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[GRAPHIC OMITTED]
International Fund, Inc.
(Class A Shares)
Prospectus & Application -- March 1, 1999, as
supplemented through March 31, 1999
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This mutual fund (the "Fund") seeks long-term growth of capital primarily
through investment in a diversified portfolio of common stocks of issuers
located outside of the United States.
The Fund offers shares through securities dealers and through financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") of the Fund.
TABLE OF CONTENTS
Investment Summary ......................... 1
Fees and Expenses of the Fund .............. 2
Investment Program ......................... 3
The Fund's Net Asset Value ................. 4
How to Buy Shares .......................... 4
How to Redeem Shares ....................... 5
Telephone Transactions ..................... 5
Sales Charges .............................. 6
Dividends and Taxes ........................ 8
Investment Advisor and Sub-Advisor ......... 8
Financial Highlights ....................... 10
Application ................................ A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
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The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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INVESTMENT SUMMARY
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Objectives and Strategies
The Fund's investment objective is long-term growth of capital. The Fund
seeks to achieve this objective by investing primarily in common stocks of
companies located outside of the United States. The Fund's investment advisor
and sub-advisor use a disciplined, value-based approach in allocating the
Fund's assets among geographic regions and countries and in selecting
individual securities. Using this approach, they compare foreign securities
markets and individual securities within each market on the basis of value,
quality, and prospective earnings potential.
Risk Profile
The Fund is suited for you if you are willing to accept the increased
risks of foreign investing in the hope of achieving above-average long-term
growth of capital.
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. An investment
in the Fund could lose money.
Political Risk. Foreign investing may entail different risks than
investing in the United States. The prices of foreign securities may be
affected by news or events unique to a country or region.
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.
An investment in the Fund is not a bank deposit and is not guaranteed by
the FDIC or any other government agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in
the Fund. This is an historical record and does not necessarily indicate how
the Fund will perform in the future.
[CHART OMITTED]
1989 24.43%
1990 -19.97%
1991 4.17%
1992 -10.31%
1993 50.34%
1994 -7.40%
1995 5.30%
1996 15.09%
1997 8.63%
1998 13.93%
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* 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 18.65% (quarter ended 12/31/93) and the lowest return for a quarter
was -20.79% (quarter ended 9/30/90).
Average Annual Total Return (for periods ended December 31, 1998)
<TABLE>
<CAPTION>
Morgan Stanley Capital
International Europe,
Australasia, Far East
Class A Shares(1) (EAFE) Index(R)(2)
----------------------------- -----------------------
<S> <C> <C>
Past One Year ........... 8.81% 20.00%
Past Five Years ......... 5.81% 9.19%
Past Ten Years .......... 6.38% 5.54%
Since Inception ......... 7.59%(11/18/86) 9.17%(3)
</TABLE>
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(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Morgan Stanley Capital International EAFE Index is an unmanaged index
that is widely recognized as a benchmark of general international equity
performance. The index is a passive measure of international stock
performance. It does not factor in the costs of buying, selling and holding
securities -- costs which are reflected in the Fund's results.
(3) For the period from 11/30/86 through 12/31/98.
1
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FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and hold
Class A Shares.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses (fees paid directly from your investment):
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) ........................................... 4.50%*
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price
or redemption proceeds, whichever is lower)
For purchases made before May 1, 1999 ....................................... 0.50%*
For purchases made on or after May 1, 1999 .................................. 1.00%*
Maximum Sales Charge (Load) Imposed on Reinvested Dividends .................... None
Redemption Fee ................................................................. None
Exchange Fee ................................................................... None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees ................................................................ 0.75%
Distribution and/or Service (12b-1) Fees ....................................... 0.25%
Other Expenses ................................................................. 1.78%
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Total Annual Fund Operating Expenses ........................................... 2.78%
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Less Fee Waivers and Expense Reimbursements .................................... (1.28)%**
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Net Expenses ................................................................... 1.50%
======
</TABLE>
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* You will pay no sales charge on purchases of $1 million or more of Class A
Shares but, unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem
your shares. (See "Sales Charges -- Redemption Price.")
