<PAGE>
As Filed with the Securities and Exchange Commission on February 29, 2000
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. 24 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 25 [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)
_X_ immediately upon filing pursuant to paragraph (b)
___ on February 29, 2000 pursuant to paragraph (b)
___ 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
(Class A, Class B, and Class C Shares)
Prospectus & Application - February 29, 2000
- - - - - - - - - - - - - - - - - -
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
("Bankers Trust" or 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 of sales charges and fund expenses.
(Refer to the section on sales charges and the attached Application.)
TABLE OF CONTENTS
Investment Summary ........................ 1
Fees and Expenses of the Fund ............. 2
Investment Program ........................ 3
Prior Performance of a Similar Fund........ 5
The Fund's Net Asset Value ................ 5
How to Buy Shares ......................... 6
How to Redeem Shares ...................... 7
Telephone Transactions .................... 7
Sales Charges ............................. 8
How to Choose the Class
That Is Right for You...................... 10
Dividends and Taxes ....................... 10
Organizational Structure................... 11
Investment Advisor......................... 11
Administrator.............................. 12
Financial Highlights ...................... 13
Application ............................... A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
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<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.
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.
If you invest in the Fund, you could lose money. 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 not
offered 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% 21.73%
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.
**The management of the Fund changed effective February 29, 2000. These returns
reflect the performance of the prior Fund management.
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, 1999)(1)
Morgan Stanley Capital
International Europe,
Australasia, Far East
Class A Shares(2) (EAFE) Index(R)(3)
-------------------------------------------
Past One Year...................... 16.25% 26.96%
Past Five Years.................... 11.76% 12.83%
Past Ten Years..................... 6.14% 7.01%
Since Inception.................... 8.61% (11/18/86) 8.52%(4)
- ------------
(1) The management of the Fund changed effective February 29, 2000. These
returns reflect the performance of the prior Fund management.
(2) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges, which
increased on January 18, 2000 from the prior rate of 4.50%.
(3) 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.
(4) For the period from 11/30/86 through 12/31/99.
<PAGE>
FEES AND EXPENSES OF THE FUND
- --------------------------------------------------------------------------------
This table 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%(1) 5.00%(2) 1.00%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
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)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
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) 1.85% 2.10%(5) 2.10%(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.75% 3.50% 3.50%
- ------------------------------------------------------------------------------------------------------------------------------------
Less: Fee Waivers and/or Expense Reimbursement(6) (1.25)% (1.25)% (1.25)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.50% 2.25% 2.25%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(1) 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.")
(2) 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.")
(3) 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.")
(4) 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.)
(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 Company, the Advisor to the Portfolio, and Investment Company
Capital Corp. 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 $694** $1,251** $1,848** $3,532**
Class B Shares $728** $1,267** N/A N/A
Class C Shares $328** $ 967** 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 $694** $1,251** $1,848** $3,532**
Class B Shares $228** $ 967** N/A N/A
Class C Shares $228** $ 967** N/A N/A
- -----------
* Reflects expenses of both the Fund and the Portfolio, the master fund in
which the Fund invests its assets.
** 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 under normal circumstances 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. 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. There can be no guarantee that the Fund
will achieve its goals.
The Advisor is responsible for managing the Portfolio's investments.
(Refer to the section on the Investment Advisor.) 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, options 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 in attempting to achieve the Fund's investment objective outweighed
the opportunity for gain.
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; 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 International Equity Fund, a Deutsche Asset Management mutual
fund (the "Deutsche 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 Deutsche Fund.
Management fees and expenses incurred in the operation of the Deutsche
Fund resulted in an overall expense ratio of 1.50%. The performance results
shown reflect the fees and expenses after fee waivers of Class A Shares of the
Fund and have been adjusted to reflect the maximum sales charge applicable to
such Shares.
Year Deutsche Fund Returns MSCI EAFE Index Returns
- --------------------------------------------------------------------------------
1993 31.19% 32.56%
- --------------------------------------------------------------------------------
1994 (0.58)% 7.78%
- --------------------------------------------------------------------------------
1995 10.88% 11.21%
- --------------------------------------------------------------------------------
1996 15.86% 6.05%
- --------------------------------------------------------------------------------
1997 12.08% 1.78%
- --------------------------------------------------------------------------------
1998 15.39% 20.00%
- --------------------------------------------------------------------------------
1999 24.94% 26.96%
<PAGE>
Year Deutsche Fund Returns MSCI EAFE Index Returns
- --------------------------------------------------------------------------------
1 year 24.94% 26.96%
- --------------------------------------------------------------------------------
5 years 20.32% 12.83%
- --------------------------------------------------------------------------------
Since inception (8/4/92) 18.51% 13.84%
The performance data represents the prior performance of the Deutsche Fund, not
the prior performance of the Fund, and should not be considered an indication of
future performance of the Fund.
THE FUND'S NET ASSET VALUE
- --------------------------------------
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Class A Shares,
the price you pay may be increased by a sales charge. When you redeem 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. The primary trading markets
for the Fund may close early on the day before holidays. On such occasions the
Fund also may close early. You may call the Transfer Agent at 1-800-553-8080 to
determine whether the Fund will close early before a particular holiday. The net
asset value is calculated by subtracting the liabilities attributable to a class
from its proportionate share of the Fund's assets and dividing the result by the
outstanding shares of the class. Because the different classes have different
distribution or service fees, their net assets may differ.
