[FLAG INVESTORS LOGO]
International
Fund
Semi-Annual Report
April 30, 1999
<PAGE>
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Shareholders:
International stock market performance over the past six months has sharply
deviated from trends that have persisted over the previous three years.
Stimulated by low interest rates, active restructuring activity, and enthusiasm
over the creation of a new currency, European markets and their currencies first
surged higher in late 1998, but have stagnated since the start of 1999, with
only an 0.8% rise since January 1. Over the entire six month period, the
European markets have gained 10.8%. In contrast, Asian markets, as measured by
the MSCI Pacific Index have generated an impressive 27.5% six month return. In
Japan, which remains the region's largest market by far, and represents nearly
23% of Morgan Stanley Capital International Europe, Australia, Far East(R)
(EAFE) Index, equities benefited from several indications that the economy could
be bottoming out and corporate restructuring may finally be underway. In dollar
terms, the Japanese equity market produced a 27.0% total return, while Australia
and Singapore rallied by a slightly greater amount. In all, the EAFE Index
generated a 15.3% total return in the half. The Flag Investors International
fund produced a 14.7% return over the same period. While our slightly
underweighted position in Japanese stocks was a slight negative, our favorable
security selection enabled the fund's returns to nearly match the index.
Over the past year, the EAFE Index has gained 9.5%, slightly above the 7.0%
return for the Fund. The adverse comparison is a result of last year's strong
performance of European growth stocks, few of which were owned in our portfolio.
The recent, favorable performance of Japanese equities and European value stocks
has helped performance comparisons since the start of 1999.
Looking forward, we see attractive investment opportunities in both the
Pacific and European markets. In Japan, valuations based on cash flow or book
value remain relatively low, but there still is no firm confirmation of economic
stabilization, let alone a recovery. In Europe, the combination of continued
1
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- -------------------------------------------------------------------------------
economic growth with low inflation and possibly lower interest rates are usually
supportive for equities, but valuations, especially in the banking and
telecommunications sectors, are relatively extended. Our primary focus remains
on security selection within these regions, where we will select issues with
attractive fundamentals and low relative valuations.
Sincerely,
/s/ Andrew B. Williams
- -----------------------
Andrew B. Williams
Portfolio Manager
May 17, 1999
2
<PAGE>
TEN LARGEST HOLDINGS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Company Net Assets
- ------- ----------
<S> <C> <C>
1. Hagemeyer NV 3.5%
Hagemeyer N.V. markets and distributes branded products including
electronic goods, automobiles, household appliances and luxury goods.
2. Endesa SA 3.1%
Endesa S.A. produces, transmits, distributes and supplies electricity
to other major utilities throughout Spain.
3. Assicurazioni Generali 3.0%
Italy's largest insurer, offers life and non-life insurance and
reinsurance in some 40 countries through 101 insurance companies.
4. Elf Aquitaine 2.8%
A worldwide company which explores for, refines and markets petroleum.
Elf Aquitaine also manufactures chemicals, polymers, plastic additives
and metal plating. In addition the company produces pharmaceuticals,
diagnostic kits, perfumes and beauty products, through its
subsidiary Sanofi.
5. Grupo Dragados, SA 2.7%
Grupo Dragados, S.A. is a construction company.
6. Mirror Group PLC 2.5%
A media conglomerate based in the United Kingdom, the Mirror Group PLC
publishes newspapers and magazines, as well as owns a number of
television channels.
7. Kao Corp. 2.5%
Kao Corporation is a manufacturer of household and chemical products.
8. East Japan Railway Co. 2.4%
East Japan Railway Company is a railway transportation company that
provides service in the Kanto and Tohoku regions including Tokyo.
In addition, the company also operates real estate, hotels, and
restaurant businesses.
9. Repsol SA 2.4%
A holding company which explores for, develops and produces petroleum
products.
10. Acom Co., Ltd. 2.4%
One of the largest consumer lending companies in Japan.
- ----------------------------------------------------------------------------------
</TABLE>
3
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FLAG INVESTORS INTERNATIONAL FUND
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Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include the Fund's total return, according to a standardized formula,
for various time periods through the end of the most recent calendar quarter.