** The Fund's advisor has contractually agreed to limit its fees and reimburse
expenses to the extent necessary so that the Fund's Total Annual Fund
Operating Expenses do not exceed 1.50% of the Fund's average daily net
assets. This agreement will continue until at least February 29, 2000 and
may be extended.
Example:
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Class A Shares for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Class A Shares .......... $ 596* $ 1,165* $ 1,774* $ 3,495*
</TABLE>
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* Based on Total Annual Fund Operating Expenses after fee waivers and
reimbursements for year 1 only.
Assuming no redemption, expenses for Class A Shares would be the same as
in the above Example.
Federal regulations require that the table above reflect the maximum sales
charge. However, you may qualify for reduced sales charges or no sales charge
at all. (Refer to the section on sales charges.) If you hold your shares for a
long time, the combination of the initial sales charge you paid and the
recurring 12b-1 fees may exceed the maximum sales charges permitted by the
Conduct Rules of the National Association of Securities Dealers, Inc.
2
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INVESTMENT PROGRAM
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Investment Objective, Policies and Risk Considerations
The Fund seeks long-term growth of capital primarily through investment
in a diversified portfolio of common stocks of issuers located outside of the
United States.
The Fund's investment advisor (the "Advisor") and the Fund's sub-advisor
(the "Sub-Advisor") (collectively, the "Advisors") are responsible for managing
the Fund's investments. (Refer to the sections on Investment Advisor and
Sub-Advisor.) The Fund's assets will normally be invested primarily in common
stocks of companies located outside the United States. These securities will
normally be traded on a recognized foreign securities exchange. In selecting
investments for the Fund's portfolio, the Advisors use a disciplined,
value-based approach, that is, they seek stocks that are undervalued in the
marketplace. Using this approach, they compare foreign securities markets and
individual securities within each market on the basis of value, quality, and
prospective earnings potential. The Fund diversifies investments by issuer and
does not concentrate in any one industry. In selecting investments for the
Fund, the Advisors allocate investments among geographic regions and individual
issuers.
An investment in the Fund involves risk. Over time, common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be 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 will behave in the future. In addition,
investing in foreign markets may have different risks than investing in U.S.
markets. An investment in a foreign market may be affected by developments that
are unique to that market. These developments may not affect the U.S. economy
or the prices of U.S. securities in the same manner. Therefore, the prices of
foreign common stocks may, at times, move in a different direction than the
prices of U.S. common stocks. In addition, the Fund's investments are usually
denominated in the currencies of the countries in which they are traded. As a
result, the Fund may be affected by the changes in the value of foreign
currencies in relation to the value of the U.S. dollar. The value of a foreign
currency may change in response to events that do not affect the value of the
foreign investment in its home country. There can be no guarantee that the Fund
will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in money market instruments, investments
that would not ordinarily be consistent with the Fund's objectives. While
engaged in a temporary defensive strategy, the Fund may not achieve its
investment objective. The Advisors would follow such a strategy only if they
believed that the risk of loss outweighed the opportunity for gain.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have
their computer systems adjusted for the year 2000 transition, and 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 does business experience
difficulties as a result of year 2000 issues.
The Euro Conversion
On January 1, 1999, eleven countries of the European Economic and
Monetary Union (EMU) began implementing a plan to replace their national
currencies with a new currency, the euro. Full conversion to the euro is slated
to occur by July 1, 2002.
Although it is impossible to predict the impact of the conversion to the
euro on the Fund, the risks may include:
o changes in the relative strength and value of the U.S. dollar or other
major currencies;
o adverse effects on the business or financial condition of European
issuers that the Fund holds in its portfolio;
o that the systems used to purchase and sell securities may not work;
o uncertainty about how existing financial contracts will be treated
after euro implementation; and
o unpredictable effects on trade and commerce generally.
