimore, Maryland 21201
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>
[GRAPHIC OMITTED]
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
(800) 767-FLAG
- --------------------------------------------------------------------------------
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. 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
[1/00]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
FLAG INVESTORS INTERNATIONAL EQUITY 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: [January ____, 2000]
Relating to the Prospectus Dated: [January ____, 2000]
<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 ACCOUNTANTS...................................................22
13. LEGAL MATTERS.............................................................22
<PAGE>
14. PERFORMANCE INFORMATION...................................................22
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................23
16. FINANCIAL STATEMENTS......................................................24
<PAGE>
GENERAL INFORMATION AND HISTORY
Flag Investors International Equity 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 three classes of shares: Flag Investors International
Equity Fund Class A Shares ("Class A Shares"), Flag Investors International
Equity Fund Class B Shares ("Class B Shares") and Flag Investors International
Equity Fund Class C Shares ( "Class C Shares"), collectively (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 Class A
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. [Class
B and Class C Shares commenced operations on January ___, 2000.] On January ___,
2000, the Fund reorganized to become a feeder fund of the International Equity
Portfolio (the "Portfolio"). Prior to this reorganization, the Fund was know as
Flag Investors International Fund, Inc.
Under a license agreement dated August 16, 1993, between the Fund and
Alex. Brown & Sons Incorporated (predecessor to Deutsche Banc 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.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation.
The Fund seeks to achieve this objective by investing all of its assets in a
diversified open-end management investment company, the Portfolio, having the
same investment objective as the Fund. The Fund may withdraw its investment from
the Portfolio at any time if the Board of Directors determines that it is in the
best interests of the Fund to do so.
Bankers Trust Company (the "Advisor") manages the Portfolio's
investments. Since the investment characteristics of the Fund will correspond
directly to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio.
Under normal circumstances, the Portfolio invests at least 65% of the
value of its total assets in stocks and other securities with equity
characteristics of companies primarily based in developed countries outside the
United States. However, the Portfolio may also invest in emerging market
securities and securities of issuers in underdeveloped countries. Investments in
these countries will be based on what the Advisor believes to be an acceptable
degree of risk in anticipation of superior returns. The Portfolio will at all
times be invested in the securities of issuers based in at least three countries
other than the United States.
The Portfolio's investments will generally be diversified among several
geographic regions and countries. Criteria for determining the appropriate
distribution of investments among various countries and regions include the
prospects for relative growth among foreign countries, expected levels of
inflation, government policies influencing business conditions, the outlook for
currency relationships and the range of alternative opportunities available to
international investors.
In countries and regions with well-developed capital markets where more
information is available, Bankers Trust will seek to select individual
investments for the Portfolio. Criteria for selection of individual securities
include the issuer's competitive position, prospects for growth, managerial
strength, earnings quality, underlying asset value, relative market value and
overall marketability. The Portfolio may invest in securities of companies
having various levels of net worth, including smaller companies whose securities
may be more volatile than securities offered by larger companies with higher
levels of net worth.
In other countries and regions where capital markets are underdeveloped
or not easily accessed and information is difficult to obtain, the Portfolio may
choose to invest only at the market level. Here, the Portfolio may seek to
achieve country exposure through use of options or futures based on an
established local index. Similarly, country exposure may also be achieved
through investments in other registered investment companies.
The remainder of the Portfolio's assets will be invested in dollar and
non-dollar denominated short-term instruments. These investments are subject to
the conditions described in "Short-Term Instruments" below.
<PAGE>
Equity Investments. The Portfolio invests primarily in common stocks
and other securities with equity characteristics. For purposes of the
Portfolio's policy of investing at least 65% of the value of its total assets in
the equity securities of foreign issuers, "equity securities" are defined as
common stock, preferred stock, trust or limited partnership interests, rights
and warrants, and convertible securities (consisting of debt securities or
preferred stock that may be converted into common stock or that carry the right
to purchase common stock). The Portfolio invests in securities listed on foreign
or domestic securities exchanges and securities traded in foreign or domestic
over-the-counter markets, in addition to investment in restricted or unlisted
securities.
ADRs, GDRs and EDRs. American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs") are
certificates evidencing ownership of shares of a foreign-based issuer held in
trust by a bank or similar financial institution. Designed for use in U.S.,
international and European securities markets, respectively, ADRs, GDRs and EDRs
are alternatives to the purchase of the underlying securities in their national
markets and currencies. ADRs, GDRs and EDRs are subject to the same risks as the
foreign securities to which they relate.
Certificates of Deposit and Bankers' Acceptances. Certificates of
deposit are receipts issued by a depository institution in exchange for the
deposit of funds. The issuer agrees to pay the amount deposited plus interest to
the bearer of the receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior to maturity.
Bankers' acceptances typically arise from short-term credit arrangements
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Commercial Paper. Commercial paper consists of short-term (usually from
1 to 270 days) unsecured promissory notes issued by corporations in order to
finance their current operations. A variable amount master demand note (which is
a type of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
For a description of commercial paper ratings, see the Appendix.
Short-Term Instruments. The Portfolio intends to stay invested in
equity securities to the extent practical in light of its objective and
long-term investment perspective. However, up to 35% of the Portfolio's assets
may be invested in short-term instruments with remaining maturities of 397 days
or less or in money market mutual funds: to meet anticipated redemptions and
expenses; for day-to-day operating purposes; and when the Portfolio experiences
large cash inflows through the sale of securities and desirable equity
securities that are consistent with the Portfolio's investment objective are
unavailable in sufficient quantities or at attractive prices, the Portfolio may
<PAGE>
hold short-term investments for a limited time pending availability of such
equity securities. In addition, when in Bankers Trust's opinion, it is advisable
to adopt a temporary defensive position because of unusual and adverse
conditions affecting the equity markets, up to 100% of the Portfolio's assets
may be invested in such short-term instruments. Short-term instruments consist
of U.S. and non U.S.: (i) short-term obligations of sovereign governments, their
agencies, instrumentalities, authorities or political subdivisions; (ii) other
short-term debt securities rated AA or higher by Standard & Poor's Ratings Group
("S&P") or Aa or higher by Moody's Investors Service, Inc. ("Moody's") or, if
unrated, are of comparable quality in the opinion of Bankers Trust; (iii)
commercial paper; (iv) bank obligations, including negotiable certificates of
deposit, time deposits and bankers' acceptances; and (v) repurchase agreements.
At the time the Portfolio invests in commercial paper, bank obligations or
repurchase agreements, the issuer or the issuer's parent must have outstanding
debt rated AA or higher by S&P or Aa or higher by Moody's or outstanding
commercial paper or bank obligations rated A-1 by S&P or Prime-1 by Moody's; or,
if no such ratings are available, the instrument must be of comparable quality
in the opinion of Bankers Trust. These instruments may be denominated in U.S.
dollars or in foreign currencies.
Derivatives. The Portfolio may invest in various instruments that are
commonly known as "derivatives." Generally, a derivative is a financial
arrangement, the value of which is based on, or "derived" from, a traditional
security, asset or market index. Some derivatives such as mortgage-related and
other asset-backed securities are in many respects like any other investment,
although they may be more volatile or less liquid than more traditional debt
securities. There are, in fact, many different types of derivatives and many
different ways to use them. There is also a range of risks associated with those
uses. Futures and options are commonly used for traditional hedging purposes to
attempt to protect a fund from exposure to changing interest rates, securities
prices or currency exchange rates and for cash management purposes as a low cost
method of gaining exposure to a particular securities market without investing
directly in those securities. However, some derivatives are used for leverage,
which tends to magnify the effects of an instrument's price changes as market
conditions change. Leverage involves the use of a small amount of money to
control a large amount of financial assets and can, in some circumstances, lead
to significant losses. Bankers Trust, as the Portfolio's Advisor will use
derivatives only in circumstances where the Advisor believes they offer the most
economic means of improving the risk/reward profile of the Portfolio.
Derivatives will not be used to increase portfolio risk above the level that
could be achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indices that by themselves would
not be purchased for the Portfolio. The use of derivatives for non-hedging
purposes may be considered speculative.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the "1933
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a remaining maturity of longer than seven days. Securities
which have not been registered under the 1933 Act are referred to as private
placements or restricted securities and are purchased directly from the issuer
or in the secondary market. Mutual funds do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities and a mutual
fund might be unable to dispose of restricted or other illiquid securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might also have to
register such restricted securities in order to dispose of them resulting in
additional expense and delay. Adverse market conditions could impede such a
public offering of securities.
<PAGE>
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an efficient
institutional market in which the unregistered security can be readily resold or
on an issuer's ability to honor a demand for repayment. The fact that there are
contractual or legal restrictions on resale of such investments to the general
public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule
144A, which allows a broader institutional trading market for securities
otherwise subject to restriction on their resale to the general public. Rule
144A establishes a "safe harbor" from the registration requirements of the 1933
Act of resales of certain securities to qualified institutional buyers. The
Advisor anticipates that the market for certain restricted securities such as
institutional commercial paper will expand further as a result of this
regulation and the development of automated systems for the trading, clearance
and settlement of unregistered securities of domestic and foreign issuers, such
as the PORTAL System sponsored by the National Association of Securities
Dealers, Inc.
The Portfolio may purchase securities in the United States that are not
registered for sale under federal securities laws but which can be resold to
institutions under the SEC Rule 144A. Provided that a dealer or institutional
trading market in such securities exists, these restricted securities are
treated as exempt from the Portfolio's 15% limit on illiquid securities.
Bankers Trust will monitor the liquidity of Rule 144A securities in the
Portfolio's holdings under the supervision of the Portfolio's Board of Trustees.
In reaching liquidity decisions, the Advisor will consider, among other things,
the following factors: (1) the frequency of trades and quotes for the security;
(2) the number of dealers and other potential purchasers or sellers of the
security; (3) dealer undertakings to make a market in the security and (4) the
nature of the security and of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). If institutional trading in restricted securities were to
decline, the liquidity of the Portfolio could be adversely affected.
When-Issued and Delayed Delivery Securities The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take place as long as a month or more after the date of
the purchase commitment. The value of these securities is subject to market
fluctuation during this period and no income accrues to the Portfolio until
settlement takes place. The Portfolio identifies, as part of a segregated
account, cash or liquid securities in an amount at least equal to these
commitments. When entering into a when-issued or delayed delivery transaction,
the Portfolio will rely on the other party to consummate the transaction; if the
other party fails to do so, the Portfolio may be disadvantaged.
<PAGE>
Lending of Portfolio Securities. The Portfolio has the authority to
lend up to 30% of the total value of its portfolio securities to brokers,
dealers and other financial organizations. These loans must be secured
continuously by cash or securities issued or guaranteed by the United States
government, its agencies or instrumentalities or by a letter of credit at least
equal to the market value of the securities loaned plus accrued income. The
Portfolio will not lend securities to Bankers Trust, ICC Distributors or their
affiliates. By lending its securities, the Portfolio can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in short-term securities or obtaining yield in the
form of interest paid by the borrower when U.S. government obligations are used
as collateral. During the term of the loan, the Portfolio continues to bear the
risk of fluctuations in the price of the loaned securities. There may be risks
of delay in receiving additional collateral or risks of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of the
securities fail financially. The Portfolio will adhere to the following
conditions whenever its securities are loaned: (i) the Portfolio must receive at
least 100% cash collateral or equivalent securities from the borrower; (ii) the
borrower must increase this collateral whenever the market value of the
securities including accrued interest rises above the level of the collateral;
(iii) the Portfolio must be able to terminate the loan at any time; (iv) the
Portfolio must receive reasonable interest on the loan, as well as any
dividends, interest or other distributions on the loaned securities, and any
increase in market value; (v) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (vi) voting rights on the loaned
securities may pass to the borrower; provided, however, that if a material event
adversely affecting the investment occurs, the Board of Trustees must terminate
the loan and regain the right to vote the securities. Cash collateral may be
invested in a money market fund managed by Bankers Trust (or its affiliates) and
Bankers Trust may serve as the Portfolio's lending agent and may share in
revenue received from securities lending transactions as compensation for this
service.
Repurchase Agreements. In a repurchase agreement the Portfolio buys a
security and simultaneously agrees to sell it back at a higher price at a future
date. In the event of the bankruptcy of the other party to either a repurchase
agreement or a securities loan, the Portfolio could experience delays in
recovering either its cash or the securities it lent. To the extent that, in the
meantime, the value of the securities repurchased or lent had changed, the
Portfolio could experience a loss. In all cases, Bankers Trust must find the
creditworthiness of the other party to the transaction satisfactory. A
repurchase agreement is considered a collateralized loan under the Investment
Company Act of 1940, as amended ("1940 Act").