The SEC standardized total return figures include the impact of the maximum
initial sales charge. Returns would be higher for investors who qualified for a
lower initial sales charge.
Average Annual Total Return
<TABLE>
<CAPTION>
Periods Ended 3/31/99 1 Year 5 Years 10 Years Since Inception*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares (1.40)% 7.26% 6.27% 7.57%
...................................................................................
</TABLE>
While the total return figures are required by SEC rules, such comparisons
are of limited utility since the Fund's total return is adjusted for sales
charges and expenses while the total return of the indices are not. In fact, if
you wished to replicate the total return of these indices, you would have to
purchase the securities they represent, an effort that would require a
considerable amount of money and would incur expenses that are not reflected in
the index results.
The SEC total return figures may differ from total return figures in the
shareholder letter because the time periods may be different and because the SEC
figures include the impact of sales charges while the total return figures in
the shareholder letter do not. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
4
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<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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Statement of Net Assets April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
No. of Percent of
Shares Security Value Net Assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK - 98.2%
Japan - 21.5%
3,900 Acom Co., Ltd $ 292,431 2.4%
6,000 Aoyama Trading Co., Ltd 166,888 1.4
5,000 Canon, Inc. 122,318 1.0
16,000 Chugai Pharmaceutical Co. 190,346 1.5
50 East Japan Railway Co. 295,322 2.4
20,000 Fuji Heavy Industry 134,047 1.1
4,000 Fuji Photo Film-- Ord 151,138 1.2
4,000 Honda Motor Co. 176,271 1.4
12,000 Kao Corp. 304,621 2.5
2,000 Nintendo Corp., Ltd 186,493 1.5
2,000 Rohm Company 241,284 1.9
1,600 Sony Corp. 149,462 1.2
3,000 Takefuji Corp. 248,824 2.0
----------- -----
2,659,445 21.5
UNITED KINGDOM - 17.4%
10,000 Allied Domecq PLC 78,492 0.6
12,500 Allied Zurich PLC(1) 171,476 1.4
9,300 BOC Group PLC 147,343 1.2
12,500 British American Tobacco 104,858 0.9
60,000 British Steel PLC 142,252 1.1
25,000 Caradon PLC 64,001 0.5
38,750 Iceland Group PLC 151,299 1.2
19,487 Invensys PLC 100,251 0.8
20,000 Johnson Matthey PLC 187,738 1.5
84,000 Mirror Group Newspapers PLC 307,014 2.5
10,000 Rio Tinto PLC 175,340 1.4
23,000 Scottish Power PLC 188,680 1.5
25,000 Tate & Lyle PLC 171,979 1.4
40,000 Tomkins PLC 169,061 1.4
----------- -----
2,159,784 17.4
</TABLE>
6
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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<TABLE>
<CAPTION>
No. of Percent of
Shares Security Value Net Assets
- ------------------------------------------------------------------------------------
COMMON STOCK -- continued
<S> <C> <C> <C>
FRANCE - 11.9%
1,000 Alcatel Alsthom $ 122,934 1.0%
2,258 Elf Aquitaine 351,162 2.8
2,356 Lafarge SA 229,314 1.8
3,872 Lagardere Groupe 153,533 1.2
2,600 Pernod-Ricard 175,631 1.4
5,600 SCOR SA 279,638 2.3
2,000 Valeo SA 169,273 1.4
----------- -----
1,481,485 11.9
SPAIN - 9.7%
10,000 Grupo Dragados, SA 334,313 2.7
17,311 Endesa SA 385,332 3.1
18,000 Repsol SA 293,265 2.4
1,352 Telefonica de Espana ADR 188,507 1.5
----------- -----
1,201,417 9.7
GERMANY - 8.2%
5,500 Bayer AG 232,750 1.9
1,300 Daimler-Chrysler AG 127,288 1.0
4,000 Hoechst AG 183,238 1.5
3,400 Siemens AG 250,714 2.0
4,000 Veba AG 218,996 1.8
----------- -----
1,012,986 8.2
NETHERLANDS - 7.1%
4,900 Akzo Nobel 221,615 1.8
9,587 Algemene Bank Nederland 228,716 1.8
12,800 Hagemeyer NV 433,338 3.5
----------- -----
883,669 7.1
ITALY - 6.9%
9,631 Assicurazioni Generali 375,470 3.0
121,520 Bennetton Group S.P.A 218,556 1.8
23,965 Telecom Italia S.P.A 255,313 2.1
----------- -----
849,339 6.9
</TABLE>
7