These and other factors could increase volatility in financial markets
worldwide and could adversely affect the value of securities held by the Fund.
3
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THE FUND'S NET ASSET VALUE
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The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Class A Shares,
the price you pay may be increased by a sales charge. When you redeem Class A
Shares, the amount you receive may be reduced by a sales charge. Read the
section on sales charges for details on how and when these charges may or may
not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. It is calculated by
subtracting the Fund's liabilities from its assets and dividing the result by
the Fund's outstanding shares.
In valuing the Fund's assets, its investments are priced at their market
value. When price quotes for a particular security are not readily available,
investments are priced at their "fair value" using procedures approved by the
Fund's Board of Directors.
You may buy or redeem Class A Shares on any day the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that
day, the price you pay or receive will be based on the next Business Day's net
asset value per share. Prices for securities that trade on foreign exchanges
can change significantly on days when the New York Stock Exchange is closed and
you cannot buy or sell Fund shares.
The following sections describe how to buy and redeem Class A Shares.
HOW TO BUY SHARES
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You may buy Class A Shares through your securities dealer or through any
financial institution that is authorized to act as a shareholder servicing
agent. Contact them for details on how to enter and pay for your order. You may
also buy Class A Shares by sending your check (along with a completed
Application Form) directly to the Fund. The Application Form, which includes
instructions, is attached to this Prospectus.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental
to the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may be
as low as $1,000.
o If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. If you participate in the
monthly plan, your subsequent investments may be as low as $100. If
you participate in the quarterly plan, your subsequent investments
may be as low as $250. Refer to the section on the Fund's Automatic
Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or
the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in Class A Shares. The amount you decide upon will be
withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in Class A Shares
at that day's offering price. Either you or the Fund may discontinue your
participation upon 30 days' notice.
4
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Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Class A Shares at
net asset value. You may elect to receive your distributions in cash or to have
your distributions invested in shares of other Flag Investors funds. To make
either of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase Class A Shares through a
Systematic Purchase Plan. Contact your securities dealer or servicing agent for
details.
HOW TO REDEEM SHARES
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You may redeem Class A Shares through your securities dealer or servicing
agent. Contact them for details on how to enter your order and for information
as to how you will be paid. If you have an account with the Fund that is in
your name, you may also redeem Class A Shares by contacting the Transfer Agent
by mail or (if you are redeeming less than $50,000) by telephone. The Transfer
Agent will mail your redemption check within seven days after it receives your
order in proper form. Refer to the section on telephone transactions for more
information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your Class A Shares:
1) A letter of instructions specifying your account number and the number of
Class A Shares or dollar amount you wish to redeem. The letter must be
signed by all owners of the Class A Shares exactly as their names appear
on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature by a
member of the Federal Deposit Insurance Corporation, a trust company, broker,
dealer, securities exchange or association, clearing agency, savings
association or (if authorized by state law) credit union.
3) Any stock certificates representing the Class A Shares you are redeeming.
The certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the name
of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on Class A Shares you redeem will be paid on the
next dividend payable date. If you have redeemed all of your Class A Shares by
that time, the dividend will be paid to you by check whether or not that is the
payment option you have selected.
If you redeem sufficient Class A Shares to reduce your investment to $500
or less, the Fund has the power to redeem the remaining shares after giving you
60 days' notice. The Fund reserves the right to redeem shares in kind under
certain circumstances.
If you own Class A Shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves all
the tax and sales charge implications normally associated with Fund
redemptions. Contact your securities dealer, your servicing agent or the
Transfer Agent for information on this plan.