<PAGE>
Investment Companies. With respect to certain countries in which
capital markets are either less developed or not easily accessed, investments by
the Portfolio may be made through investment in other investment companies that
in turn are authorized to invest in the securities of such countries. Investment
in other investment companies may also be made for other purposes, such as noted
herein under "Short-Term Instruments", and are limited in amount by the 1940
Act, (unless permitted to exceed these limitations by an exemptive order of the
SEC, will involve the indirect payment of a portion of the expenses, including
advisory fees, of such other investment companies and may result in a
duplication of fees and expenses.
Options on Securities. The Portfolio may write (sell) covered call and
put options to a limited extent on its portfolio securities ("covered options")
in an attempt to increase income. However, the Portfolio may forgo the benefits
of appreciation on securities sold or may pay more than the market price on
securities acquired pursuant to call and put options written by the Portfolio.
When the Portfolio writes a covered call option, it gives the purchaser
of the option the right to buy the security at the price specified in the option
(the "exercise price") by exercising the option at any time during the option
period. If the option expires unexercised, the Portfolio will realize income in
an amount equal to the premium received for writing the option. If the option is
exercised, a decision over which the Portfolio has no control, the Portfolio
must sell the security to the option holder at the exercise price. By writing a
covered call option, the Portfolio forgoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price. In addition the Portfolio may continue to hold a stock which
might otherwise have been sold to protect against depreciation in the market
price of the stock.
A put option sold by the Portfolio is covered when, among other things,
cash or securities acceptable to the broker are placed in a segregated account
to fulfill the obligations undertaken. When the Portfolio writes a covered put
option, it gives the purchaser of the option the right to sell the underlying
security to the Portfolio at the specified exercise price at any time during the
option period. If the option expires unexercised, the Portfolio will realize
income in the amount of the premium received for writing the option. If the put
option is exercised, a decision over which the Portfolio has no control, the
Portfolio must purchase the underlying security from the option holder at the
exercise price. By writing a covered put option, the Portfolio, in exchange for
the net premium received, accepts the risk of a decline in the market value of
the underlying security below the exercise price. The Portfolio will only write
put options involving securities for which a determination is made at the time
the option is written that the Portfolio wishes to acquire the securities at the
exercise price.
The Portfolio may terminate its obligation as the writer of a call or
put option by purchasing an option with the same exercise price and expiration
date as the option previously written. This transaction is called a "closing
purchase transaction." The Portfolio will realize a profit or loss from a
closing purchase transaction if the amount paid to purchase an option is less or
more, as the case may be, than the amount received from the sale thereof. To
close out a position as a purchaser of an option, the Portfolio, may make a
"closing sale transaction" which involves liquidating the Portfolio's position
by selling the option previously purchased. Where the Portfolio cannot effect a
closing purchase transaction, it may be forced to incur brokerage commissions or
dealer spreads in selling securities it receives or it may be forced to hold
underlying securities until an option is exercised or expires.
<PAGE>
When the Portfolio writes an option, an amount equal to the net premium
received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount
of the deferred credit will be subsequently marked to market to reflect the
current market value of the option written. The current market value of a traded
option is the last sale price or, in the absence of a sale, the mean between the
closing bid and asked price. If an option expires on its stipulated expiration
date or if the Portfolio enters into a closing purchase transaction, the
Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated. If a call option is
exercised, the Portfolio will realize a gain or loss from the sale of the
underlying security and the proceeds of the sale will be increased by the
premium originally received. The writing of covered call options may be deemed
to involve the pledge of the securities against which the option is being
written. Securities against which call options are written will be segregated on
the books of the custodian for the Portfolio.
The Portfolio may purchase call and put options on any securities in
which it may invest. The Portfolio would normally purchase a call option in
anticipation of an increase in the market value of such securities. The purchase
of a call option would entitle the Portfolio, in exchange for the premium paid,
to purchase a security at a specified price during the option period. The
Portfolio would ordinarily have a gain if the value of the securities increased
above the exercise price sufficiently to cover the premium and would have a loss
if the value of the securities remained at or below the exercise price during
the option period.
The Portfolio would normally purchase put options in anticipation of a
decline in the market value of securities in its portfolio ("protective puts")
or securities of the type in which it is permitted to invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell a security, which may or may not be held in the Portfolio's holdings, at a
specified price during the option period. The purchase of protective puts is
designed merely to offset or hedge against a decline in the market value of the
Portfolio's holdings. Put options also may be purchased by the Portfolio for the
purpose of affirmatively benefiting from a decline in the price of securities
which the Portfolio does not own. The Portfolio would ordinarily recognize a
gain if the value of the securities decreased below the exercise price
sufficiently to cover the premium and would recognize a loss if the value of the
securities remained at or above the exercise price. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of underlying portfolio securities.
The hours of trading for options on securities may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying securities
markets that cannot be reflected in the option markets. It is impossible to
predict the volume of trading that may exist in such options, and there can be
no assurance that viable exchange markets will develop or continue.
<PAGE>
The Portfolio may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter option positions is more limited than with exchange-traded
option positions because the predominant market is the issuing broker rather
than an exchange, and may involve the risk that broker-dealers participating in
such transactions will not fulfill their obligations. To reduce this risk, the
Portfolio will purchase such options only from broker-dealers who are primary
government securities dealers recognized by the Federal Reserve Bank of New York
and who agree to (and are expected to be capable of) entering into closing
transactions, although there can be no guarantee that any such option will be
liquidated at a favorable price prior to expiration. The Advisor will monitor
the creditworthiness of dealers with which the Portfolio enters into such
options transactions under the general supervision of the Portfolio's Trustees.
The Portfolio intends to treat OTC Options purchased and the assets used to
"cover" OTC Options written as not readily marketable and therefore subject to
the limitations described in "Investment Restrictions." Unless the Trustees
conclude otherwise, The Portfolio intends to treat OTC options as not readily
marketable and therefore subject to the Portfolio's 15% limitation on investment
in illiquid securities.
Options on Securities Indices. In addition to options on securities,
the Portfolio may also purchase and write (sell) call and put options on
securities indices. Such options give the holder the right to receive a cash
settlement during the term of the option based upon the difference between the
exercise price and the value of the index. Such options will be used for the
purposes described above under "Options on Securities."
The Portfolio may, to the extent allowed by Federal and state
securities laws, invest in securities indices instead of investing directly in
individual foreign securities.
Options on securities indices entail risks in addition to the risks of
options on securities. The absence of a liquid secondary market to close out
options positions on securities indices is more likely to occur, although the
Portfolio generally will only purchase or write such an option if the Advisor
believes the option can be closed out.
Use of options on securities indices also entails the risk that trading
in such options may be interrupted if trading in certain securities included in
the index is interrupted. The Portfolio will not purchase such options unless
the Advisor believes the market is sufficiently developed such that the risk of
trading in such options is no greater than the risk of trading in options on
securities.
Price movements in the Portfolio's holdings may not correlate precisely
with movements in the level of an index and, therefore, the use of options on
indices cannot serve as a complete hedge. Because options on securities indices
require settlement in cash, the Advisor may be forced to liquidate portfolio
securities to meet settlement obligations.
Options on Foreign Securities Indices. The Portfolio may purchase and
write put and call options on foreign stock indices listed on domestic and
foreign stock exchanges. The Portfolio may also purchase and write OTC Options
on foreign stock indices. These OTC Options would be subject to the same
liquidity and credit risks noted above with respect to OTC Options on foreign
currencies. A stock index fluctuates with changes in the market values of the
stocks included in the index.
<PAGE>
OTC Options are purchased from or sold to securities dealers, financial
institutions or other parties (collectively referred to as "Counterparties" and
individually referred to as a "Counterparty") through direct bilateral agreement
with the Counterparty. In contrast to exchange listed options, which generally
have standardized terms and performance mechanics, all of the terms of an OTC
Option, including such terms as method of settlement, term, exercise price,
premium, guaranties and security, are set by negotiation of the parties.
Unless the parties provide for it, no central clearing or guaranty
function is involved in an OTC Option. As a result, if a Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC Option it has entered into with the Portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, the
Portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Thus, the Advisor must assess the
creditworthiness of each such Counterparty or any guarantor or credit
enhancement of the Counterparty's credit to determine the likelihood that the
terms of the OTC Option will be met.
Options on stock indices are generally similar to options on stock
except that the delivery requirements are different. Instead of giving the right
to take or make delivery of stock at a specified price, an option on a stock
index gives the holder the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of exercise, multiplied by (b)
a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the stock index upon which the option is based being greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. The amount of cash received will be equal to such
difference between the closing price of the index and the exercise price of the
option expressed in dollars or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is obligated, in return for the
premium received, to make delivery of this amount. The writer may offset its
position in stock index options prior to expiration by entering into a closing
transaction on an exchange or the option may expire unexercised.
To the extent permitted by U.S. federal or state securities laws, the
Portfolio may invest in options on foreign stock indices in lieu of direct
investment in foreign securities. The Portfolio may also use foreign stock index
options for hedging purposes.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of options on
an index depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indices, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Portfolio of options on stock indices will be subject to
the Advisor's ability to predict correctly movements in the direction of the
stock market generally or of a particular industry. This requires different
skills and techniques than predicting changes in the price of individual stocks.
<PAGE>
Currency Exchange Transactions. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio from time to time may enter into currency exchange transactions to
convert to and from different foreign currencies and to convert foreign
currencies to and from the U.S. dollar. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies.
Forward Currency Exchange Contracts. A forward currency exchange
contract is an obligation by the Portfolio to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract. Forward foreign currency exchange contracts establish an
exchange rate at a future date. These contracts are transferable in the
interbank market conducted directly between currency traders (usually large
commercial banks and brokerages) and their customers. A forward currency
exchange contract may not have a deposit requirement and may be traded at a net
price without commission. The Portfolio maintains with its custodian a
segregated account of cash or liquid securities in an amount at least equal to
its obligations under each forward foreign currency exchange contract. Neither
spot transactions nor forward foreign currency exchange contracts eliminate
fluctuations in the prices of the Portfolio's securities or in foreign exchange
rates, or prevent loss if the prices of these securities should decline.
The Portfolio may enter into currency hedging transactions in an
attempt to protect against changes in currency exchange rates between the trade
and settlement dates of specific securities transactions or changes in currency
exchange rates that would adversely affect a portfolio position or an
anticipated investment position. Since consideration of the prospect for
currency parities will be incorporated into Bankers Trust's long-term investment
decisions, the Portfolio will not routinely enter into currency hedging
transactions with respect to security transactions; however, the Advisor
believes that it is important to have the flexibility to enter into currency
hedging transactions when it determines that the transactions would be in the
Portfolio's best interest. Although these transactions tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the same time
they tend to limit any potential gain that might be realized should the value of
the hedged currency increase. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the Commodity
Futures Trading Commission ("CFTC,") the CFTC may in the future assert authority
to regulate forward contracts. In such event the Portfolio's ability to utilize
forward contracts may be restricted. Forward contracts may reduce the potential
gain from a positive change in the relationship between the U.S. dollar and
foreign currencies. Unanticipated changes in currency prices may result in
poorer overall performance for the Portfolio than if it had not entered into
such contracts. The use of foreign currency forward contracts may not eliminate
fluctuations in the underlying U.S. dollar equivalent value of the prices of or
rates of return on the Portfolio's foreign currency denominated portfolio
securities and the use of such techniques will subject the Portfolio to certain
risks.
<PAGE>
The matching of the increase in value of a forward contract and the
decline in the U.S. dollar equivalent value of the foreign currency denominated
asset that is the subject of the hedge generally will not be precise. In
addition, the Portfolio may not always be able to enter into foreign currency
forward contracts at attractive prices and this will limit the Portfolio's
ability to use such contracts to hedge or cross-hedge its assets. Also, with
regard to the Portfolio's use of cross-hedges, there can be no assurance that
historical correlations between the movement of certain foreign currencies
relative to the U.S. dollar will continue. Thus, at any time a poor correlation
may exist between movements in the exchange rates of the foreign currencies
underlying the Portfolio's cross-hedges and the movements in the exchange rates
of the foreign currencies in which the Portfolio's assets that are the subject
of such cross-hedges are denominated.