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 7:00 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 is 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 up to 4 times
a year. You may not exchange Class A shares of any Flag Investors Money Market
fund 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 % of Cost or Value)
----------------------------------------------------------------------------------------------
Years Since Purchase Class A Shares Sales Charge Class B Shares Sales Charge Class C Shares 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 only if your shares
were purchased at net asset value 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 shares for shares of another Flag Investors
fund of the same class.
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 18, 2000, your Class B 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 $50,000, your combined
sales charges and expenses are lower with Class A Shares. If you intend to
invest less than $50,000 and expect to hold your shares for more than seven
years, your combined sales charges and expenses are lower with Class B Shares.
If you intend to invest less than $50,000 and expect to hold your shares for
less than seven 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 it 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 and an annual shareholder servicing fee of 0.25% of average daily net
assets. 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. The tax treatment of
dividends and distributions is the same whether or not you reinvest them. Each
sale or exchange of the Fund's shares is generally a taxable event.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor if you have specific questions
about federal, state, and local income taxes.
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. For its services as investment advisor, Bankers Trust is entitled
to a fee of 0.65% of the Fund's average daily net assets.
<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 November 30, 1999, Bankers Trust had total assets under management of
approximately $259 billion.
At a special meeting of shareholders held in 1999, shareholders of the
Portfolio approved a new investment advisory agreement with Deutsche Asset
Management, Inc. ("DeAM Inc.") (formerly Morgan Grenfell Inc.). The new
investment advisory agreement with DeAM Inc. 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,"
generally referred to as independent trustees. Shareholders of the Portfolio
also approved a new sub-investment advisory agreement among the Portfolio, DeAM
Inc. and Bankers Trust under which Bankers Trust may perform certain of DeAM
Inc.'s responsibilities, at DeAM Inc.'s expense, upon approval of the
independent trustees, within two years of the date of the special meeting. Under
the new investment advisory agreement 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.
DeAM Inc. is located at 885 Third Avenue, 32nd Floor, New York, New
York 10022. DeAM Inc. provides a full range of investment advisory services to
institutional clients. DeAM Inc. serves as investment advisor to 11 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 plead 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 Portfolio's portfolio managers are Michael Levy, Robert Reiner and
Julie Wang of Bankers Trust Company.
<PAGE>
Mr. Levy, Co-Lead Manager of the Portfolio, has 18 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 Portfolio, has 18 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 Portfolio, has 11 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
- --------------------------------------------------------------------------------
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 Annual Report, which is available upon request. Class B
Shares and Class C Shares were not offered prior to the date of this Prospectus.
(For a Class A Share outstanding throughout each year)
<TABLE>
<CAPTION>
For the Year Ended October 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year. ......... $ 16.94 $ 16.36 $ 14.20 $ 12.69 $ 13.97
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ......................... 0.48 0.08 0.11 0.26 0.09
Net realized and unrealized gain/(loss)
on investments(1)............................ 3.48 0.76 2.34 1.28 (1.37)
------- ------- ------- ------- -------
Total from Investment Operations .............. 3.96 0.84 2.45 1.54 (1.28)
------- ------- ------- ------- -------
Less Distributions:
Distributions from net investment
income and short-term gains ................. (0.07) (0.10) (0.18) (0.03) --
Distributions in excess of net investment
income and short-term gains ................. -- (0.16) (0.11) -- --
------- ------- ------- ------- -------
Total distributions ........................... (0.07) (0.26) (0.29) (0.03) --
------- ------- ------- ------- -------
Net asset value at end of year ................ $ 20.83 $ 16.94 $ 16.36 $ 14.20 $ 12.69
======= ======= ======= ======= =======
Total Return(2)................................. 23.5 % 5.25% 17.48% 12.13% (9.16)%
Ratios to Average Daily Net Assets:
Expenses(3).................................... 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income(4)....................... 0.75% 0.62% 1.18% 1.91% 0.68%
Supplemental Data:
Net assets at end of year (000) ............... $13,771 $12,187 $13,982 $12,930 $12,483
Portfolio turnover rate ....................... 18% 27% 21% 13% 35%
</TABLE>
- -----------
(1) The years ended October 31, 1999, 1998, 1997, 1996 and 1995 include net
realized currency gain/(loss).
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fee and reimbursement of expense, the ratio
of expenses to average daily net assets would have been 3.10%, 2.78%, 2.24%,
2.30% and 2.17% during the periods ended October 31, 1999, 1998, 1997, 1996,
and 1995, respectively.
(4) Without the waiver of advisory fee and reimbursement of expense, the ratio
of net investment income to average daily net assets would have been
(0.84)%, (0.67)%, 0.44%, 1.10% and 0.02% for the years ended October 31,
1999, 1998, 1997, 1996 and 1995, respectively.
<PAGE>
Distributor
ICC DISTRIBUTORS, INC.
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 1-202-942-8090 to find out about the operation of the Public Reference
Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102. 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
[2/00]
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
FLAG INVESTORS SERIES FUNDS, INC.
Flag Investors International Equity Fund
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: February 29, 2000
Relating to the Prospectus Dated: February 29, 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 Series Funds, Inc. (the "Company") 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 Company
currently offers three classes of shares of the Flag Investors International
Equity Fund (the "Fund"), a series fund: 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 Company and 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 Company and its business that is
contained in the Registration Statement relating to the Company 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 Company was organized as a Massachusetts business trust on
September 3, 1986. The Company 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 "1940 Act") and Class
A Shares under the Securities Act of 1933, as amended (the "1933 Act"), and
commenced operations on November 18, 1986. On August 16, 1993, the Company
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 February 29, 2000. Effective
February 29, 2000, the Company reorganized into a series fund and the Fund
became a feeder fund of the International Equity Portfolio (the "Portfolio").