TELEPHONE TRANSACTIONS
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If your Class A Shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $50,000 or exchange them for Class A Shares in
another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are
automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your
5
<PAGE>
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
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Purchase Price
The price you pay to buy Class A Shares will be the offering price which
is calculated by adding any applicable sales charges to the Class A Shares' net
asset value per share. The amount of any sales charge included in your purchase
price will be according to the following schedule:
Class A Sales Charge as % of
----------------------------
Offering Net Amount
Amount of Purchase Price Invested
- ------------------------------ ------------ -------------
Less than $ 50,000........... 4.50% 4.71%
$ 50,000 - $ 99,999......... 3.50% 3.63%
$ 100,000 - $249,999......... 2.50% 2.56%
$ 250,000 - $499,999......... 2.00% 2.04%
$ 500,000 - $999,999......... 1.50% 1.52%
$1,000,000 and over .......... None None
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Although you do not pay an initial sales charge when you invest $1,000,000
or more in Class A Shares, you may pay a sales charge when you redeem your
shares. Refer to the section on 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.
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 last 90 days.
2) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
3) If you are a current or retired Fund Director, a director, an employee or a
member of the immediate family of an employee of any of the following (or
their respective affiliates): the Fund's distributor, the Advisors or a
broker-dealer authorized to sell shares of the Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or securities
dealer purchasing shares on your behalf. To qualify for this provision
you must
6
<PAGE>
be paying an account management fee for the fiduciary or advisory
services. You may be charged an additional fee by your securities
dealer or servicing agent if you buy shares in this manner.
Purchases by Exchange
You may exchange Class A shares of any other Flag Investors fund with the
same sales charge structure for an equal dollar amount of Class A Shares
without payment of the sales charges described above or any other charge. If
you exchange Class A shares of any Flag Investors fund with a lower sales
charge structure into Class A Shares, you will be charged the difference in
sales charges unless (with the exception of Flag Investors Cash Reserve Prime
Class A Shares) you have owned the shares for at least 24 months. You may enter
both your redemption and purchase orders on the same Business Day or, if you
have already redeemed the shares of the other fund, you may enter your purchase
order within 90 days of the redemption. The Fund may modify or terminate these
offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price will
be determined according to the following schedule.
Sales Charge as a Percentage
of the Dollar Amount
Subject to Charge
Years Since Purchase (As % of Cost or Value)
- -------------------------------------------------------
First ................ 1.00%*
Second ............... 0.50%*
Thereafter ........... None
- -------------------------------------------------------
* You will pay a sales charge when you redeem Class A Shares only if you bought
those shares at net asset value as part of an investment of $1 million or
more. For purchases of $1 million or more of Class A Shares made before May 1,
1999, you will pay a sales charge of 0.50% if you redeem them within the first
year of purchase instead of the 1.00% reflected in the above table.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
3) If you acquired 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.
4) The sales charge is applied to the lesser of the cost of the shares or their
value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging Class A Shares for shares of another Flag Investors
fund with the same sales charge structure.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If your redemption represents a distribution from a Systematic Withdrawal
Plan. This waiver only applies if the annual withdrawals under your Plan
are 12% or less of your share balance.
4) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property, or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
5) If your original investment was at least $3,000,000 and your securities
dealer has agreed to return to the Fund's distributor any payments
received when you bought your shares.
<PAGE>
Distribution Plan
The Fund has adopted a plan under Rule 12b-1 that allows the Fund to pay
your securities dealer or shareholder servicing agent distribution and other
fees for the sale of Class A Shares and for shareholder service. Class A Shares
pay an annual distribution fee equal to 0.25% of average daily net assets.
Because this fee is paid out of net assets on an on-going basis, it will, over
time, increase the cost of your investment and may cost you more than paying
other types of sales charges.
7
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DIVIDENDS AND TAXES
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Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of annual dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be subject
to federal, state and local taxation, depending on your tax situation. The tax
treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary income and capital gains
distributions are taxed at various rates based on how long the Fund held the
assets. You may be able to take a credit against your taxes for any foreign
income taxes paid by the Fund. The Fund will tell you annually how to treat
dividends and distributions.
If you redeem Class A Shares, you will be subject to tax on any gain. The
character of such gain will generally be based on your holding period for the
shares. An exchange of Class A Shares for Class A shares of another fund is a
sale of Class A Shares for tax purposes. More information about taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique and because the tax
laws are subject to change, you should consult your tax advisor about your
investment.