Options on Foreign Currencies. The Portfolio may purchase and write
options on foreign currencies for hedging purposes in a manner similar to that
in which futures contracts on foreign currencies, or forward contracts, will be
utilized. For example, a decline in the dollar value of a foreign currency in
which portfolio securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of portfolio securities,
the Portfolio may purchase put options on the foreign currency. If the value of
the currency does decline, the Portfolio will have the right to sell such
currency for a fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, the Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio deriving from purchases of foreign
currency options will be reduced by the amount of the premium and related
transaction costs. In addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such rates.
The purchase of an option on foreign currency may be used to hedge
against fluctuations in exchange rates although, in the event of exchange rate
movements adverse to the Portfolio's position, it may forfeit the entire amount
of the premium plus related transaction costs. In addition, the Portfolio may
purchase call options on a foreign currency when the Advisor anticipates that
the currency will appreciate in value.
The Portfolio may write options on foreign currencies for the same
types of hedging purposes. For example, where the Portfolio anticipates a
decline in the dollar value of foreign currency denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the options will most likely not be exercised, and the diminution in
value of portfolio securities will be offset by the amount of the premium
received.
<PAGE>
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, the
Portfolio could write a put option on the relevant currency which, if rates move
in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and the Portfolio would be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also may be required
to forego all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
The Portfolio may write covered call options on foreign currencies. A
call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio owns the underlying foreign currency covered by the call or has an
absolute and immediate right to acquire that foreign currency without additional
cash consideration (or for additional cash consideration held in a segregated
account by its Custodian) upon conversion or exchange of other foreign currency
held in its portfolio. A call option is also covered if the Portfolio has a call
on the same foreign currency and in the same principal amount as the call
written where the exercise price of the call held (a) is equal to or less than
the exercise price of the call written or (b) is greater than the exercise price
of the call written if the difference is maintained by the Portfolio in cash or
liquid securities in a segregated account with its custodian.
The Portfolio also may write call options on foreign currencies that
are not covered for cross-hedging purposes. A call option on a foreign currency
is for cross-hedging purposes if it is not covered, but is designed to provide a
hedge against a decline in the U.S. dollar value of a security which the
Portfolio owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the exchange rate. In
such circumstances, the Portfolio collateralizes the option by maintaining in a
segregated account with its custodian, cash or liquid securities in an amount
not less than the value of the underlying foreign currency in U.S. dollars
marked to market daily.
There is no assurance that a liquid secondary market will exist for any
particular option, or at any particular time. If the Portfolio is unable to
effect a closing purchase transaction with respect to covered options it has
written, the Portfolio will not be able to sell the underlying currency or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Portfolio is unable to effect a closing sale
transaction with respect to options it has purchased, it would have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying currency. The Portfolio pays brokerage
commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign
currencies are traded over-the-counter and involve liquidity and credit risks
which may not be present in the case of exchange-traded currency options. In
some circumstances, the Portfolio's ability to terminate over-the-counter
options ("OTC Options") may be more limited than with exchange-traded options.
It is also possible that broker-dealers participating in OTC Options
transactions will not fulfill their obligations. The Portfolio intends to treat
OTC Options as not readily marketable and therefore subject to the Portfolio's
15% limit on illiquid securities.
<PAGE>
Futures Contracts and Options on Futures Contracts.
General. The successful use of futures contracts and options thereon
draws upon the Advisor's skill and experience with respect to such instruments
and usually depends on the Advisor's ability to forecast interest rate and
currency exchange rate movements correctly. Should interest or exchange rates
move in an unexpected manner, the Portfolio may not achieve the anticipated
benefits of futures contracts or options on futures contracts or may realize
losses and thus will be in a worse position than if such strategies had not been
used. In addition, the correlation between movements in the price of futures
contracts or options on futures contracts and movements in the price of the
securities and currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
Futures Contracts. Futures contracts are contracts to purchase or sell
a fixed amount of an underlying instrument, commodity or index at a fixed time
and place in the future. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the CFTC, and must be executed
through a futures commission merchant, or brokerage firm, which is a member of
the relevant contract market. Futures contracts trade on a number of exchanges,
and clear through their clearing corporations. The Portfolio may enter into
contracts for the purchase or sale for future delivery of fixed-income
securities, foreign currencies, or financial indices including any index of U.S.
government securities, foreign government securities or corporate debt
securities. The Portfolio may enter into futures contracts which are based on
debt securities that are backed by the full faith and credit of the U.S.
government, such as long-term U.S. Treasury Bonds, Treasury Notes, Government
National Mortgage Association modified pass-through mortgage-backed securities
and three-month U.S. Treasury Bills. The Portfolio may also enter into futures
contracts which are based on bonds issued by governments other than the U.S.
government. Futures contracts on foreign currencies may be used to hedge against
securities that are denominated in foreign currencies.
At the same time a futures contract is entered into, the Portfolio must
allocate cash or securities as a deposit payment ("initial margin"). The initial
margin deposits are set by exchanges and may range between 1% and 10% of a
contract's face value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the Portfolio
would provide or receive cash that reflects any decline or increase in the
contract's value.
Although futures contracts (other than those that settle in cash such
as index futures) by their terms call for the actual delivery or acquisition of
the instrument underlying the contract, in most cases the contractual obligation
is fulfilled by offset before the date of the contract without having to make or
take delivery of the instrument underlying the contract. The offsetting of a
contractual obligation is accomplished by entering into an opposite position in
the identical futures contract on the commodities exchange on which the futures
contract was entered into (or a linked exchange). Such a transaction, which is
effected through a member of an exchange, cancels the obligation to make or take
delivery of the instrument underlying the contract. Since all transactions in
the futures market are made, offset or fulfilled through a clearinghouse
associated with the exchange on which the contracts are traded, the Portfolio
will incur brokerage fees when it enters into futures contracts.
The assets in the segregated asset account maintained to cover the
Portfolio's obligations with respect to such futures contracts will consist of
<PAGE>
cash or securities acceptable to the broker from its portfolio in an amount
equal to the difference between the fluctuating market value of such futures
contracts and the aggregate value of the initial and variation margin payments
made by the Portfolio with respect to such futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial and
variation margin requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, the liquidity of the futures market depends on most
participants entering into offsetting transactions rather than making or taking
delivery. To the extent that many participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements in
the futures market are less onerous than margin lending requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of general interest rate or currency exchange
rate trends by the Advisor may still not result in a successful transaction.
In addition, futures contracts entail risks. Although the Advisor
believes that use of such contracts will benefit the Portfolio, if the Advisor's
investment judgment about the general direction of interest rates is incorrect,
the Portfolio's overall performance would be poorer than if it had not entered
into any such contract. For example, if the Portfolio has hedged against the
possibility of an increase in interest rates which would adversely affect the
price of debt securities held in its portfolio and interest rates decrease
instead, the Portfolio will lose part or all of the benefit of the increased
value of its debt securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell debt securities from its
portfolio to meet daily variation margin requirements. Such sales of bonds may
be, but will not necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
Options on Futures Contracts. The Portfolio may purchase and write
options on futures contracts for hedging purposes. The purchase of a call option
on a futures contract is similar in some respects to the purchase of a call
option on an individual security. For example, when the Portfolio is not fully
invested it may purchase a call option on an interest rate sensitive futures
contract to hedge against a potential price increase on debt securities due to
declining interest rates. The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put options on portfolio
securities. For example, the Portfolio may purchase a put option on an interest
rate sensitive futures contract to hedge its portfolio against the risk of a
decline in the prices of debt securities due to rising interest rates.
The writing of a call option on a futures contract may constitute a
partial hedge against declining prices of portfolio securities which are the
same as or correlate with the security or currency which is deliverable upon
exercise of the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the full amount of
the option premium which provides a partial hedge against any decline that may
<PAGE>
have occurred in the Portfolio's portfolio holdings. The writing of a put option
on a futures contract may constitute a partial hedge against increasing prices
of the security or foreign currency which is deliverable upon exercise of the
futures contract. If the futures price at expiration of the option is higher
than the exercise price, the Portfolio will retain the full amount of the option
premium which provides a partial hedge against any increase in the price of
securities which the Portfolio intends to purchase. If a put or call option the
Portfolio has written is exercised, the Portfolio will incur a loss which will
be reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its futures positions, the Portfolio's losses from existing
options on futures may to some extent be reduced or increased by changes in the
value of portfolio securities.
The amount of risk the Portfolio assumes when it purchases an option on
a futures contract is the premium paid for the option plus related transaction
costs. In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the option purchased.
Futures Contracts on Domestic and Foreign Securities Indices. The
Portfolio may enter into futures contracts providing for cash settlement based
upon changes in the value of an index of domestic or foreign securities. This
investment technique may be used as a low-cost method of gaining exposure to a
particular securities market without investing directly in those securities or
to hedge against anticipated future change in general market prices which
otherwise might either adversely affect the value of securities held by the
Portfolio or adversely affect the prices of securities which are intended to be
purchased at a later date for the Portfolio.
When used for hedging purposes, each transaction in futures contracts
on a securities index involves the establishment of a position which the Advisor
believes will move in a direction opposite to that of the investment being
hedged. If these hedging transactions are successful, the futures positions
taken for the Portfolio will rise in value by an amount which approximately
offsets the decline in value of the portion of the Portfolio's investments that
are being hedged. Should general market prices move in an unexpected manner, the
full anticipated benefits of Futures Contracts may not be achieved or a loss may
be realized.
Although futures contracts on securities indices would be entered into
for hedging purposes only, such transactions do involve certain risks. These
risks include a lack of correlation between the futures contract and the foreign
equity market being hedged, and incorrect assessments of market trends which may
result in poorer overall performance than if a futures contract had not been
entered into.
Asset Coverage. To assure that the Portfolio's use of futures and
related options, as well as when-issued and delayed-delivery securities and
foreign currency exchange transactions, are not used to achieve investment
leverage, the Portfolio will cover such transactions, as required under
applicable interpretations of the SEC, either by owning the underlying
securities or by segregating with the Portfolio's Custodian or futures
commission merchant liquid securities in an amount at all times equal to or
exceeding the Portfolio's commitment with respect to these instruments or
contracts.
<PAGE>
Investment Restrictions on Futures Transactions. The Portfolio will not
enter into any futures contracts or options on futures contracts if immediately
thereafter the amount of margin deposits on all the futures contracts of the
Portfolio and premiums paid on outstanding options on futures contracts owned by
the Portfolio (other than those entered into for bona fide hedging purposes)
would exceed 5% of the Portfolio's net asset value, after taking into account
unrealized profits and unrealized losses on any such contracts.
Additional Risk Factors
In addition to the risks discussed above, the Portfolio's investments
may be subject to the following risk factors:
Foreign Securities. The Portfolio will, under normal market conditions,
invest a significant portion of its assets in foreign securities. Although the
Portfolio intends to invest primarily in securities of established companies
based in developed countries, investors should realize that the value of the
Portfolio's investments may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. In general, less information is publicly available with respect to
foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting
requirements applicable to issuers in the United States. Any foreign investments
made by the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
Because foreign securities generally are denominated and pay dividends
or interest in foreign currencies, and the Portfolio holds various foreign
currencies from time to time, the value of the net assets of the Portfolio as
measured in U.S. dollars will be affected favorably or unfavorably by changes in
exchange rates. Generally, the Portfolio's currency exchange transactions will
be conducted on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market. The cost of the Portfolio's currency exchange
transactions will generally be the difference between the bid and offer spot
rate of the currency being purchased or sold. In order to protect against
uncertainty in the level of future foreign currency exchange, the Portfolio is
authorized to enter into certain foreign currency exchange transactions.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of the New York Stock Exchange, Inc. (the "NYSE"). Accordingly, the
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies. Moreover,
<PAGE>
the settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, the Portfolio normally pays fixed
commissions that are generally higher than the negotiated commissions charged in
the United States. In addition, there is generally less government supervision
and regulation of securities exchanges, brokers and issuers in foreign countries
than in the United States.
Emerging Markets. The world's industrialized markets generally include
but are not limited to the following: Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Luxembourg,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland, the United Kingdom, and the United States; the world's emerging
markets generally include but are not limited to the following: Argentina,
Botswana, Bolivia, Brazil, Bulgaria, Chile, China, Colombia, Costa Rica, the
Czech Republic, Ecuador, Egypt, Greece, Hungary, India, Indonesia, Israel, the
Ivory Coast, Jordan, Korea, Malaysia, Mexico, Morocco, Nicaragua, Nigeria,
Pakistan, Peru, Philippines, Poland, Romania, Russia, Slovakia, Slovenia, South
Africa, South Korea, Sri Lanka, Taiwan, Thailand, Turkey, Uruguay, Venezuela,
Vietnam and Zimbabwe.