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- -------------------------------------------------------------------------------
Statement of Net Assets (concluded) April 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
No. of Percent of
Shares Security Value Net Assets
- ------------------------------------------------------------------------------------
COMMON STOCK -- concluded
<S> <C> <C> <C>
AUSTRALIA - 4.3%
100,000 Foster's Brewing Group $ 292,143 2.4%
17,500 Lend Lease Corp., Ltd. 236,291 1.9
----------- -----
528,434 4.3
SWEDEN - 3.7%
5,549 Astrazeneca Plc 217,077 1.7
5,000 Skf AB-- B Shares 86,199 0.7
6,000 Volvo AB-B 158,725 1.3
----------- -----
462,001 3.7
NORWAY - 1.6%
4,300 Norsk Hydro 193,012 1.6
----------- -----
DENMARK - 1.4%
2,500 Uni-Danmark A/S 172,042 1.4
----------- -----
BELGIUM - 1.3%
500 Electrabel, SA(1) 165,094 1.3
----------- -----
FINLAND - 1.3%
2,200 Nokia AB-- Series A ADR 163,212 1.3
----------- -----
NEW ZEALAND - 1.2%
28,000 Telecom Corp. New Zealand 145,712 1.2
----------- -----
SINGAPORE - 0.7%
10,000 Singapore Airlines Ltd.F 92,117 0.7
----------- -----
Total Common Stock
(Cost $9,146,696) 12,169,749 98.2
----------- -----
</TABLE>
8
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of
Par (000) Security Value Net Assets
- ------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.5%
<S> <C> <C> <C>
$ 314 Goldman Sachs & Co., 4.80%
Dated 04/30/99, to be
repurchased at $314,126
on 05/03/99, collateralized
by U.S. Treasury Notes with a
market value of $320,516.
(Cost $314,000) $ 314,000 2.5%
------------ ------
Total Investments in Securities
(Cost $9,460,696)(2) 12,483,749 100.7
Liabilities in Excess of Other Assets (84,061) (0.7)
------------ ------
Total Net Assets $12,399,688 100.0%
============ ======
Net Asset Value and Redemption Price Per Share
($12,399,688 / 640,706 shares outstanding) $19.35
======
Maximum Offering Price Per Share
($19.35 / 0.955) $20.26
======
</TABLE>
- -----------
(1) Non-income producing security.
(2) Cost for federal tax purposes is $9,460,696.
9
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- -------------------------------------------------------------------------------
Statement of Operations
For the Six
Months Ended
April 30,
- ------------------------------------------------------------------------
1999(1)
Investment Income:
Dividends .......................................... $ 100,190
Interest ........................................... 2,256
Less: Foreign taxes withheld .................... (11,296)
-----------
Total income .............................. 91,150
-----------
Expenses:
Professional fees .................................. 61,568
Investment advisory fee ............................ 45,480
Distribution fee ................................... 15,160
Accounting fee ..................................... 13,281
Transfer agent fee ................................. 9,245
Registration fees .................................. 8,196
Custodian fee ...................................... 8,193
Printing and postage ............................... 5,630
Directors fee ...................................... 476
Miscellaneous ...................................... 198
-----------
Total expenses ............................ 167,427
Less: Fees waived ..................................... (76,050)
-----------
Net expenses .............................. 91,377
Expenses in excess of net investment income ........... (227)
-----------
Net realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions ....... 827,965
Net realized foreign exchange loss ................. (14,069)
Change in unrealized appreciation/depreciation
of investments .................................. 872,140
Change in unrealized appreciation/depreciation on
translation of assets and liabilities, excluding
investments, denominated in foreign currencies .. (1,195)
-----------
Net gain on investments ................... 1,684,841
-----------
Net increase in net assets resulting from operations .. $ 1,684,614
===========
- ------------
(1) Unaudited.