INVESTMENT ADVISOR AND SUB-ADVISOR
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Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and The Glenmede Trust Company ("Glenmede" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex. Brown
Cash Reserve Fund, Inc. These funds, together with the Fund, had approximately
$8.8 billion of net assets as of December 31, 1998. Glenmede is a limited
purpose trust company with approximately $14.4 billion under management as of
December 31, 1998.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of Glenmede. Glenmede is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates.
ICC received no fee from the Fund as compensation for investment advisory
services for the fiscal year ended October 31, 1998. In addition, for the same
period ICC reimbursed expenses of $73,256. ICC compensates Glenmede out of its
advisory fee or, if necessary, its own resources. ICC has contractually agreed
to waive its fees and reimburse expenses to the extent necessary so that the
Fund's total annual operating expenses do not exceed 1.50% of average daily net
assets. This agreement will continue until at least February 29, 2000 and may
be extended.
The Advisor is an indirect subsidiary of Bankers Trust Corporation.
Bankers Trust Corporation has entered into an Agreement and Plan of Merger with
Deutsche Bank AG ("Deutsche Bank"), dated as of November 30, 1998, under which
Bankers Trust Corporation would merge with and into a subsidiary of Deutsche
Bank. Deutsche Bank is a major global banking institution that is engaged in a
wide range of financial services, including investment management, mutual
funds, retail and commercial banking, investment banking and insurance. The
transaction is contingent upon various regulatory approvals, and continuation
of the Fund's advisory relationship with ICC and sub-advisory relationship with
Glenmede thereafter is subject to the approval of Fund shareholders. On March
30, 1999, the Board of Directors approved, subject to shareholder approval, a
new advisory agreement between ICC and the Fund and a new sub-advisory
agreement among the Fund, ICC and Glenmede in the event the merger is approved
and completed. If the transaction is approved and completed, Deutsche Bank, as
the Advisor's new parent company, will control the operations of the Advisor.
ICC believes that, under this new arrangement, the services provided to the
Fund will be maintained at their current level.
On March 11, 1999, Bankers Trust Company ("Bankers Trust"), a separate
subsidiary of Bankers Trust Corporation, 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. ICC became a subsidiary of Bankers Trust Corporation in a
merger that occurred after these events took place. Pursuant to its agreement
with the U.S. Attorney's Office, Bankers Trust pleaded guilty to misstating
entries in the bank's books and records and agreed to pay a $60 million fine to
federal authorities. Separately, Bankers Trust agreed to pay a $3.5 million
fine
8
<PAGE>
to the State of New York. 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, ICC may 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 Manager
Andrew B. Williams, CFA, has primary responsibility for managing the
Fund's assets. From April, 1993 through December, 1997, Mr. Williams shared
primary responsibility for managing the Fund's assets with John W. Church, Jr.,
formerly the Fund's President.
Mr. Williams is senior vice president, equity analyst and international
equity manager of Glenmede. Before joining Glenmede, he served as vice
president in investment research at Shearson Lehman Brothers in New York.
Before that, he worked at Provident National Bank as a research analyst. Mr.
Williams received an M.B.A. in Finance from Temple University in 1981 and an
A.B. in History from Trinity College in 1976. He is a member of the Financial
Analysts of Philadelphia and is a Chartered Financial Analyst.
9
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the
Fund's financial performance for the past five fiscal years. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
independent auditors, whose report, along with the Fund's financial statements
for the Class A Shares, is included in the Statement of Additional Information,
which is available upon request.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year Ended October 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year. ......... $ 16.36 $ 14.20 $ 12.69 $ 13.97 $ 13.05
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ......................... 0.08 0.11 0.26 0.09 0.18
Net realized and unrealized gain/(loss)
on 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.