Investment in securities of issuers based in underdeveloped emerging
markets entails all of the risks of investing in securities of foreign issuers
outlined in the above section to a heightened degree. These heightened risks
include: (i) greater risks of expropriation, confiscatory taxation,
nationalization, and less social, political and economic stability; (ii) the
smaller size of the market for such securities and a low or nonexistent volume
of trading, resulting in lack of liquidity and in price volatility; and (iii)
certain national policies which may restrict the Portfolio's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests.
In addition to brokerage commissions, custodial services and other
costs relating to investment in emerging markets are generally more expensive
than in the United States. Such markets have been unable to keep pace with the
volume of securities transactions, making it difficult to conduct such
transactions. The inability of the Portfolio to make intended securities
purchases due to settlement problems could cause the Portfolio to miss
attractive investment opportunities. Inability to dispose of a security due to
settlement problems could result either in losses to the Portfolio due to
subsequent declines in the value of the security or, if the Portfolio has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
Options on Futures Contracts, Forward Contracts and Options on Foreign
Currencies. Unlike transactions entered into by the Portfolio in futures
contracts, options on foreign currencies and forward contracts are not traded on
contract markets regulated by the CFTC or (with the exception of certain foreign
currency options) by the SEC. To the contrary, such instruments are traded
through financial institutions acting as principals, although foreign currency
options are also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to
SEC regulation. In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be available. For
example, there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a period of time.
Although the purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could be lost.
<PAGE>
Moreover, the option writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments.
Forward Contracts and options on foreign currencies traded
over-the-counter involve liquidity and credit risks which may not be present in
the case of exchange-traded currency options. The Portfolio's ability to
terminate over-the-counter options will be more limited than with
exchange-traded options. It is also possible that broker-dealers participating
in over-the-counter options transactions will not fulfill their obligations.
Until such time as the staff of the SEC changes its position, the Portfolio will
treat purchased over-the-counter options and assets used to cover written
over-the-counter options as illiquid securities.
Options on foreign currencies traded on national securities exchanges
are within the jurisdiction of the SEC, as are other securities traded on such
exchanges. As a result, many of the protections provided to traders on organized
exchanges will be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national securities
exchange are cleared and guaranteed by the Options Clearing Corporation (the
"OCC"), thereby reducing the risk of counterparty default. Further, a liquid
secondary market in options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially permitting
the Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the over-the-counter market.
For example, exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in applicable
foreign countries for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the orderly
settlement of foreign currency option exercises, or would result in undue
burdens on the OCC or its clearing member, impose special procedures on exercise
and settlement, such as technical changes in the mechanics of delivery of
currency, the fixing of dollar settlement prices or prohibitions on exercise.
In addition, futures contracts, options on futures contracts, forward
contracts and options on foreign currencies may be traded on foreign exchanges.
Such transactions are subject to the risk of governmental actions affecting
trading in or the prices of foreign currencies or securities. The value of such
positions also could be adversely affected by: (i) other complex foreign
political and economic factors; (ii) lesser availability than in the United
States of data on which to make trading decisions; (iii) delays in the
Portfolio's ability to act upon economic events occurring in foreign markets
during non-business hours in the United States; (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States; and (v) lesser trading volume.
Special Information Concerning Master-Feeder Fund Structure. Unlike
other open-end management investment companies (mutual funds) which directly
<PAGE>
acquire and manage their own portfolio securities, the Fund seeks to achieve its
investment objective by investing all of its Assets in the Portfolio, a separate
registered investment company with the same investment objective as the Fund.
Therefore, an investor's interest in the Portfolio's securities is indirect. In
addition to selling a beneficial interest to the Fund, the Portfolio may sell
beneficial interests to other mutual funds, investment vehicles or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the Fund due to variations in
sales commissions and other operating expenses. Therefore, investors in the Fund
should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Bankers Trust at 1-800-368-4031.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns (however, this
possibility exists as well for traditionally structured funds which have large
institutional investors). Additionally, the Portfolio may become less diverse,
resulting in increased portfolio risk. Also, funds with a greater pro rata
ownership in the Portfolio could have effective voting control of the operations
of the Portfolio. Except as permitted by the SEC, whenever the Fund is requested
to vote on matters pertaining to the Portfolio, the Fund will hold a meeting of
shareholders of the Fund and will cast all of its votes in the same proportion
as the votes of the Fund's shareholders. Fund shareholders who do not vote will
not affect the Fund's votes at the Portfolio meeting. The percentage of the
Fund's votes representing the Fund's shareholders not voting will be voted by
the Directors or officers of the Fund in the same proportion as the Fund
shareholders who do, in fact, vote.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in a distribution "in kind" of portfolio securities
(as opposed to a cash distribution from the Portfolio). If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. In addition, the distrubution in kind may result in a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
redemption requests, such as borrowing.
The Fund may withdraw its investment from the Portfolio at any time, if
the Board of Directors of the Fund determines that it is in the best interests
of the shareholders of the Fund to do so. Upon any such withdrawal, the Board of
Directors of the Fund would consider what action might be taken, including the
investment of all the Assets of the Fund in another pooled investment entity
having the same investment objective as the Fund or the retaining of an
investment advisor to manage the Fund's assets in accordance with the investment
policies described herein with respect to the Portfolio.
The Fund's investment objective is a fundamental policy and may not be
changed upon without the approval of the Fund's shareholders. Because investment
objective of the Portfolio is not a fundamental policy and may be changed
<PAGE>
without the approval of its shareholders, if there is a change in the
Portfolio's investment objective, the Fund's Board of Directors would submit
matter to the Fund's shareholders for a vote. Shareholders of the Portfolio will
receive 30 days prior written notice with respect to any change in the
investment objective the Portfolio.
Rating Services
The ratings of rating services represent their opinions as to the
quality of the securities that they undertake to rate. It should be emphasized,
however, that ratings are relative and subjective and are not absolute standards
of quality. Although these ratings are an initial criterion for selection of
portfolio investments, Bankers Trust also makes its own evaluation of these
securities, subject to review by the Board of Trustees. After purchase by the
Portfolio, an obligation may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Portfolio. Neither event would
require a Fund to eliminate the obligation from its portfolio, but Bankers Trust
will consider such an event in its determination of whether a Fund should
continue to hold the obligation. A description of the ratings used herein and in
the Funds' Prospectuses is set forth in the Appendix to this SAI.
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.
Although the Portfolio 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
<PAGE>
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and the and may not be changed with respect to the Fund without the
approval of a "majority of the outstanding voting securities" of the Fund, as
the case may be. "Majority of the outstanding voting securities" under the
Investment Company Act of 1940, as amended (the "1940 Act"), and as used in this
SAI and the Shares' respective Prospectuses, means, with respect to the Fund,
the lesser of (i) 67% or more of the outstanding voting securities of the Fund
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund or are present or represented by proxy or (ii) more than
50% of the outstanding voting securities of the Fund. Whenever the Fund is
requested to vote on a fundamental policy of the Portfolio, the Fund will hold a
meeting of the Fund's shareholders and will cast its vote as instructed by the
Fund's shareholders. Fund shareholders who do not vote will not affect the
Fund's votes at the Portfolio meeting. The percentage of the Fund's votes
representing Fund shareholders not voting will be voted by the Directors of the
Fund in the same proportion as the Fund shareholders who do, in fact, vote.
Except that no investment restriction of the Fund shall prevent the
Fund from investing all of its assets in an open-end investment company with
substantially the same investment objective, as a matter of fundamental policy,
the Fund:
1. Will not, with respect to 75% of its assets, invest more than 5% of
the Fund's total assets in the securities of any one issuer
(excluding cash, cash equivalents, U.S. government securities and
the securities of other investment companies) or own more than 10%
of the voting securities of any one issuer;
2. May lend or borrow money to the extent permitted by the Investment
Company Act of 1940, the rules or regulations thereunder or any
exemption therefrom, as such statute, rules or regulations may be
amended from time to time;
3. 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);
4. May not purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein) in the ordinary course of business (except that
the Fund may hold and sell, for the Fund's portfolio, real estate
acquired as a result of the Fund's ownership of securities);
5. Will not purchase or sell commodities or commodity contracts
provided that the Fund may invest in financial futures and options
on such futures;
<PAGE>
6. 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;
7. Issue senior securities;
8. Will not make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and
policies, and may loan portfolio securities and enter into
repurchase agreements;
As a matter of fundamental policy, the Portfolio may not:
1. borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of
the Portfolio's assets, it may borrow money as a temporary measure
for extraordinary or emergency purposes and enter into reverse
repurchase agreements or dollar roll transactions, and except that
it may pledge, mortgage or hypothecate not more than 1/3 of such
assets to secure such borrowings (it is intended that money would be
borrowed only from banks and only either to accommodate requests for
the withdrawal of beneficial interests (redemption of shares) while
effecting an orderly liquidation of portfolio securities or to
maintain liquidity in the event of an unanticipated failure to
complete the portfolio security transaction or other similar
situations) or reverse repurchase agreements, provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered a pledge of assets for purposes of this restriction and
except that assets may be pledged to secure letters of credit solely
for the purpose of participating in a captive insurance company
sponsored by the Investment Company Institute; for additional
related restrictions, see clause (i) under the caption "Additional
Restrictions" below (as an operating policy, the Portfolio may not
engage in dollar-roll transactions);
2. underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the 1933
Act in selling a portfolio security;
3. make loans to other persons except: (a) through the lending of the
Portfolio's portfolio securities and provided that any such loans
not exceed 30% of the Portfolio's total assets (taken at market
value); (b) through the use of repurchase agreements or the purchase
of short-term obligations; or (c) by purchasing a portion of an
issue of debt securities of types distributed publicly or privately;
4. purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
<PAGE>
commodities or commodity contracts (except futures and option
contracts) in the ordinary course of business (except that the
Portfolio may hold and sell, for the Portfolio's portfolio, real
estate acquired as a result of the Portfolio's ownership of
securities);
5. concentrate its investments in any particular industry (excluding
U.S. government securities), but if it is deemed appropriate for the
achievement of the Portfolio's investment objective(s), up to 25% of
its total assets may be invested in any one industry; and
6. issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the
rules and regulations promulgated thereunder, provided that
collateral arrangements with respect to options and futures,
including deposits of initial deposit and variation margin, are not
considered to be the issuance of a senior security for purposes of
this restriction.
7. with respect to 75% of the Portfolio's total assets, invest more
than 5% of its total assets in the securities of any one issuer
(excluding cash and cash equivalents, U.S. government securities and
the securities of other investments companies) or own more than 10%
of the voting securities of any issuer.
Additional Restrictions.
Additional Restrictions of the Fund
In order to comply with certain statutes and policies, the Fund will
not as a matter of operating policy (except that no operating policy shall
prevent the Fund from investing all of its assets in an open-end investment
company with substantially the same investment objective):
(i) Invest in shares of any other open-end investment company
registered under the Investment Company Act, except as permitted
by federal law.
(ii) Invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are illiquid
or not currently marketable (excluding Rule 144A securities deemed
by the Board Directors of the Fund to be liquid).
Other Considerations
The Fund's investments in convertible securities rated below
investment grade will not exceed 5% of the value of its total assets.