Prior to this reorganization, the Company was known as Flag Investors
International Fund, Inc.
Under a license agreement dated August 16, 1993, between the Company
and Alex. Brown & Sons Incorporated (predecessor to DB Alex. Brown LLC), Alex.
Brown & Sons Incorporated licenses to the Company 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 ("Bankers Trust" or 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'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 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 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 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, the Distributor 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 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 ("OTC Options")
transactions with broker-dealers who make markets in these options. The ability
to terminate OTC Options 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 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 OTC Options will 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. Until such time as the staff of the SEC
changes its position, the Portfolio will treat purchased OTC Options and assets
used to cover written OTC 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 1-800-730-1313.
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 Company's Board of Directors determines that it is in the best interests of
the shareholders of the Fund to do so. Upon any such withdrawal, the Company's
Board of Directors 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 without the approval of the Fund's shareholders. Because the 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 Company's Board of Directors would submit
the 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 Portfolio's 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 the Portfolio to eliminate the obligation from its
portfolio, but Bankers Trust will consider such an event in its determination of
whether the Portfolio should continue to hold the obligation. A description of
the ratings used herein and in the Fund's Prospectus is set forth in the
Appendix to this SAI.
<PAGE>
Investment Restrictions
The following investment restrictions are "fundamental policies" of the
Fund and may not be changed with respect to the Fund without the approval of a
"majority of the outstanding voting securities" of the Fund. "Majority of the
outstanding voting securities" under the 1940 Act, and as used in this SAI and
the Shares' Prospectus, 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
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 Portfolio's (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 (excluding securities
of other investment companies);
2. May 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 Portfolio (Fund) may hold and sell, for the Portfolio's (Fund's)
portfolio, real estate acquired as a result of the Portfolio's
(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 of 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:
(i) borrow money (including through reverse repurchase or forward
roll transactions) for any purpose in excess of 5% of the
Portfolio'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 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 if
such purchase at the time thereof would cause: (a) more than 10%
of the Portfolio'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 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, 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 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 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 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 net
assets; (c) the securities subject to the exercise of the call
written by the Portfolio must be owned by the Portfolio at the
time the call is sold and must continue to be owned by the
Portfolio until the call has been exercised, has lapsed, or the
Portfolio has purchased a closing call, and such purchase has
been confirmed, thereby extinguishing the Portfolio's obligation
to deliver securities pursuant to the call it has sold; and (d)
at the time a put is written, the Portfolio establishes a
segregated account with its custodian consisting of cash or
liquid securities equal in value to the amount the Portfolio
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 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 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 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. 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 of the Fund 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
Rules of U.S. state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisors as to the consequences of these and other U.S. state
and local tax rules regarding an investment in the Portfolio.
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 administrator, 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 Director and President of Virginia Hot Springs Inc.
(property management). Formerly, Managing Director, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC); Vice Chairman, Alex. Brown
Incorporated (now DB Alex. Brown LLC) 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 Company (mining and exploration),
HCL Technologies (information technology) and Anchor Gaming (gaming
software and equipment); Director, Mitchell Hutchins family of funds
and Flag Investors Funds, Inc. (formerly Deutsche Funds, Inc.); and
Trustee, Flag Investors Portfolios Trust (formerly 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, DB Alex. Brown LLC (formerly BT Alex. Brown
Incorporated); Director and President, Investment Company Capital Corp.
(registered investment advisor); Director, BT Family of Funds;
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 and ISI Family of Funds (registered
investment companies). Formerly, Director, Circon Corp. (medical
instruments), November 1998-January 1999; 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 DB Alex. Brown LLC), 1985-1987; and
General Partner, Alex. Brown & Sons (now DB Alex. Brown LLC),
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,
1992-1998; 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 (charitable foundation);
Director and Executive Vice President, The Glenmede Trust Company.
Formerly, Executive Director, The Pew Charitable Trusts; and Director,
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, Director, Investment Company Administration LLC, and
President, Director, First Fund Distributors, Inc. (registered
broker-dealer); Director, The Germany Fund, Inc., The New Germany Fund
Inc., The Central European Equity Fund, Inc., Flag Investors Funds,
Inc. (formerly Deutsche Funds, Inc.); Trustee, Flag Investors
Portfolios Trust (formerly Deutsche Portfolios); and Vice President,
Professionally Managed Portfolios and Advisors Series Trust (registered
investment companies). Formerly, President, Guinness Flight Investment
Funds, Inc. (registered broker dealer); and President, The Wadsworth
Group (registered investment advisor).
<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); Interim President of
Williams College; Director, Yellow Corporation (trucking), American
Science & Engineering (x-ray detection equipment) and ISI Family of
Funds (registered investment companies); Formerly, Chairman and Member,
National Transportation Safety Board; Director, National Railroad
Passenger Corporation (Amtrak); and Member, Aviation System Capacity
Advisory Committee (Federal Aviation Administration); and Director,
of Flag Investors Family of Funds (registered investment companies).
CHARLES A. RIZZO, TREASURER (8/5/57)
Vice President, Deutsche Asset Management since 1999; and Vice
President, BT Alex. Brown Incorporated (now DB Alex. Brown LLC),
1998-1999. Formerly, Senior Manager, Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) 1993-1998.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, Deutsche Asset Management, since 1999; and Vice
President, BT Alex. Brown Incorporated (now DB Alex. Brown LLC),
1997-1999. Formerly, Senior Manager, Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) 1992-1997.