See Notes to Financial Statements.
10
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- -------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
April 30, October 31,
- -------------------------------------------------------------------------------------
1999(1) 1998
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
(Expenses in excess of net investment income)/
net investment income ........................ $ (227) $ 82,879
Net realized gain from security transactions
and foreign exchange transactions ............ 813,896 752,382
Change in unrealized appreciation/(depreciation)
of investments ............................... 872,140 (99,666)
Change in unrealized appreciation/(depreciation)
on translation of other assets and liabilities
denominated in foreign currencies ............ (1,195) 2,524
------------ ------------
Net increase in net assets resulting
from operations .............................. 1,684,614 738,119
------------ ------------
Dividends to Shareholders from:
Net investment income and short-term gains ...... -- (82,879)
Distributions in excess of net investment
income and short-term gains .................. (48,602) (127,834)
------------ ------------
Total distributions ............................. (48,602) (210,713)
Capital Share Transactions:
Proceeds from sale of 144,506 and
61,500 shares, respectively .................. 2,617,349 1,076,733
Value of 2,257 and 11,538 shares issued in
reinvestment of dividends, respectively ...... 40,630 182,302
Cost of 225,390 and 208,269 shares
repurchased, respectively .................... (4,081,259) (3,581,124)
------------ ------------
Total increase/(decrease) in net assets derived
from capital share transactions .............. (1,423,280) (2,322,089)
------------ ------------
Total increase/(decrease) in net assets ......... 212,732 (1,794,683)
Net Assets:
Beginning of period ............................. 12,186,956 13,981,639
------------ ------------
End of period ................................... $ 12,399,688 $ 12,186,956
============ ============
Undistributed net investment loss .................. $ (240,882) $ (192,053)
============ ============
</TABLE>
- ------------
(1) Unaudited.
See Notes to Financial Statements.
11
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FLAG INVESTORS INTERNATIONAL FUND
- -------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Six
Months Ended
April 30,
- ---------------------------------------------------------------------------
1999(5)
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period .................. $ 16.94
----------
Income from Investment Operations:
Net investment income/(expenses in excess
of net investment income).............................. (0.04)
Net realized and unrealized gain/(loss)
on investments(1) ..................................... 2.52
----------
Total from Investment Operations ........................ 2.48
Less Distributions:
Distributions from net investment income
and short-term gains .................................. (0.07)
Distributions in excess of net investment income
and short-term gains .................................. --
----------
Total distributions ..................................... (0.07)
----------
Net asset value at end of period ........................ $ 19.35
==========
Total Return(2) ............................................ 14.67%
Ratios to Average Daily Net Assets:
Expenses(3) ............................................. 1.50%(6)
Net investment income(4) ................................ 0.00%(6)
Supplemental Data:
Net assets at end of period (000) ....................... $ 12,400
Portfolio turnover rate ................................. 11%
</TABLE>
- ------------
(1) Includes net realized currency gain or loss.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.74% (annualized), 2.78%, 2.24%,
2.30%, 2.17% and 1.97% for the six months ended April 30, 1999 and the
years ended October 31, 1998, 1997, 1996, 1995 and 1994, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been (1.25)% (annualized),
(0.67)%, 0.44%, 1.10%, 0.02% and 0.28% for the six months ended April 30,
1999 and the years ended October 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
(5) Unaudited.
(6) Annualized.
12
<PAGE>
<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 period ......... $ 16.36 $ 14.20 $ 12.69 $ 13.97 $ 13.05
---------- ---------- ------------- ------------- -------------
Income from Investment Operations:
Net investment income/(expenses in excess
of 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 period ............... $ 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 period (000) .............. $ 12,187 $ 13,982 $ 12,930 $ 12,483 $ 15,487
Portfolio turnover rate ........................ 27% 21% 13% 35% 43%
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- ------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors International Fund, Inc. (the "Fund"), which began
operations on November 18, 1986 is a Maryland Corporation. The Fund is
registered under the Investment Company Act of 1940 as a diversified, open-end
management investment company. Its objective is to seek long-term growth of
capital primarily through investment in a diversified portfolio of marketable
equity securities of issuers located outside of the United States.