Additional Investment Restrictions of the Portfolio
<PAGE>
In order to comply with certain statutes and policies, the Portfolio
will not as a matter of operating policy (except that no operating policy shall
prevent a Fund from investing all of its assets in an open-end investment
company with substantially the same investment objectives):
(i) borrow money (including through reverse repurchase or forward
roll transactions) for any purpose in excess of 5% of the
Portfolio's (Fund's) total assets (taken at cost), except that
the Portfolio (Fund) may borrow for temporary or emergency
purposes up to 1/3 of its total assets;
(ii) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the Portfolio's (Fund's) total assets (taken at market
value), provided that collateral arrangements with respect to
options and futures, including deposits of initial deposit and
variation margin, and reverse repurchase agreements are not
considered a pledge of assets for purposes of this restriction;
(iii) purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the
clearance of purchases and sales of securities may be obtained
and except that deposits of initial deposit and variation margin
may be made in connection with the purchase, ownership, holding
or sale of futures;
(iv) invest for the purpose of exercising control or management of
another company;
(v) purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase,
though not made in the open market, is part of a plan of merger
or consolidation; provided, however, that securities of any
investment company will not be purchased for the Portfolio
(Fund) if such purchase at the time thereof would cause: (a)
more than 10% of the Portfolio's (Fund's) total assets (taken at
the greater of cost or market value) to be invested in the
securities of such issuers; (b) more than 5% of the Portfolio's
(Fund's) total assets (taken at the greater of cost or market
value) to be invested in any one investment company; or (c) more
than 3% of the outstanding voting securities of any such issuer
to be held for the Portfolio (Fund), unless permitted to exceed
these limitations by an exemptive order of the SEC; provided
further that, except in the case of a merger or consolidation,
the Portfolio (Fund) shall not purchase any securities of any
open-end investment company unless (1) the Portfolio's
investment adviser waives the investment advisory fee with
respect to assets invested in other open-end investment
companies and (2) the Portfolio incurs no sales charge in
connection with the investment;
(vi) invest more than 15% of the Portfolio's (Fund's) net assets
(taken at the greater of cost or market value) in securities
that are illiquid or not currently marketable (excluding Rule
144A securities deemed by the Board of Trustees of the Portfolio
(Trust) to be liquid).
(vii) write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call
is within the investment policies of the Portfolio (Fund) and
<PAGE>
the option is issued by the OCC, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the
obligations underlying the puts determined as of the date the
options are sold shall not exceed 5% of the Portfolio's (Fund's)
net assets; (c) the securities subject to the exercise of the
call written by the Portfolio (Fund) must be owned by the
Portfolio (Fund) at the time the call is sold and must continue
to be owned by the Portfolio (Fund) until the call has been
exercised, has lapsed, or the Portfolio (Fund) has purchased a
closing call, and such purchase has been confirmed, thereby
extinguishing the Portfolio's (Fund's) obligation to deliver
securities pursuant to the call it has sold; and (d) at the time
a put is written, the Portfolio (Fund) establishes a segregated
account with its custodian consisting of cash or liquid
securities equal in value to the amount the Portfolio (Fund)
will be obligated to pay upon exercise of the put (this account
must be maintained until the put is exercised, has expired, or
the Portfolio (Fund) has purchased a closing put, which is a put
of the same series as the one previously written); and
(viii) buy and sell puts and calls on securities, stock index futures
or options on stock index futures, or financial futures or
options on financial futures unless such options are written by
other persons and: (a) the options or futures are offered
through the facilities of a national securities association or
are listed on a national securities or commodities exchange,
except for put and call options issued by non-U.S. entities or
listed on non-U.S. securities or commodities exchanges; (b) the
aggregate premiums paid on all such options which are held at
any time do not exceed 20% of the Portfolio's (Fund's) total net
assets; and (c) the aggregate margin deposits required on all
such futures or options thereon held at any time do not exceed
5% of the Portfolio's (Fund's) total assets.
There will be no violation of any investment restriction (except with
respect to fundamental investment restriction (1) above) if that restriction is
complied with at the time the relevant action is taken, notwithstanding a later
change in the market value of an investment, in net or total assets or in the
change of securities rating of the investment, or any other later change.
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 Portfolio which are listed on foreign
exchanges may be traded on days that the Portfolio does not value its
<PAGE>
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 third parties 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 and the Portfolio will redeem
Shares in cash as described in the Prospectus. However, if the Board of
Directors determines that it would be in the best interests of the remaining
shareholders to make payment of the redemption price in whole or in part by a
distribution in kind of readily marketable securities from the portfolio of the
Fund in lieu of cash, in conformity with applicable rules of the SEC, the Fund
will make such distributions in kind. 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.
The Portfolio has agreed to make a redemption in kind to the Fund
whenever the Fund wishes to make a redemption in kind and therefore shareholders
of the Fund that receive redemptions in kind will receive portfolio securities
of the Portfolio and in no case will they receive a security issued by the
Portfolio. The Portfolio has advised the Fund that the Portfolio will not redeem
in kind except in circumstances in which the Fund is permitted to redeem in kind
or unless requested by the Fund.
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
<PAGE>
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. Shareholders are urged to consult with their tax advisors
with specific reference to their own tax situation, including their state and
local tax liabilities.
The following general discussion of certain 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 a Regulated Investment Company
The Fund intends to qualify and elect to be treated as a "regulated
investment company" ("RIC") as defined under Subchapter M of the Code. By
following such a policy, the Fund expects to eliminate or reduce to a nominal
amount the federal taxes to which it may be subject.
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 and also must meet several
additional requirements. Included among these requirements are the following:
(i) at least 90% of the Fund's gross income each taxable year must be derived
from dividends, interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock or securities, or certain other
income; (ii) at the close of each quarter of the Fund's taxable year, at least
50% of the value of its total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs and other securities, with
such other securities limited, in respect to any one issuer, to an amount that
does not exceed 5% of the value of the Fund's assets and that does not represent
more than 10% of the outstanding voting securities of such issuer; and (iii) at
the close of each quarter of the Fund's taxable year, not more than 25% of the
value of its assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer or of two or more
issuers which the Fund controls and which are engaged in the same, similar or
related trades or businesses.
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.
If the Fund fails to qualify for any taxable year as a RIC, 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
generally will be taxable to shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. In this event,
distributions generally will be eligible for the dividends-received deduction
for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
<PAGE>
paid in cash or are reinvested in additional Shares, to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
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 who are individuals at a maximum rate of 20%, regardless
of the length of time the shareholder has held the shares. If any such gains are
retained, the Fund will pay federal income tax thereon.
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
a Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend if it has been received from a domestic
corporation. Accordingly, distributions from the Fund generally will qualify for
the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the
year of payment. However, dividends declared payable to shareholders of record
in October, November, or December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholder and paid by the Fund in the year in which the dividends were
declared.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
Sale or Exchange of Fund Shares
<PAGE>
Generally, gain or loss on the sale or exchange of a Share will be
capital gain or loss that will be long-term if the Share has been held for more
than twelve months and otherwise will be short-term. For individuals, long-term
capital gains are currently taxed at a maximum rate of 20% and short-term
capital gains are currently taxed at ordinary income tax rates. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of a Fund with
respect to such Share are included in determining the shareholder's long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of a Fund that have been included in determining
such shareholder'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.
In certain cases, the Fund will be required to withhold, and remit to
the United States Treasury, 31% of any distributions paid to a shareholder who
(1) has failed to provide a correct taxpayer identification number, (2) is
subject to backup withholding by the Internal Revenue Service, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.
Federal Excise Tax
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.
State and Local Taxes
The Fund is not liable for any income or franchise tax in Massachusetts
if it qualifies as a RIC for federal income tax purposes. Depending upon state
and local law, distributions by the Fund to shareholders and the ownership of
shares may be subject to state and local taxes. Shareholders are urged to
consult their tax advisors as to the consequences of these and other state and
local tax rules affecting an investment in the Fund.
Foreign Securities
Income from investments in foreign stocks or securities may be subject
to foreign taxes. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. It is impossible to determine the
effective rate of foreign tax in advance since the amount of the Portfolio's
assets to be invested in various countries will vary.
<PAGE>
If the Portfolio is liable for foreign taxes, and if more than 50% of
the value of the Portfolio's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations, the Fund may make an
election pursuant to which certain foreign taxes paid by the Portfolio would be
treated as having been paid directly by shareholders of the Fund. Pursuant to
such election, the amount of foreign taxes paid will be included in the income
of the Fund's shareholders, and such Fund shareholders (except tax-exempt
shareholders) may, subject to certain limitations, claim either a credit or
deduction for the taxes. Each shareholder of the Fund will be notified after the
close of the Fund's taxable year whether the foreign taxes paid will "pass
through" for that year and, if so, such notification will designate (a) the
shareholder's portion of the foreign taxes paid to each such country and (b) the
amount which represents income derived from sources within each such country.
The amount of foreign taxes for which a shareholder may claim a credit
in any year will generally be subject to a separate limitation for "passive
income," which includes, among other items of income, dividends, interest and
certain foreign currency gains. Because capital gains realized by the Portfolio
on the sale of foreign securities will be treated as U.S. source income, the
available credit of foreign taxes paid with respect to such gains may be
restricted by this limitation.
Taxation of the Portfolio
The Portfolio is not subject to Federal income taxation. Instead, the
Fund and other investors investing in the Portfolio must take into account, in
computing their Federal income tax liability, their share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether they have received any cash distributions from the Portfolio.
Distributions received by the Fund from the Portfolio generally will
not result in the Fund recognizing any gain or loss for Federal income tax
purposes, except that: (1) gain will be recognized to the extent that any cash
distributed exceeds the Fund's basis in its interest in the Portfolio prior to
the distribution; (2) income or gain may be realized if the distribution is made
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio; and
(3) loss may be recognized if the distribution is made in liquidation of the
Fund's entire interest in the Portfolio and consists solely of cash and/or
unrealized receivables. The Fund's basis in its interest in the Portfolio
generally will equal the amount of cash and the basis of any property which the
Fund invests in the Portfolio, increased by the Fund's share of income from the
Portfolio, and decreased by the amount of any cash distributions and the basis
of any property distributed from the Portfolio.
<PAGE>
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. 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 is denoted by
an "*". Unless otherwise indicated, the address of each Director and executive
officer is One South Street, Baltimore, Maryland 21202.
Directors Of The Fund
*TRUMAN T. SEMANS, Director (10/27/26)
Brown Investment Advisory & Trust Company, 19 South Street, Baltimore,
Maryland 21202. Vice Chairman, Brown Investment Advisory & Trust
Company (formerly, Alex. Brown Capital Advisory & Trust Company);
Director, Investment Company Capital Corp. (registered investment
advisor) and Virginia Hot Springs Inc. (property management). Formerly,
Managing Director and Vice Chairman, Alex. Brown Incorporated (now BT
Alex. Brown Incorporated) and Director, ISI Family of Funds (registered
investment companies).
RICHARD R. BURT, Director (2/3/47)
IEP Advisors, LLP, 1275 Pennsylvania Avenue, NW, 10th Floor,
Washington, DC 20004. Chairman, IEP Advisors, Inc.; Chairman of the
Board, Weirton Steel Corporation; Member of the Board, Archer Daniels
Midland Company (agribusiness operations), Hollinger International,
Inc. (publishing), Homestake Mining (mining and exploration), HCL
Technologies (information technology) and Anchor Technologies (gaming
software and equipment); Director, Mitchell Hutchins family of funds
and Deutsche Funds, Inc., and Trustee, Deutsche Portfolios (registered
investment companies); and Member, Textron Corporation International
Advisory Council. Formerly, partner, McKinsey & Company (consulting),
1991-1994; U.S. Chief Negotiator in Strategic Arms Reduction Talks
(START) with former Soviet Union and U.S. Ambassador to the Federal
Republic of Germany, 1985-1991.
*RICHARD T. HALE, Director (7/17/45)
Managing Director, Deutsche Asset Management Americas; Director and
President, Investment Company Capital Corp. (registered investment
advisor); Director, BT Family of Funds; and Chartered Financial
Analyst. Formerly, Director, ISI Family of Funds (registered investment
companies)
<PAGE>
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, Wit Capital Group (registered
broker-dealer), The Nevis Fund (registered investment company), and ISI
Family of Funds (registered investment companies). Formerly, Director,
Circon Corp. (medical instruments), President and Chief Executive
Officer, The National Association of Securities Dealers, Inc. and The
NASDAQ Stock Market, Inc., 1987-1997; Chief Operating Officer 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), Household
International (banking and finance) and ISI Family of Funds (registered
investment companies). Formerly, Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants,
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
Treasurers Trust (registered investment company), DP Mann Holdings
(insurance) and ISI Family of Funds (registered investment companies).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, Pennsylvania 19103-7017. President and Chief
Executive Officer, The Pew Charitable Trusts; Director and Executive
Vice President, The Glenmede Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts and ISI Family of Funds (registered
investment companies).
ROBERT H. WADSWORTH, Director (1/29/40)
4455 E. Camelback Road, Suite 261 E., Phoenix, Arizona 85018.
President, The Wadsworth Group (registered investment advisor), First
Fund Distributors, Inc. (registered broker-dealer) and Guinness Flight
Investments Funds, Inc.; Director, The Germany Fund, Inc., The Central
European Equity Fund, Inc., Deutsche Funds, Inc., Trustee, Deutsche
Portfolios, and Vice President, Professionally Managed Portfolios and
Advisors Series Trust (registered investment companies).