DANIEL O. HIRSCH, ASSISTANT SECRETARY (3/27/54)
Director, Deutsche Asset Management, 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 DB Alex. Brown LLC (formerly BT Alex. Brown Incorporated) ("DB Alex. Brown")
or its affiliates. There are currently 8 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
three other funds in the Fund Complex. Mr. Hale serves as Chairman of three
funds and as a Director of five funds in the Fund Complex. Messrs. Burt
Hardiman, Levy, McDonald, Wadsworth and Ms. Rimel serve as Directors of each of
the funds in the Fund Complex. Mr. Vogt serves as President of each fund in the
Fund Complex. Ms. Olmert serves as Secretary, Mr. Rizzo serves as Treasurer and
Mr. Hirsch serves as Assistant Secretary for each 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)
12 Hitching Post Lane, Chappaqua, New York 10514. Trustee, each of the
investment companies in the BT Fund Complex *(registered investment
companies); Retired; former Vice President, International Business
Machines ("IBM") and President, National Services and the Field
Engineering Divisions of IBM.
S. LELAND DILL, Trustee (3/28/30)
5070 North Ocean Drive, Singer Island, Florida 33404. Trustee, each of
the investment companies in the BT Fund Complex *(registered investment
companies); Retired; Director, Coutts (U.S.A.) International; Trustee,
Phoenix-Zweig Trust and Phoenix-Euclid Market Neutral Fund (registered
investment companies); former Partner, KPMG Peat Marwick; Director,
Vintners International Company Inc.; Director, Coutts Trust Holdings
Ltd., Director, Coutts Group; General Partner, Pemco (registered
investment company).
MARTIN J. GRUBER, Trustee (7/15/37)
229 South Irving Street, Ridgewood, New Jersey 07450. Trustee, each of
the investment companies in the BT Fund Complex *(registered investment
companies); Nomura Professor of Finance, Leonard N. Stern School of
Business, New York University (since 1964); Trustee, TIAA (registered
investment company); Trustee, SG Cowen Mutual Funds (registered
investment company); Trustee, Japan Equity Fund and Taiwan Equity Fund
(registered investment companies).
*RICHARD T. HALE, Trustee (7/17/45)
(See above.)
RICHARD J. HERRING, Trustee (2/18/46)
325 South Roberts Road, Bryn Mawr, Pennsylvania 19010. Trustee, each of
the investment companies in the BT Fund Complex *(registered investment
companies); Jacob Safra Professor of International Banking, Professor
of Finance and Vice Dean, The Wharton School, University of
Pennsylvania (since 1972).
BRUCE E. LANGTON, Trustee (5/10/31)
99 Jordan Lane, Stamford, Connecticut 06903. Trustee, each of the
investment companies in the BT Fund Complex *(registered investment
companies); Retired; Trustee, Allmerica Financial Mutual Funds
(1992-present); Member, Pension and Thrift Plans and Investment
Committee, Unilever U.S. Corporation (1989 to present) (publicly held
company registered under the Securities Exchange Act of 1934);
Director, TWA Pilots Directed Account Plan and 401(k) Plan (1988 to
present) (registered investment company).
- ----------
(*) 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.
<PAGE>
PHILIP SAUNDERS, JR., Trustee (10/11/35)
445 Glen Road, Weston, Massachusetts 02193. Trustee, each of the
investment companies in the BT Fund Complex *(registered investment
companies); 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.
HARRY VAN BENSCHOTEN, Trustee (2/18/28)
6581 Ridgewood Drive, Naples, Florida 34108. Trustee, each of the
investment companies in the BT Fund Complex *(registered investment
companies); Retired; Director, Canada Life Insurance Corporation of New
York.
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)
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, DB 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.
- ----------
(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/her
services, each Director who is not an "interested person" of the Fund (as
defined in the 1940 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/her attendance at board and committee meetings) from each fund in the Fund
Complex for which he/she 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 $1,603.
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(10)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Truman T. Semans(1) $0 $0 $0
Chairman
Richard R. Burt(2) $0 $0 $0
Director
Richard T. Hale(2,3) $0 $0 $0
Director
James J. Cunanne(4) $49.90(5) (6) $39,000 for service on 12 Boards in
Director the Fund Complex
Joseph R. Hardiman(7)(8) $23.19(5) (6) $39,000 for service on 12 Boards in
Director the Fund Complex
Louis E. Levy $62.69(5) (6) $49,000 for service on 12 Boards in
Director the Fund Complex
Eugene J. McDonald $62.69(5) (6) $49,000 for service on 12 Boards in
Director the Fund Complex
Carl W. Vogt, Esq.(9) $50.43(5) (6) $39,000 for service on 12 Boards in
Director the Fund Complex
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, Hardiman, 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 $559.
(7) Elected to the Fund's Board on January 22, 1999.
(8) Prior to his appointment to the Fund, Mr. Hardiman received proportionately
higher compensation from each Fund for which they served.
(9) Retired as Fund Director effective October 7, 1999; elected Fund President
effective October 7, 1999.
(10) Prior to September 28, 1999, the Fund Complex included four funds in the
ISI Family of Funds.