10
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors For assistance in completing
International Fund, Inc." and mail with this Application please call:
this Application to: 1-800-553-8080, Monday through
Flag Investors Funds Friday, 8:30 a.m. to 5:30 p.m.
P.O. Box 419663 (Eastern Time).
Kansas City, MO 64141-6663
Attn: Flag Investors International Fund, Inc. To open an IRA account, please
call 1-800-767-3524 for an IRA
information kit.
I enclose a check for $_____________ payable to "Flag Investors International
Fund Class A Shares" for the purchase of Flag Investors International Fund Class
A Shares.
Your Account Registration (Please Print)
<TABLE>
<CAPTION>
<S> <C>
Existing Account No., if any: _______________
Individual or Joint Tenant Gifts to Minors
- -------------------------------------------------------- ----------------------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- -------------------------------------------------------- ----------------------------------------------------------------------
Social Security Number Minor's Name (only one)
- -------------------------------------------------------- ------------------------------- -----------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
under the _____________________ Uniform Gifts to Minors Act
State of Residence
Corporations, Trusts, Partnerships, etc. Mailing Address
- -------------------------------------------------------- ----------------------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- -------------------------------------------------------- ----------------------------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
- -------------------------------------------------------- ----------------------------------------------------------------------
Name of Trustees (if to be included in the Registration) Daytime Phone
- -------------------------------------------------------
For the Benefit of
</TABLE>
<PAGE>
Letter of Intent (Optional)
[ ] I intend to invest at least the amount indicated below in Class A Shares
of Flag Investors International Fund, Inc. I understand that if I satisfy
the conditions described in the attached prospectus, this Letter of Intent
entitles me to the applicable level of reduced sales charges on my
purchases.
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
Right of Accumulation (Optional)
List the Account numbers of other Flag Investors Funds that you or your
immediate family already own that qualify you for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution Options
Please check the appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional shares of the Fund at no sales
charge.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
<PAGE>
Automatic Investing Plan (Optional)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_______ for me, on a monthly or quarterly basis, on or about the 20th of
each month or if quarterly, the 20th of January, April, July and October, and to
draw a bank draft in payment of the investment against my checking account.
(Bank drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250
Subsequent Investments (check one): [ ] Monthly ($100 minimum)
[ ] Quarterly ($250 minimum)
Please attach a voided check.
- ---------------------------------- ------------------------------------------
Bank Name Depositor's Signature Date
- ---------------------------------- ------------------------------------------
Existing Flag Investors Fund Account Depositor's Signature (if Date
No., if any joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of ___________ , 19__ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of $_____________,
from Class A Shares that I own, payable to the account registration address as
shown above. (Participation requires minimum account value of $10,000 per
class.)
Frequency (check one): [ ] Monthly [ ] Quarterly (January, April,
July, and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/we do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank: ____________________________ Bank Account No.: ________________________
Address: ___________________________ Bank Account Name: _______________________
___________________________
<PAGE>
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against
your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified
me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above,
I have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish
my correct Social Security Number or Tax ID Number, I may be subject to
a penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: _________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
I acknowledge that I am of legal age in the state of my residence. I have
received a copy of the Fund's prospectus.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- ---------------------------------- -----------------------------------------
Signature Date Signature (if joint acct.,
both must sign) Date
- --------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: ______________________________ Dealer Code: ____________________
Dealer's Address: ___________________________ Branch Code: ____________________
___________________________
Representative: _____________________________ Rep. No.: _______________________
A-2
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
THE GLENMEDE TRUST COMPANY ICC DISTRIBUTORS, INC.
One Liberty Place Two Portland Square
1650 Market Street Portland, Maine 04101
Philadelphia, Pennsylvania 19103
Transfer Agent Independent Auditors
INVESTMENT COMPANY CAPITAL CORP. DELOITTE & TOUCHE LLP
One South Street University Square
Baltimore, Maryland 21202 117 Campus Drive
1-800-553-8080 Princeton, New Jersey 08540
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
[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
4/99