<PAGE>
Officers Of The Fund
CARL W. VOGT, Esq., President (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). Formerly,
Director of 12 Funds in the Fund Complex (registered investment
companies)
CHARLES A. RIZZO, TREASURER (8/5/57)
One South Street, Baltimore, Maryland 21202. Vice President and
Department Head, Deutsche Asset Management Americas since 1999; and
Vice President and Department Head, BT Alex. Brown Incorporated,
1998-1999. Formerly, Senior Manager, PricewaterhouseCoopers LLP
1993-1998.
AMY M. OLMERT, Secretary (5/14/63)
BT Alex. Brown Incorporated, One South Street, Baltimore, Maryland
21202. Vice President, Deutsche Asset Management Americas, since 1999;
and Vice President, BT Alex. Brown Incorporated, 1997-1999. Formerly,
Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP) 1988-1997.
DANIEL O. HIRSCH, ASSISTANT SECRETARY (3/27/54)
One South Street, Baltimore, Maryland 21202. Director, Deutsche Asset
Management Americas, 1998-Present. Formerly, Assistant General Counsel,
United States Securities and Exchange Commission, 1993-1998.
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 [14] funds in the Flag Investors Funds and Deutsche Banc 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. Mr. Hale serves as Chairman of [three] funds and as a Director of
[eight] funds in the Fund Complex. Messrs. Hardiman, Levy, McDonald and Ms.
Rimel serve as Directors of each of the funds in the Fund Complex. Messrs. Burt
and Wadsworth serve as Directors of each Fund in the Complex. Mr. Vogt serves as
President of [7] funds in the Fund Complex. Ms. Olmert serves as Secretary, Mr.
Rizzo serves as Treasurer and Mr. Hirsch serves as Assistant Secretary for
[eight] of the funds in the Fund Complex. Prior to September 28, 1999, the Fund
Complex included four funds in the ISI Family of Funds.
<PAGE>
Trustees of the Portfolio
CHARLES P. BIGGAR, Trustee (10/13/30)
Trustee of each of the other investment companies in the BT Fund
Complex(1); Retired; former Vice President, International Business
Machines ("IBM") and President, National Services and the Field
Engineering Divisions of IBM. His address is 12 Hitching Post Lane,
Chappaqua, New York 10514.
S. LELAND DILL, Trustee (1/28/30)
Trustee of each of the other investment companies in the BT Fund
Complex; Retired; Director, Coutts (U.S.A.) International; Trustee,
Phoenix-Zweig Trust(2) and Phoenix-Euclid Market Neutral Fund(2);
former Partner, KPMG Peat Marwick; Director, Vintners International
Company Inc.; Director, Coutts Trust Holdings Ltd., Director, Coutts
Group; General Partner, Pemco(2). His address is 5070 North Ocean
Drive, Singer Island, Florida 33404.
MARTIN J. GRUBER, Trustee (7/15/37)
Trustee of each of the other investment companies in the BT Fund
Complex; Nomura Professor of Finance, Leonard N. Stern School of
Business, New York University (since 1964); Trustee, TIAA(2); Trustee,
SG Cowen Mutual Funds(2); Trustee, Japan Equity Fund(2); Trustee,
Taiwan Equity Fund(2). His address is 229 South Irving Street,
Ridgewood, New Jersey 07450.
*RICHARD HALE, Trustee (7/17/45)
(See Above)
RICHARD J. HERRING, Trustee (2/18/46)
Trustee of each of the other investment companies in the BT Fund
Complex; Jacob Safra Professor of International Banking, Professor of
Finance and Vice Dean, The Wharton School, University of Pennsylvania
(since 1972). His address is 325 South Roberts Road, Bryn Mawr,
Pennsylvania 19010.
BRUCE E. LANGTON, Trustee (5/10/31)
Trustee of each of the other investment companies in the BT Fund
Complex; Retired; Trustee, Allmerica Financial Mutual Funds
(1992-present); Member, Pension and Thrift Plans and Investment
Committee, Unilever U.S. Corporation (1989 to present)(3); Director,
- ----------
(1) The "BT Fund Complex" consists of BT Investment Funds, BT Institutional
Funds, BT Pyramid Mutual Funds, BT Advisor Funds, Cash Management Portfolio,
Intermediatge Tax Free Portfolio, Tax Free Money Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity 500
Index Portfolio, Capital Appreciation Portfolio, Asset Management Portfolio and
BT Investment Portfolios.
(2) An investment company registered under the Investment Company Act of 1940,
as amended (the "Act").
<PAGE>
TWA Pilots Directed Account Plan and 401(k) Plan (1988 to present)(2).
His address is 99 Jordan Lane, Stamford, Connecticut 06903.
PHILIP SAUNDERS, JR., Trustee (10/11/35)
Trustee of each of the other investment companies in the BT Fund
Complex; Principal, Philip Saunders Associates (Economic and Financial
Analysis); former Director, Financial Industry Consulting, Wolf &
Company; President, John Hancock Home Mortgage Corporation; Senior Vice
President of Treasury and Financial Services, John Hancock Mutual Life
Insurance Company, Inc. His address is 445 Glen Road, Weston,
Massachusetts 02193.
HARRY VAN BENSCHOTEN, Trustee (2/18/28)
Trustee of each of the other investment companies in the BT Fund
Complex; Retired; Director, Canada Life Insurance Corporation of New
York. His address is 6581 Ridgewood Drive, Naples, Florida 34108.
Officers Of The Portfolio
JOHN A. KEFFER, PRESIDENT AND CHIEF EXECUTIVE OFFICER (7/14/42)
President, Forum Financial Group L.L.C. and its affiliates; President,
ICC Distributors, Inc.(1) His address is ICC Distributors, Inc., Two
Portland Square, Portland, Maine 04101.
DANIEL O. HIRSCH, SECRETARY (3/27/54)
(See Above)
CHARLES A. RIZZO, TREASURER (8/5/57)
(See Above)
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.
- ----------
(3) A publicly held company with securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended.
(1) Underwriter/distributor for the Fund. Mr. Keffer owns 100% of the shares of
ICC Distributors, Inc.
<PAGE>
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 Advisor 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. Vogt,
the Fund's President effective October 7, 1999, 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, 1999, 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, 1999.
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Total Compensation
Compensation From Pension or From the Fund and Fund
the Fund for the Retirement Benefits Complex payable to Directors
Name of Fiscal Year Ended Accrued as Part of for the Fiscal Year Ended
Person, Position October 31, 1999 Fund Expenses October 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Truman T. Semans(1) $0 $0 $0
Chairman
Richard R. Burt(2) $0 $0 $0
Director
Richard T. Hale(1,10) $0 $0 $0
Director
James J. Cunanne(4) $__(5) (6) $39,000 for service on 12 Boards in
Director the Fund Complex
Joseph R. Hardiman(7) $__(5) (6) $39,000 for service on 12 Boards in
Director the Fund Complex
John F. Kroeger(8) $__(5) (6) $ _____ for service on 12 Boards in
Director the Fund Complex
Louis E. Levy $__(5) (6) $44,000 for service on 12 Boards in
Director the Fund Complex
Eugene J. McDonald $__(5) (6) $39,000 for service on 12 Boards in
Director the Fund Complex
Carl W. Vogt, Esq.(9) $__(5) (6) $39,000 for service on 12 Boards in
Director the Fund Complex
Rebecca W. Rimel(10) $0
Director
Robert H. Wadsworth(2) $0 $0 $0
Director
</TABLE>
- ----------
(1) A director who is an "interested person" as defined in the Investment
Company Act.
(2) Elected to the Fund's Board effective October 7, 1999.
(3) Resigned effective November 26, 1998.
(4) Retired effective October 7, 1999.
(5) 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, 1999.
(6) 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, 1999 was approximately $____.
(7) Elected to the Fund's Board on January 22, 1999.
(8) Deceased November 26, 1998.
(9) Retired as Fund Director effective October 7, 1999.
(10) Elected to the Fund's Board on December 15, 1999.
<PAGE>
The following table shows aggregate compensation and retirement benefits
payable to each of the Portfolio's Trustees by the International Equity
Portfolio and the BT Fund Complex, respectively, for the twelve months ended
October 31, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Compensation From Compensation From the BT
International Equity Portfolio Fund Complex for the Twelve
Name of Person, for the Twelve Months Ended Months Ended
Position October 31, 1999 October 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles P. Biggar, Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
S. Leland Dill, Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
Martin J. Gruber, Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
Richard T. Hale, Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
Richard J. Herring, Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
Bruce E. Langton, Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
Philip Saunders, Jr., Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
Harry Van Benschoten, Trustee $___ $___
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors and former Directors serving as a Fund President, 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 another Director, 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. Mr. McDonald has qualified for, but has not received, benefits.
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
<PAGE>
service, as described above. The approximate credited years of service at
December 31, 1999, are as follows: for Mr. Levy, 5 years; for Mr. McDonald, 7
years; for Ms. Rimel and Mr. Vogt, 4 years; for Mr. Hardiman, 1 year; and for
Messrs. Burt and Wadsworth, 0 years.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon
- -------------------------------------------------------------------------------------------------------------------------
Chairmen of Audit and
Executive Committees Other Participants
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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., Levy, McDonald and Vogt have each executed a Deferred Compensation
Agreement. Currently, the deferring Directors may select from among various Flag
Investors funds, Deutsche Banc 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 the 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
<PAGE>
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, 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 Advisor and the Distributor may comply with codes
instituted by those entities so long as they contain similar requirements and
restrictions.
INVESTMENT ADVISORY AND OTHER SERVICES
Bankers Trust is the Portfolio's investment advisor. Bankers Trust is
the principal banking subsidiary of Bankers Trust Corporation. Bankers Trust
Corporation is a wholly owned subsidiary of Deutsche Bank. Deutsche Bank is a
banking company with limited liability organized under the laws of the Federal
Republic of Germany. Deutsche Bank is the parent company of a group consisting
of banks, capital markets companies, fund management companies, mortgage banks,
a property finance company, installment financing and leasing companies,
insurance companies, research and consultancy companies and other domestic and
foreign companies.
At a Special Meeting held on October 8, 1999, shareholders of the
Portfolio also approved a new investment advisory agreement with Morgan
Grenfell, Inc. As of October 5, 1999, Morgan Grenfell, Inc. has been renamed
Deutsche Asset Management Inc. ("DAMI"). The new investment advisory agreement
with DAMI may be implemented within two years of the date of the Special Meeting
upon approval of a majority of the members of the Board of Trustees of the
Portfolio who are not "interested persons" ("Independent Trustees").
Shareholders of the Portfolio also approved a new sub-investment advisory
agreement among each Fund or its portfolio, DAMI and Bankers Trust under which
Bankers Trust may perform certain of DAMI's responsibilities, at DAMI's expense,
upon approval of the Independent Trustees, within two years of the date of the
Special Meeting. DAMI is a subsidiary of Deutsche Asset Management Ltd., a
wholly owned subsidiary of Deutsche Morgan Grenfell Group PLC, an investment
holding company which is, in turn, a wholly owned subsidiary of Deutsche Bank.
The Portfolio did not pay any fees to Bankers Trust on behalf of the
Fund for the fiscal year ended October 31, 1999. Prior to January 15, 2000, ICC
served as the Fund's advisor and Glenmede Trust Company served as the Fund's
sub-advisor. 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:
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Year Ended October 31,
- ---------------------------------------------------------------------------------------------------------------
Fees Paid to: 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ICC $ $ 0(1) $ 1,461(2)
- ---------------------------------------------------------------------------------------------------------------
Glenmede $ $3,399 $77,150
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(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.
ICC serves as the Fund's administrator, transfer and dividend
disbursing agent and provides accounting services to the Fund. An affiliate of
ICC provides custody services to the Fund. (See "Administrator, Custodian,
Accounting Services, Transfer Agent.")
DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as the exclusive distributor of each class 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 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.
<PAGE>
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 (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 Plans of Distribution are
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 27, 1999.