<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
September 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Aggregate Aggregate
Compensation From Compensation From the BT
International Equity Portfolio Fund Complex(1) for the Twelve
Name of Person, for the Twelve Months Ended Months Ended
Position September 30, 1999 December 31, 1999
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles P. Biggar, Trustee $1,288 $43,750
- -------------------------------------------------------------------------------------------------------------------------
S. Leland Dill, Trustee $1,086 $43,750
- -------------------------------------------------------------------------------------------------------------------------
Martin J. Gruber, Trustee(3) $0 $45,000
- -------------------------------------------------------------------------------------------------------------------------
Richard T. Hale, Trustee(2) $0 $0
- -------------------------------------------------------------------------------------------------------------------------
Richard J. Herring, Trustee(3) $0 $43,750
- -------------------------------------------------------------------------------------------------------------------------
Bruce E. Langton, Trustee(3) $0 $43,750
- -------------------------------------------------------------------------------------------------------------------------
Philip Saunders, Jr., Trustee $1,120 $45,000
- -------------------------------------------------------------------------------------------------------------------------
Harry Van Benschoten, Trustee(3) $0 $45,000
- -------------------------------------------------------------------------------------------------------------------------
Kelvin Lancaster, Trustee $0 $18,750
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Aggregated information is furnished for the BT Family of Funds which
consists of the following: BT Investment Funds, BT Institutional Funds, BT
Institutional Funds, BT Pyramid Funds, BT Advisor Funds, BT Investment
Portfolios, Cash Management Portfolio, Treasury Money Portfolio, Tax Free
Money Portfolio, NY Tax Free Money Portfolio, International Equity
Portfolio, Intermediate Tax Free Portfolio, Asset Management Portfolio,
Equity 500 Index Portfolio, and Capital Appreciation Portfolio for the year
ended December 31, 1999.
(2) A director who is an "interested person" as defined in the 1940 Act.
(3) Elected to the Board of Trustees on October 8, 1999.
The Fund Complex has adopted a Retirement Plan for Directors who are
not employees of the Fund, the Fund's Administrator or its respective affiliates
(the "Directors Retirement Plan") and a Retirement Plan for a former Director
serving as the Fund's President (collectively, the "Retirement Plans"). After
completion of six years of service, each participant in the Retirement Plans
will be entitled to receive an annual retirement benefit equal to a percentage
of the fee earned by the participant in his or her last year of service. Upon
retirement, each participant will receive annually 10% of such fee for each year
that he or she 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 or her last
year of service. The fee will be paid quarterly, for life, by each Fund for
which he or she serves. The Retirement Plans are unfunded and unvested. The Fund
currently has two participants in the Directors' Retirement Plan, a Director who
retired effective December 31, 1994 and another Director who retired effective
December 31, 1996, each of whom has qualified for the Retirement Plan by serving
thirteen years and fourteen years, respectively, as Directors in the Fund
Complex and who will be paid a quarterly fee of $4,875 by the Fund Complex for
the rest of his life. 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 or her 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 Retirement
- -------------------------------------------------------------------------------------------------------------------------
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 or her annual compensation pursuant to a Deferred Compensation
Plan. Ms. Rimel and Messrs. Burt, Levy, McDonald and Wadsworth have each
executed a Deferred Compensation Agreement. Mr. Vogt will no longer participate
in the Director's Deferred Compensation Plan and will participate in a separate
deferred compensation plan as president of the Fund. 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 Company has adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act. The Company's Code of Ethics permits
access persons to invest in securities for their own accounts, but requires
compliance with that Code's preclearance requirements, subject to certain
exceptions. In addition, the Company's Code provides for trading "blackout
periods" that prohibit trading by personnel within periods of trading by the
Company in the same security. The Company's Code also prohibits short term
trading profits and personal investment in initial public offerings. The
Company's Code requires prior approval with respect to purchases of securities
in private placements.
The Board of Trustees of the Portfolio has adopted a Code of Ethics
pursuant to Rule 17j-1 under the 1940 Act. The Portfolio's Code of Ethics
permits access persons to invest in securities for their own accounts, but
requires compliance with that Code's preclearance requirements, subject to
certain exceptions. In addition, the Portfolio's Code provides for trading
blackout periods that prohibit trading by personnel within periods of trading by
the Portfolio in the same security. The Portfolio's Code also prohibits short
term trading profits and personal investment in initial public offerings. The
Portfolio's Code requires prior approval with respect to purchases of securities
in private placements.
<PAGE>
The Portfolio's advisor, Bankers Trust, has also adopted a Code of
Ethics pursuant to Rule 17j-1 under the 1940 Act. The Bankers Trust Code of
Ethics allows personnel to invest in securities for their own accounts, but
requires compliance with that Code's preclearance requirements and other
restrictions including "blackout periods" and minimum holding periods, subject
to certain exceptions. The Bankers Trust Code prohibits purchases of securities
in U.S. initial public offerings and requires prior approval for purchases of
securities in private placements.
The Company's principal underwriter, ICC Distributors, Inc., is not
required to adopt a Code of Ethics as it meets the exception provided by Rule
17j-1(c)(3) under the 1940 Act.
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 AG. Deutsche Bank AG
is a banking company with limited liability organized under the laws of the
Federal Republic of Germany. Deutsche Bank AG 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 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. ("DeAM Inc."). The new investment advisory agreement with
DeAM Inc. 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 portfolio, DeAM Inc. and Bankers Trust under which Bankers
Trust may perform certain of DeAM Inc.'s responsibilities, at DeAM Inc.'s
expense, upon approval of the Independent Trustees, within two years of the date
of the Special Meeting. DeAM Inc. 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 February 29, 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) $ 0(2) $ 1,461(3)
- ---------------------------------------------------------------------------------------------------------------
Glenmede $64,173 $3,399 $77,150
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Net of fee waivers of $94,386. During this period, ICC also reimbursed
expenses of $106,660.