The Fund consists of one share class, Class A Shares, which is subject to a
4.50% maximum front-end sales charge and a 0.25% distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price
reported for the day. When the security is listed on more than one
exchange, the Fund uses the last price on the exchange where the
security is primarily traded. If there are no sales or the security is
not traded on a listed exchange, the Fund values the security at the
last bid price in the over-the-counter market. When a market quotation
is not readily available, the Investment Advisor determines a fair
value using procedures that the Board of Directors establishes and
monitors. The Fund values short-term obligations with maturities of 60
days or less at amortized cost which approximates fair market value.
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the seller agrees to repurchase at a set time and price.
The third party, which is the seller's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the seller defaults.
The Fund's access to the collateral may be delayed or limited if the
seller defaults and the value of the collateral declines or if the
seller enters into an insolvency proceeding.
14
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FLAG INVESTORS INTERNATIONAL FUND
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NOTE 1--concluded
C. Foreign Currency Translation--The Fund's books and records are
maintained in U.S. dollars. Transactions denominated in foreign
currencies are recorded in the Fund's records at the effective
exchange rate when earned or incurred. Asset and liability accounts
that are denominated in foreign currencies are adjusted to reflect the
current exchange rate. Transaction gains or losses that are a result
of changes in the exchange rate during the reporting period or upon
settlement of the foreign currency transactions are reported in
realized and unrealized gain or loss on investments for the current
period.
The Fund is authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or portfolio
positions. These contracts are not reflected in the Fund's financial
statements. However, the net income or loss from these contracts is
recorded from the contract's inception date. Premiums or discounts are
amortized over the life of the contracts.
D. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long
as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes. As a result, the Fund has made no
provisions for federal income taxes.
E. Security Transactions, Investment Income, Distributions and Other--The
Fund uses the trade date to account for security transactions and the
specific identification cost method for financial reporting and income
tax purposes to determine the gain or loss on investments sold or
redeemed. Interest income is recorded on an accrual basis and includes
the pro rata scientific method for amortization of premiums and
accretion of discounts when appropriate. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
15
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
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Notes to Financial Statements (continued)
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor and The Glenmede Trust
Company ("Glenmede") is the Fund's subadvisor. As compensation for advisory
services, the Fund pays ICC an annual fee based on the Fund's average daily net
assets. This fee is calculated daily and paid monthly at the annual rate of
0.75%. As compensation for subadvisory services, ICC pays Glenmede an annual fee
based on the Fund's average daily net assets. This fee is calculated monthly and
paid quarterly at the annual rate of 0.55%.
ICC has agreed to waive up to all of its fees and reimburse expenses if
necessary so that the Fund's total operating expenses are no more than 1.50% of
the Fund's average daily net assets. For the six months ended April 30, 1999,
ICC waived fees of $45,480 and reimbursed expenses of $30,570. At April 30,
1999, the Fund was owed $12,628 from the advisor for reimbursed expenses and
waived advisory fees. ICC paid Glenmede $33,627 for subadvisory services for the
six months ended April 30, 1999.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or subadvisor.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly from the Fund's
average daily net assets. For the six month period ended April 30, 1999, ICC's
fee was $13,281 of which $2,199 was payable at the end of the period.
ICC also provides transfer agent services to the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the six
month period ended April 30, 1999. ICC's fee was $9,245 of which $6,473 was
payable at the end of the period.
Bankers Trust Co. is the Fund's custodian. For the six month period ended
April 30, 1999, Bankers Trust's fee was $8,193 of which $336 was due at the end
of the period.
ICC Distributors, Inc., a member of the Forum Group of Companies, ("ICC
Distributors"), provides distribution services to the Fund for which ICC
Distributors is paid an annual fee that is calculated daily and paid monthly at
an annual rate equal to 0.25% of the Fund's average daily net assets. For the
six month period ended April 30, 1999. ICC distributor's fee was $15,160 of
which $2,506 was payable at the end of the period.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the six months
ended April 30, 1999 was $401, and the accrued liability was $618.