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 Administrator 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 as described above
for the Class A Shares, ICC Distributors receives an annual fee, paid monthly
equal to 0.25% of the average daily net assets of the Class A Shares. With
<PAGE>
respect to Class A Shares, ICC Distributors expects to allocate up to all of its
fee to Participating Dealers and Shareholder Servicing Agents. As compensation
for providing distribution services as described above for the Class B Shares,
ICC Distributors receives an annual fee, paid monthly, equal to 0.75% of the
average daily net assets of the Class B Shares. As compensation for providing
distribution services as described above for Class C Shares, ICC Distributors
receives an annual fee, paid monthly, equal to 0.75% of the average daily net
assets of the Class C Shares. In addition, with respect to the Class B and Class
C Shares, ICC Distributors receives a shareholder servicing fee at an annual
rate of 0.25% of the respective average daily net assets of the Class B and the
Class C Shares. (See the Prospectus.) ICC Distributors receives no compensation
for distributing the Institutional Shares.
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:
<TABLE>
<CAPTION>
- ------------------------------- --------------------------------------------------------
Year Ended October 31,
- ------------------------------- ---------------- ---------------------- ----------------
<S> <C> <C> <C>
Fee 1999 1998 1997
- ------------------------------- ---------------- ---------------------- ----------------
12b-1 Fee(1) $ $32,998(2) $35,065(3)
- ------------------------------- ---------------- ---------------------- ----------------
Class B Service Fee(4) N/A N/A N/A
- ------------------------------- ---------------- ---------------------- ----------------
Class C Service Fee(4) N/A N/A N/A
- ------------------------------- ---------------- ---------------------- ----------------
</TABLE>
- ------------
(1) 12b-1 fees received from Class A Shares only.
(2) Fees received by ICC Distributors, the Fund's distributor.
(3) 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.
(4) Class B Shares and Class C Shares were not offered during the fiscal years
ended October 31, 1999, 1998 or 1997.
Pursuant to Rule 12b-1 under the Investment Company Act, 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 for each of its
classes of Shares (except the Institutional Shares) (the "Plans"). Under each
Plan, the Fund pays a fee to ICC Distributors for distribution and other
shareholder servicing assistance as set forth in the Distribution Agreement, and
ICC Distributors is authorized to make payments out of its fee to Participating
Dealers and Shareholder Servicing Agents. The Plans will remain in effect from
year to year thereafter, as specifically approved (a) at least annually by the
<PAGE>
Fund's Board of Directors 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. The Plans were most recently approved by the Fund's Board of Directors,
including a majority of the Independent Directors, on September 27, 1999.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans 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
applicable class. The Plans 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 applicable class' outstanding Shares (as defined
under "Capital Stock").
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
the payments made under the Plans 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 Plans, the
selection and nomination of the Fund's Independent Directors shall be committed
to the discretion of the Independent Directors then in office.
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,
- ------------------------- -------------------------------- ------------------------------- ---------------------------
1999 1998 1997
- ------------------------- --------------- ---------------- -------------- ---------------- ------------- -------------
Class Received Retained Received Retained Received Retained
- ------------------------- --------------- ---------------- -------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Class A Shares
Commissions $ $ $2,056(1) $ 0 $10,338(2) $9,938(3)
- ------------------------- --------------- ---------------- -------------- ---------------- ------------- -------------
Class B Shares
Contingent Deferred
Sales Charge(4) N/A N/A N/A N/A N/A N/A
- ------------------------- --------------- ---------------- -------------- ---------------- ------------- -------------
Class C Shares
Contingent Deferred
Sales Charge(4) N/A N/A N/A N/A N/A N/A
- ------------------------- --------------- ---------------- -------------- ---------------- ------------- -------------
</TABLE>
<PAGE>
(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) Class B Shares and Class C Shares were not offered during the fiscal years
ended October 31, 1999, 1998 or 1997.
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 or the Portfolio pays or causes to be paid all
continuing expenses of the Fund and the Portfolio, 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.
BROKERAGE
The Advisor is responsible for decisions to buy and sell securities,
futures contracts and options on such securities and futures for the Portfolio,
the selection of brokers, dealers and futures commission merchants to effect
transactions and the negotiation of brokerage commissions, if any.
Broker-dealers may receive brokerage commissions on portfolio transactions,
including options, futures and options on futures transactions and the purchase
<PAGE>
and sale of underlying securities upon the exercise of options. Orders may be
directed to any broker-dealer or futures commission merchant, including to the
extent and in the manner permitted by applicable law, Bankers Trust or its
subsidiaries or affiliates. Purchases and sales of certain portfolio securities
on behalf of a Portfolio are frequently placed by the Advisor with the issuer or
a primary or secondary market-maker for these securities on a net basis, without
any brokerage commission being paid by the Portfolio. Trading does, however,
involve transaction costs. Transactions with dealers serving as market-makers
reflect the spread between the bid and asked prices. Transaction costs may also
include fees paid to third parties for information as to potential purchasers or
sellers of securities. Purchases of underwritten issues may be made which will
include an underwriting fee paid to the underwriter.
The Advisor seeks to evaluate the overall reasonableness of the
brokerage commissions paid (to the extent applicable) in placing orders for the
purchase and sale of securities for the Portfolio taking into account such
factors as price, commission (negotiable in the case of national securities
exchange transactions), if any, size of order, difficulty of execution and skill
required of the executing broker-dealer through familiarity with commissions
charged on comparable transactions, as well as by comparing commissions paid by
the Portfolio to reported commissions paid by others. The Advisor reviews on a
routine basis commission rates, execution and settlement services performed,
making internal and external comparisons.
The Advisor is authorized, consistent with Section 28(e) of the
Securities Exchange Act of 1934, as amended, when placing portfolio transactions
for the Portfolio with a broker to pay a brokerage commission (to the extent
applicable) in excess of that which another broker might have charged for
effecting the same transaction on account of the receipt of research, market or
statistical information. The term "research, market or statistical information"
includes advice as to the value of securities; the advisability of investing in,
purchasing or selling securities; the availability of securities or purchasers
or sellers of securities; and furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts.
Consistent with the policy stated above, the Rules of Fair Practice of
the National Association of Securities Dealers, Inc. and such other policies as
the Trustees of the Portfolio may determine, the Advisor may consider sales of
shares of the Fund and of other investment company clients of Bankers Trust as a
factor in the selection of broker-dealers to execute portfolio transactions.
Bankers Trust will make such allocations if commissions are comparable to those
charged by nonaffiliated, qualified broker-dealers for similar services.
Higher commissions may be paid to firms that provide research services
to the extent permitted by law. Bankers Trust may use this research information
in managing the Portfolio's assets, as well as the assets of other clients.
<PAGE>
Except for implementing the policies stated above, there is no
intention to place portfolio transactions with particular brokers or dealers or
groups thereof. In effecting transactions in over-the-counter securities, orders
are placed with the principal market-makers for the security being traded
unless, after exercising care, it appears that more favorable results are
available otherwise.
Although certain research, market and statistical information from
brokers and dealers can be useful to the Portfolio and to the Advisor, it is the
opinion of the management of the Portfolio that such information is only
supplementary to the Advisor's own research effort, since the information must
still be analyzed, weighed and reviewed by the Advisor's staff. Such information
may be useful to the Advisor in providing services to clients other than the
Portfolio, and not all such information is used by the Advisor in connection
with the Portfolio. Conversely, such information provided to the Advisor by
brokers and dealers through whom other clients of the Advisor effect securities
transactions may be useful to the Advisor in providing services to the
Portfolio.
In certain instances there may be securities which are suitable for the
Portfolio as well as for one or more of the Advisor's other clients. Investment
decisions for the Portfolio and for the Advisor's other clients are made with a
view to achieving their respective investment objectives. It may develop that a
particular security is bought or sold for only one client even though it might
be held by, or bought or sold for, other clients. Likewise, a particular
security may be bought for one or more clients when one or more clients are
selling that same security. Some simultaneous transactions are inevitable when
several clients receive investment advice from the same investment advisor,
particularly when the same security is suitable for the investment objectives of
more than one client. When two or more clients are simultaneously engaged in the
purchase or sale of the same security, the securities are allocated among
clients in a manner believed to be equitable to each. It is recognized that in
some cases this system could have a detrimental effect on the price or volume of
the security as far as the Portfolio is concerned. However, it is believed that
the ability of the Portfolio to participate in volume transactions will produce
better executions for the Portfolio.
Prior to January 15, 2000, ICC served as the Fund's advisor and
Glenmede Trust Company served as the Fund's sub-advisor. ICC directed
transactions to broker-dealers and paid related commissions because of research
services in the following amounts:
<TABLE>
<CAPTION>
- ------------------------------- -----------------------------------------------------------------------------
Fiscal Year Ended October 31,
- ------------------------------- ---------------- ------------------------------ -----------------------------
1999 1998 1997
- ------------------------------- ---------------- ------------------------------ -----------------------------
<S> <C> <C>
Transactions Directed $ $9,557,179 $6,272,458
- ------------------------------- ---------------- ------------------------------ -----------------------------
Commissions Paid $ 22,749 16,973
- ------------------------------- ---------------- ------------------------------ -----------------------------
</TABLE>
<PAGE>
Prior to January ___, 1999, subject to the above considerations, the
Board of Directors has authorized the Fund to effect portfolio transactions
through the Advisor or its 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, 1999, 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, 1999,
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."
CAPITAL STOCK
Under the Fund's Articles of Incorporation, the Fund has 28 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 three classes of shares: Flag Investors International Equity Fund
Class A Shares (formerly known as the Flag Investors International Fund Class A
Shares) and Flag Investors International Equity Fund Class B Shares and Flag
Investors Class C Shares. 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.
<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.
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 accountants.
ADMINISTRATOR, CUSTODIAN, ACCOUNTING SERVICES AND TRANSFER AGENT
Under the Master Services Agreements, ICC is obligated on a continuous
basis to provide such administrative services as the Board of Directors of the
Fund reasonably deems necessary for the proper administration of the Fund. ICC
will generally assist in all aspects of the Fund's operations; supply and
maintain office facilities (which may be in ICC's own offices), statistical and
research data, data processing services, clerical, accounting, bookkeeping and
recordkeeping services (including without limitation the maintenance of such
books and records as are required under the 1940 Act and the rules thereunder,
except as maintained by other agents of the Fund), internal auditing, executive
and administrative services, and stationery and office supplies; prepare reports
to shareholders or investors; prepare and file tax returns; supply financial
information and supporting data for reports to and filings with the SEC and
various state Blue Sky authorities, if applicable; supply supporting
documentation for meetings of the Board of Directors; provide monitoring reports
and assistance regarding compliance with the Fund's Articles of Incorporation,
<PAGE>
by-laws, investment objectives and policies and with applicable federal and
state securities laws; arrange for appropriate insurance coverage; calculate the
NAV, net income and realized capital gains or losses of the Fund; and negotiate
arrangements with, and supervise and coordinate the activities of, agents and
others retained to supply services.
Bankers Trust Company ("Bankers Trust") 130 Liberty Street, New York,
New York 10006, has been retained to act as custodian of the Fund's and the
Portfolio's assets. Bankers Trust has presented information to the Portfolio's
Board of Directors regarding any non-branch correspondent institutions with
which it may enter into agreements to hold the Portfolio'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 Portfolio 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 fiscal year ended October 31, 1999, Bankers Trust was paid
$[_____] 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, 1999, such fees totaled $[_____].
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.
<TABLE>
<CAPTION>
Average Daily Net Assets Incremental Annual Accounting Fee
------------------------ ---------------------------------
<S> <C> <C> <C>
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%
</TABLE>
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, 1999, ICC received
accounting fees of $[____].
<PAGE>
INDEPENDENT ACCOUNTANTS
The independent auditor for the Fund is PricewaterhouseCoopers LLP
located at 250 West Pratt Street, Suite 2100, Baltimore, Maryland 21201. For the
fiscal years ended October 31, 1994 through October 31, 1999, the annual
financial statements of the Fund were 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.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
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.
<PAGE>
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:
<TABLE>
<CAPTION>
- ----------------------------- ------------------------------ ------------------------------- ----------------------------
One-Year Period Five-Year Period Ten-Year Period
Ended October 31, 1999 Ended October 31, 1999 Ended October 31, 1999
- ----------------------------- ------------------------------ ------------------------------- ----------------------------
Ending Ending
Ending Total Redeemable Total Redeemable Total
Class Redeemable Value Return Value Return Value Return
- ----------------------------- ----------------- ------------ ---------------- -------------- ---------------- -----------
Class A
<S> <C> <C> <C> <C> <C> <C>
*November 18, 1996 ___% ___% ___% ___% ___% ___%
- ----------------------------- ----------------- ------------ ---------------- -------------- ---------------- -----------
Class B
*January ___, 2000 N/A N/A N/A N/A N/A N/A
- ----------------------------- ----------------- ------------ ---------------- -------------- ---------------- -----------
Class C
*January ____, 2000 N/A N/A N/A N/A N/A N/A
- ----------------------------- ----------------- ------------ ---------------- -------------- ---------------- -----------
</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
<PAGE>
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 1999
was [___]%, in fiscal year 1998 was 27% and in fiscal year 1997 was 21%.