(2) Net of fee waivers of $98,993. During this period, ICC also reimbursed
expenses of $73,256.
(3) 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 DB 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. State securities
laws may require banks and financial institutions to register as dealers.
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.)
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) $31,462(2) $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 & Sons, 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 prior to the date of this
Statement of Additional Information.
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 (the "Plans"). Under each Plan, the Company, on behalf of each
class, 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>
Company'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 Company'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 Company'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 Company'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 Company's Independent Directors shall be
committed to the discretion of the Independent Directors then in office.
The Company's distributor received commissions on the sale of the
Fund's 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 $6,608(1) $ 0 $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 Company's distributor.
(2) Of this amount, Alex. Brown & Sons, the Company's distributor prior to
August 31, 1997, received $10,234 and ICC Distributors, the Company's
distributor effective August 31, 1997 received $104.
(3) Of commissions received, Alex. Brown & Sons retained $9,938 and ICC
Distributors retained $0, respectively.
(4) Class B Shares and Class C Shares were not offered prior to the date of
this SAI.
The Company will pay all costs associated with its organization and
registration under the 1933 Act and the 1940 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 February 29, 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 $ 1,633,295 $9,557,179 $6,272,458
- ------------------------------- ---------------- ------------------------------ -----------------------------
Commissions Paid $ 2,674 22,749 16,973
- ------------------------------- ---------------- ------------------------------ -----------------------------
</TABLE>
<PAGE>
Prior to February 29, 1999, subject to the above considerations, the
Board of Directors had 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 1940 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 required 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 DB 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 DB Alex. Brown.
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the 1940 Act) which the Fund has
acquired during its most recent fiscal year. As of October 31, 1999, the Fund
held a 5.10% repurchase agreement issued by Goldman Sachs & Co. valued at
$1,336,000. 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 of
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 Company'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 Company 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), Flag Investors International Equity Fund Class B Shares and Flag
Investors International Equity Fund Class C Shares. In the event separate series
or classes are established, all Shares of the Company, 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 Company (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 Company 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 Company. In such event, the remaining holders cannot elect any members of
the Board of Directors of the Company.
There are no preemptive, conversion or exchange rights applicable to
any of the Shares. The Company's issued and outstanding Shares are fully paid
and non-assessable. In the event of liquidation or dissolution of the Company,
each Share is entitled to its portion of the Company'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 Company 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 Company's independent accountants.
ADMINISTRATOR, CUSTODIAN, ACCOUNTING SERVICES AND TRANSFER AGENT
Under the Master Services Agreement, ICC is obligated on a continuous
basis to provide such administrative service as the Board of Directors of the
Company reasonably deems necessary for the proper administration of the Company.
ICC will generally assist in all aspects of the Company'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 Company), 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 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 $16,013 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 $16.07 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 $18,644.
ICC also provides certain accounting services to the Company. 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 Company 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 $27,067.
<PAGE>
INDEPENDENT ACCOUNTANTS
The independent accountant for the Company 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 Company were audited by Deloitte & Touche LLP whose
report thereon appears in the Company's Annual Report, and have been included
therein 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 116-300 Village Boulevard, Princeton, New Jersey 08540.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Company.
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 Company'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, 1999** 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 $1,179 17.94% $1,483 8.21% $1,891 6.58%
- ----------------------------- ----------------- ------------ ---------------- -------------- ---------------- -----------
Class B
*January 18, 2000 N/A N/A N/A N/A N/A N/A
- ----------------------------- ----------------- ------------ ---------------- -------------- ---------------- -----------
Class C
*January 18, 2000 N/A N/A N/A N/A N/A N/A
- ----------------------------- ----------------- ------------ ---------------- -------------- ---------------- -----------
</TABLE>
- ----------------
* Inception Date
** The management of the Fund changed effective February 28, 2000. These returns
reflect the performance of the prior Fund management.
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, 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 18%, in fiscal year 1998 was 27% and in fiscal year 1997 was 21%.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Company management's knowledge, the following persons owned of
record or beneficially 5% or more of the Fund's outstanding Shares, as of
February 7, 2000.
<TABLE>
<CAPTION>
Name and Address Owned of Record Beneficially Owned Percentage Owned
---------------- --------------- ------------------ ----------------
<S> <C>
DB Alex. Brown LLC x x 6.61%
FBO 201 70188 19
POB 1346
Baltimore MD 21203
John J Higgins TR x x 5.82%
U/A 6/24/96
Fairfield Jesuit Community Corp
c/o Fairfield University
St. Ignatius Hall
Fairfield CT 06430
DB Alex. Brown LLC x x 5.21%
FBO 201 70130-18
POB 1346
Baltimore MD 21203
</TABLE>
The Directors and executive officers as a group (12 persons)
beneficially owned 1.49% of the Fund's total outstanding Shares, as of February
7, 2000.
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Fund for the fiscal year ended October
31, 1999 are incorporated herein by reference to the Company's Annual Report
dated October 31, 1999. A copy of the Company's Annual Report must accompany the
delivery of this Statement of Additional Information.
<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 26, 1999, filed herewith.
(5) Articles Supplementary dated September 28, 1999, filed herewith.
(6) Articles of Amendment to change Fund's name, filed herewith.
(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, filed herewith.
(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, filed herewith.
(3) Form of 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, filed herewith.
(i) Opinion of Counsel, filed herewith.
(j)(1) Consent of Deloitte & Touche LLP, filed herewith.
(2) Consent of PricewaterhouseCoopers LLP, filed herewith.