16
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND
- -------------------------------------------------------------------------------
On November 30, 1998, Bankers Trust Corporation entered into an Agreement
and Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation
would merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG 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 thereafter is subject to the approval of Fund
shareholders. On March 30, 1999, the Board of Directors approved a new advisory
agreement between ICC and the Fund in the event the merger is approved and
completed. The new advisory agreement and a new sub-advisory agreement will be
subject to shareholder approval. If the transaction is approved and completed,
Deutsche Bank AG, as ICC's new parent company, will control its operations as
investment advisor. ICC believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 9 million shares of $.001 par value
capital stock (8 million Flag Investors Class A and 1 million undesignated).
NOTE 4--Investment Transactions
Excluding short-term and U.S. government obligations, purchases of
investment securities aggregated $1,339,190 and sales of investment securities
aggregated $2,518,313 for the six months ended April 30, 1999. At April 30,
1999, payable for securities purchased amounted to $126,391.
On April 30, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $3,410,629 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $387,576.
NOTE 5--Foreign Investment Risk
Foreign investments involve substantial and different risks than
investments in companies in the United States. In general, less information is
publicly available about foreign companies than is available about companies in
the United States. Most foreign companies are not subject to uniform audit and
financial reporting standards, practices and requirements comparable to those in
the United States.
17
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FLAG INVESTORS INTERNATIONAL FUND
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Notes to Financial Statements (concluded)
Foreign stock markets are generally not as developed or efficient as those
in the United States. In most foreign markets volume and liquidity are less than
in the United States and, at times, volatility of price can be greater than in
the United States. Fixed commissions on foreign stock exchanges are generally
higher than the negotiated commissions on U.S. exchanges. There is generally
less government supervision and regulation of foreign stock exchanges, brokers
and companies than in the United States. The settlement periods for foreign
securities, which are often longer than those for securities of U.S. issuers,
may affect portfolio liquidity.
Although the Fund intends to invest in securities of companies and
governments of developed, stable nations, there is also the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or social instability, or diplomatic developments which could
adversely affect investments, assets or securities transactions of the Fund in
some foreign countries.
NOTE 6--Federal Income Tax Information
On April 30, 1999, there was a tax capital loss carryforward available for
the current period of approximately $1,774,000, of which $1,185,000 expires in
2000 and $589,000 in 2001. This carryforward can be used to offset future net
capital gains.
NOTE 7--Net Assets
At April 30, 1999, net assets consisted of:
Paid-in capital ............................... $ 10,575,651
Undistributed net investment income ........... (240,882)
Accumulated net realized loss from security and
foreign exchange transactions .............. (960,223)
Unrealized appreciation of investments ........ 3,023,053
Unrealized translation gain ................... 2,089
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$ 12,399,688
============
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FLAG INVESTORS INTERNATIONAL FUND
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Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE CARL W. VOGT, ESQ.
Director Director
RICHARD T. HALE HARRY WOOLF
Director President
JOHN F. KROEGER JOSEPH A. FINELLI
Director Treasurer
LOUIS E. LEVY AMY M. OLMERT
Director Secretary
EUGENE J. MCDONALD SCOTT J. LIOTTA
Director Assistant Secretary
Investment Objective
A mutual fund seeking long-term growth of capital primarily through investment
in a diversified portfolio of marketable equity securities of issuers located
outside of the United States.
20
<PAGE>
This report is prepared for the general information of shareholders.
It is authorized for distribution to prospective investors only when
preceded or accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors
Funds, including charges and expenses, obtain a prospectus from your
investment representative or directly from the Fund at 1-800-767-FLAG. Read
it carefully before you invest.
<PAGE>
[FLAG INVESTORS LOGO]
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Specialty
Flag Investors Communications Fund
Flag Investors Real Estate Securities Fund
Balanced
Flag Investors Value Builder Fund
Fixed Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Money Market
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC Distributors, Inc.
INTLSA
(6/99)