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 November 10,
1999.
<TABLE>
<CAPTION>
Name and Address Owned of Record Beneficially Owned Percentage Owned
---------------- --------------- ------------------ ----------------
<S> <C>
BT Alex. Brown x x 6.46%
Incorporated
FBO 201 70188 19
POB 1346
Baltimore MD 21203
John J Higgins TR x x 5.69%
U/A 6/24/96
Fairfield Jesuit Community Corp
c/o Fairfield University
St. Ignatius Hall
Fairfield CT 06430
BT Alex. Brown x x 5.09%
Incorporated
FBO 201 70188 19
POB 1346
Baltimore MD 21203
</TABLE>
The Directors and executive officers as a group (nine persons)
beneficially owned 3.49% of the Fund's total outstanding Shares, as of
November 10, 1999.
<PAGE>
FINANCIAL STATEMENTS
See next page.
<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.
(4) Articles Supplementary dated July 21, 1999, to be filed by amendment.
(5) Articles Supplementary September 28, 1999, to be filed by amendment.
(6) Form of Articles of Amendment to change Fund's name, to be filed by
amendment.
(b)(1) 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.
(2) By-Laws as amended through July 28, 1999, to be filed by amendment.
(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) Not Applicable.
(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.
<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, incorporated by reference to Exhibit (g) to Post-Effective
Amendment No. 19 to Registrant's registration statement on Form N-1A
(Registration No. 33-8479) filed with the Securities and Exchange
Commission on December 30, 1998.
(h)(1) 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.
(2) Master Services Agreement between Registrant and Investment Company
Capital Corp., with Appendices for the provision of Administration,
Transfer Agency and Accounting Services, to be filed by amendment.
(3) Expense Limitation Agreement dated March 1, 1999, incorporated by
reference to Exhibit (d)(3) to Post-Effective Amendment No. 19 to
Registrant's registration statement on Form N-1A (Registration No.
33-8479) filed with the Securities and Exchange Commission on December
30, 1998.
(4) Expense Limitation Agreement, to be filed by amendment.
(i) Opinion of Counsel, to be filed by amendment.
(j)(1) Consent of Deloitte & Touche LLP, to be filed by amendment.
(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.
<PAGE>
(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.
(3) Distribution Plan with respect to Flag Investors International Equity
Class B Shares, to be filed by amendment.
(4) Distribution Plan with respect to Flag Investors International Equity
Class C Shares, to be filed by amendment.
(n) Not Applicable
(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.
(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, incorporated by reference to Exhibit (o)(3) to
Post-Effective Amendment No. 19 to Registrant's registration statement on
Form N-1A (Registration No. 33-8479) filed with the Securities and
Exchange Commission on December 30, 1998.
(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.
<PAGE>
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 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
<PAGE>
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. Effective on or about January 18, 2000, the Fund will
convert to a feeder fund and will have no investment advisor. Bankers Trust
Company serves as the investment advisor to the master portfolio in which the
Fund will invest.
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 Deutsche Banc Alex. Brown
Cash Reserve Fund, Inc. (formerly known as 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., Flag Investors Equity Partners Fund, Inc., Flag Investors Funds, Inc.
(formerly known as Deutsche Funds, Inc.), Flag Investors Portfolio Trust
(formerly known as Deutsche Portfolios), BT Advisor Funds, BT Institutional
Funds, BT Investment Funds, BT Pyramid Mutual Funds, BT Investment Portfolios,
Cash Management Portfolio, Intermediate Tax Free Portfolio, Tax Free Money
Portfolio, NY Tax Free Money Portfolio, Treasury Money Portfolio, International
Equity Portfolio, Equity 500 Index Portfolio, Capital Appreciation Portfolio,
Asset Management Portfolio, and Morgan Grenfell Investment Trust , all
registered open-end management investment companies.
<PAGE>
(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
Ronald H. Hirsch Treasurer None
Nanette K. Chern Chief Compliance Officer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Frederick Skillin Assistant Treasurer None
Marc D. Keffer Assistant Secretary 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 administrator, 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 Bankers Trust Company, 130 Liberty Street, New York,
New York 10006 relating to its functions as the Registrant's custodian and the
investment advisor to the Master Portfolio, the records maintained by ICC
Distributors, Inc., Two Portland Square, Portland, Maine 04101 relating to its
functions as the Registrant's distributor. Prior to January 18, 2000, ICC served
as investment advisor and The Glenmede Trust Company served as sub-advisor to
the Registrant and maintain physical possession of relevant records relating to
that time period.
In particular, with respect to the records required by Rule 31a-1(b)(1),
ICC and Bankers Trust Company 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
also 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.
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned thereto
duly authorized in the City of Baltimore, in the State of Maryland, on the 16th
day of November, 1999.
FLAG INVESTORS INTERNATIONAL FUND, INC.
By: /s/ Daniel O. Hirsch
-----------------------------------
Daniel O. Hirsch
Assistant Secretary
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:
/s/ Truman T. Semans* Chairman and Director November 16, 1999
- ------------------------
Truman T. Semans
/s/ Richard R. Burt* Director November 16, 1999
- ------------------------
Richard R. Burt
/s/ Joseph R. Hardiman* Director November 16, 1999
- ------------------------
Joseph R. Hardiman
/s/ Louis E. Levy* Director November 16, 1999
- ------------------------
Louis E. Levy
/s/ Eugene J. McDonald* Director November 16, 1999
- ------------------------
Eugene J. McDonald
/s/ Robert H. Wadsworth* Director November 16, 1999
- ------------------------
Robert H. Wadsworth
/s/ Carl Vogt, Esq.* President November 16, 1999
- ------------------------
Carl Vogt, Esq.
/s/ Charles A. Rizzo* Chief Financial November 16, 1999
- ------------------------ and Accounting Officer
Charles A. Rizzo
By: /s/Daniel O. Hirsch
-------------------
Daniel O. Hirsch
Attorney-In-Fact
* By Power of Attorney - filed herewith.
<PAGE>
SIGNATURES
INTERNATIONAL EQUITY PORTFOLIO has duly caused this Post Effective
Amendment No. 20 to the Registration Statement on Form N-1A of Flag Investors
International Equity Fund, Inc. to be signed on their behalf by the undersigned,
duly authorized, in the City of Baltimore and the State of Maryland on the 16th
day of November, 1999.
INTERNATIONAL EQUITY PORTFOLIO
By: /s/ Daniel O. Hirsch
---------------------------
Daniel O. Hirsch, Secretary
November 16, 1999
This Post Effective Amendment No. 20 to the Registration Statement of
Flag Investors International Equity Fund, Inc. has been signed below by the
following persons in the capacities indicated with respect to INTERNATIONAL
EQUITY PORTFOLIO.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
/s/ Daniel O. Hirsch Secretary November 16, 1999
Daniel O. Hirsch (Attorney in Fact for the
Persons Listed Below)
/s/ JOHN Y. KEFFER* President and
John Y. Keffer Chief Executive Officer
/s/ CHARLES A. RIZZO* Treasurer (Principal
Charles A. Rizzo Financial and Accounting Officer)
/s/ CHARLES P. BIGGAR* Trustee
Charles P. Biggar
/s/ S. LELAND DILL* Trustee
S. Leland Dill
/s/ MARTIN J. GRUBER* Trustee
Martin J. Gruber
/s/ RICHARD T. HALE* Trustee
Richard T. Hale
/s/ RICHARD J. HERRING* Trustee
Richard J. Herring
/s/ BRUCE E. LANGTON* Trustee
Bruce E. Langton
/s/ PHILIP SAUNDERS, JR.* Trustee
Philip Saunders, Jr.
/s/ HARRY VAN BENSCHOTEN* Trustee
Harry Van Benschoten
By Power of Attorney - filed herewith.
</TABLE>
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard R. Burt, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Richard R. Burt
---------------------------
Richard R. Burt
Date: October 25, 1999
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, 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/Joseph R. Hardiman
---------------------------
Joseph R. Hardiman
Date: October 25, 1999
<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,
Amy M. Olmert and Daniel O. Hirsch, 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: October 25, 1999
<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,
Amy M. Olmert and Daniel O. Hirsch, 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: October 25, 1999
<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,
Amy M. Olmert and Daniel O. Hirsch, 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/Truman T. Semans
---------------------------
Truman T. Semans
Date: October 25, 1999
<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, Amy M.
Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors International
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Carl W. Vogt
---------------------------
Carl W. Vogt
Date: October 25, 1999
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Robert H. Wadsworth, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, 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/Robert H. Wadsworth
---------------------------
Robert H. Wadsworth
Date: October 25, 1999
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles A. Rizzo, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, 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 Treasurer 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/Charles A. Rizzo
---------------------------
Charles A. Rizzo
Date: October 25, 1999
<PAGE>
Power of Attorney
This Power of Attorney will be contingent upon the election of the
Trustee nominees at the Special Shareholder Meetings to be held in September and
October 1999.
The undersigned Trustees and officers, as indicated respectively below,
of BT Investment Funds, BT Institutional Funds, BT Pyramid Mutual Funds, and BT
Advisor Funds (each, a "Trust") and Cash Management Portfolio, Treasury Money
Portfolio, Tax Free Money Portfolio, NY Tax Free Money Portfolio, International
Equity Portfolio, Equity 500 Index Portfolio, Asset Management Portfolio,
Capital Appreciation Portfolio, Intermediate Tax Free Portfolio, and BT
Investment Portfolios (each, a "Portfolio Trust") each hereby constitutes and
appoints the Secretary, each Assistant Secretary and each authorized signatory
of each Trust and each Portfolio Trust, each of them with full powers of
substitution, as his true and lawful attorney-in-fact and agent to execute in
his name and on his behalf in any and all capacities the Registration Statements
on Form N-1A, and any and all amendments thereto, and all other documents, filed
by a Trust or a Portfolio Trust with the Securities and Exchange Commission (the
"SEC") under the Investment Company Act of 1940, as amended, and (as applicable)
the Securities Act of 1933, as amended, and any and all instruments which such
attorneys and agents, or any of them, deem necessary or advisable to enable the
Trust or Portfolio Trust to comply with such Acts, the rules, regulations and
requirements of the SEC, and the securities or Blue Sky laws of any state or
other jurisdiction and to file the same, with all exhibits thereto and other
documents in connection therewith, with the SEC and such other jurisdictions,
and the undersigned each hereby ratifies and confirms as his own act and deed
any and all acts that such attorneys and agents, or any of them, shall do or
cause to be done by virtue hereof. Any one of such attorneys and agents has, and
may exercise, all of the powers hereby conferred. The undersigned each hereby
revokes any Powers of Attorney previously granted with respect to any Trust or
Portfolio Trust concerning the filings and actions described herein.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand
as of the 8th day of September, 1999.
SIGNATURES TITLE
- ---------- -----
/s/ John Y. Keffer President and Chief Executive Officer of each Trust
John Y. Keffer and Portfolio Trust
/s/ Charles A. Rizzo Treasurer (Principal Financial and Accounting
Charles A. Rizzo Officer) of each Trust and
Portfolio Trust
/s/ Charles P. Biggar Trustee of each Trust and Portfolio Trust
Charles P. Biggar
/s/ S. Leland Dill Trustee of each Trust and Portfolio Trust
S. Leland Dill
/s/ Richard T. Hale Trustee of each Trust and Portfolio Trust
Richard T. Hale
/s/ Richard J. Herring Trustee of each Trust and Portfolio Trust
Richard J. Herring
/s/ Bruce E. Langton Trustee of each Trust and Portfolio Trust
Bruce E. Langton
/s/ Martin J. Gruber Trustee of each Trust and Portfolio Trust
Martin J. Gruber
/s/ Philip Saunders, Jr. Trustee of each Trust and Portfolio Trust
Philip Saunders, Jr.
/s/ Harry Van Benschoten Trustee of each Trust and Portfolio Trust
Harry Van Benschoten