(k) None.
(l) Form of Subscription Agreement between Registrant and Investors
incorporated by reference to Exhibit (13) to Post-Effective Amendment No.
16 to Registrant's Registration Statement on Form N-1A (Registration No.
33-8479), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-000106) on February 28, 1996.
<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
Fund Class B Shares, filed herewith.
(4) Distribution Plan with respect to Flag Investors International Equity
Fund Class C Shares, filed herewith.
(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) Code of Ethics, not applicable.
(q)(1) Powers of Attorney, Messrs. Semans, Burt, Hardiman, Levy, McDonald,
Wadsworth, Vogt and Rizzo, incorporated by reference to Post-Effective
Amendment No. 20 to Registrants Registration Statement on Form N-1A
(Registration No. 33-8479) filed with the Securities and Exchange
Commission on November 17, 1999.
(2) Power of Attorney, Ms. Rimel and Mr. Hale - filed herewith.
(3) Power of Attorney, Messrs. Biggar, Dill, Gruber, Hale, Herring, Langton,
Saunders, Van Benschoten, Keffer and Rizzo incorporated by reference to
Post-Effective amendment No. 20 to Registrants Registration Statement on
Form N-1A (Registration No. 33-8479) filed with the Securities and
Exchange Commission on November 17, 1999.
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(a) 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 February 29, 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 February 29, 2000, ICC
served as investment advisor and The Glenmede Trust Company at One Liberty
Place, 1650 Market Street, Philadelphia, PA 19103, 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 certifies that it meets all of
the requirement for effectiveness of this registration statement under Rule
485(b) under the Securities Act and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned thereto
duly authorized in the City of Baltimore, in the State of Maryland, on the 29th
day of February, 2000.
FLAG INVESTORS INTERNATIONAL FUND, INC.
By: /s/ Carl Vogt, Esq.*
-----------------------------------
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities on the date(s) indicated:
/s/ Truman T. Semans* Chairman and Director February 29, 2000
- ------------------------
Truman T. Semans
/s/ Richard R. Burt* Director February 29, 2000
- ------------------------
Richard R. Burt
/s/ Richard T. Hale** Director February 29, 2000
- ------------------------
Richard T. Hale
/s/ Joseph R. Hardiman* Director February 29, 2000
- ------------------------
Joseph R. Hardiman
/s/ Louis E. Levy* Director February 29, 2000
- ------------------------
Louis E. Levy
/s/ Eugene J. McDonald* Director February 29, 2000
- ------------------------
Eugene J. McDonald
/s/ Rebecca W. Rimel** Director February 29, 2000
- ------------------------
Rebecca W. Rimel
/s/ Robert H. Wadsworth* Director February 29, 2000
- ------------------------
Robert H. Wadsworth
/s/ Charles A. Rizzo* Chief Financial February 29, 2000
- ------------------------ and Accounting Officer
Charles A. Rizzo
By: /s/Daniel O. Hirsch
-------------------
Daniel O. Hirsch
Attorney-In-Fact
*By Power of Attorney - incorporated by reference to Post-Effective Amendment
No. 20 to Registrant's Registration Statement on Form N-1A (Registration No.
33-8479) filed with the Securities and Exchange Commission on November 17,
1999.
**By Power of Attorney - filed herewith.
<PAGE>
SIGNATURES
INTERNATIONAL EQUITY PORTFOLIO certifies that it meets all of the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act and has duly caused this Post Effective Amendment No.
24 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 29th day
of February, 2000.
INTERNATIONAL EQUITY PORTFOLIO
By: /s/ John Y Keffer*
---------------------------
John Y. Keffer, President
and Chief Executive Officer
February 29, 2000
This Post Effective Amendment No. 24 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 February 29, 2000
Daniel O. Hirsch (Attorney in Fact for the
Persons Listed Below)
/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 - incorporated by reference to Post-Effective Amendment
No. 20 to Registrant's Registration Statement on Form N-1A (Registration No.
33-8479) filed with the Securities and Exchange Commission on November 17,
1999.
</TABLE>
<PAGE>
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch
are authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's President pursuant to a properly executed power of
attorney.
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch
are authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's Chief Financial Officer pursuant to a properly
executed power of attorney.
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS INTERNATIONAL FUND, INC. (the "Corporation")
having its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law at a meeting duly
convened and held on September 28, 1998 has adopted a resolution designating a
new class of shares and increasing the total number of shares of capital stock
which the Corporation has the authority to issue to twenty-five million
(25,000,000) shares of Common Stock, par value $.001 per share, having an
aggregate par value of twenty-five thousand dollars ($25,000.00), all of which
shares are designated as follows: eight million (8,000,000) shares are
designated "Flag Investors International Fund Class A Shares" (the "Class A
Shares"), one million (1,000,000) shares are designated "Flag Investors
International Fund Class B Shares" (the "Class B Shares"), fifteen million
(15,000,000) shares are designated "Flag Investors International Fund Class C
Shares" (the "Class C Shares") and one million (1,000,000) shares remain
undesignated.
SECOND: Immediately before the designation of the Class C
Shares pursuant to these Articles Supplementary, the Corporation was authorized
to issue ten million (10,000,000) shares of Common Stock, par value $.001 per
share, having an aggregate par value of ten thousand dollars ($10,000.00), of
which eight million (8,000,000) shares were designated "Flag Investors
International Fund Class A Shares", one million (1,000,000) shares were
designated "Flag Investors International Fund Class B Shares" and one million
(1,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors International Fund, Inc.
has caused these Articles Supplementary to be executed by its President and its
corporate seal to be affixed and attested by its Secretary on this 26th day of
July, 1999.
.
[CORPORATE SEAL]
FLAG INVESTORS INTERNATIONAL FUND, INC.
By: /s/Harry Woolf
--------------
Harry Woolf
President
Attest: /s/ Amy M. Olmert
-----------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS INTERNATIONAL
FUND, INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ Harry Woolf
---------------
Harry Woolf
President
<PAGE>
FLAG INVESTORS INTERNATIONAL FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS INTERNATIONAL FUND, INC. (the "Corporation") having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law, at a meeting duly
convened and held on September 28, 1999 has adopted a resolution increasing the
total number of shares of capital stock which the Corporation has the authority
to issue to twenty-eight million (28,000,000) shares of Common Stock, par value
$.001 per share, having an aggregate par value of twenty-eight thousand dollars
($28,000.00), all of which shares are designated as follows: ten million
(10,000,000) shares are designated "Flag Investors International Fund Class A
Shares" (the "Class A Shares"), two million (2,000,000) shares are designated
"Flag Investors International Fund Class B Shares" (the "Class B Shares"),
fifteen million (15,000,000) shares are designated "Flag Investors International
Fund Class C Shares" (the "Class C Shares") and one million (1,000,000) shares
remain undesignated.
SECOND: Immediately before the increase in authorized shares,
the Corporation was authorized to issue twenty-five million (25,000,000) shares
of Common Stock, par value $.001 per share, having an aggregate par value of
twenty-five thousand dollars ($25,000.00), of which eight million (8,000,000)
shares were designated "Flag Investors International Fund Class A Shares", one
million (1,000,000) shares were designated "Flag Investors International Fund
Class B Shares", fifteen million (15,000,000) shares were designated "Flag
Investors International Fund Class C Shares" (the "Class C Shares") and one
million (1,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors International Fund, Inc.
has caused these Articles Supplementary to be executed by its President and its
corporate seal to be affixed and attested by its Secretary on this 28th day of
September, 1999.
[CORPORATE SEAL]
FLAG INVESTORS INTERNATIONAL FUND, INC.
By: /s/ Harry Woolf
---------------
Harry Woolf
President
Attest: /s/ Amy M. Olmert
------------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS INTERNATIONAL
FUND, INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ Harry Woolf
---------------
Harry Woolf
President
<PAGE>
ARTICLES OF AMENDMENT
FLAG INVESTORS INTERNATIONAL FUND, INC.
FLAG INVESTORS INTERNATIONAL FUND, INC. (the "Corporation"), a
corporation organized under the laws of the State of Maryland, having its
principal place of business at One South Street, Baltimore, Maryland 21202, does
hereby certify to the State Department of Assessments and Taxation of Maryland
that:
FIRST: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940.
SECOND: Pursuant to the authority contained in Section 2-605(a)(4) of
the Maryland General Corporation Law and under authority contained in Article
ELEVEN, Section (G) of the Articles of Incorporation of the Corporation, a
majority of the Board of Directors, at a meeting duly convened on December 15,
1999 has adopted a resolution changing the name of the Corporation to Flag
Investors Series Funds, Inc.
THIRD: Pursuant to the requirements of Section 2-607 of the Maryland
General Corporation Law, the Board of Directors has determined to file of record
these Articles of Amendment, which Amendment is limited to changes expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be made
without action by the stockholders and which Amendment is solely for the purpose
of changing the name of the Corporation and the name or other designation of
classes of stock of the Corporation.
FOURTH: Article SECOND of the Articles of Incorporation of the
Corporation is hereby amended to read in its entirety as follows:
The name of the Corporation is:
Flag Investors Series Funds, Inc.
FIFTH: All shares previously designated as Flag Investors International
Fund Class A Shares are hereby redesignated as: Flag Investors International
Equity Fund Class A Shares.
SIXTH: All shares previously designated as Flag Investors International
Fund Class B Shares are hereby redesignated as:
Flag Investors International Equity Fund Class B Shares.
SEVENTH: All shares previously designated as Flag Investors
International Fund Class C Shares are hereby redesignated as:
Flag Investors International Equity Fund Class C Shares.
EIGHTH: These Articles of Amendment shall be effective as of the later
of the time the State Department of Assessments and Taxation of Maryland accepts
these Articles of Amendment of record or January 15, 2000.
<PAGE>
IN WITNESS WHEREOF, Flag Investors International Fund, Inc. has caused
these Articles of Amendment to be signed in its corporate name and on its behalf
by its President and its corporate seal to be hereunto affixed and attested by
its Secretary as of the 30th day of December, 1999.
FLAG INVESTORS INTERNATIONAL FUND, INC.
By: /s/ Carl W. Vogt
----------------
Carl W. Vogt
President
[SEAL]
Attest: /s/ Kathy Churko
----------------
THE UNDERSIGNED, President of FLAG INVESTORS INTERNATIONAL FUND, INC.,
who executed on behalf of said corporation the foregoing Articles of Amendment
of which this certificate is made a part, hereby acknowledges, in the name and
on behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth herein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
/s/ Carl W. Vogt
----------------
Carl W. Vogt
President
<PAGE>
As Amended Through
July 28, 1999
BY-LAWS
OF
FLAG INVESTORS INTERNATIONAL FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the city of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive
office of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other
offices in such places as the Board of Directors may from time to time
determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of the
shareholders of the Corporation shall not be required to be held in any year in
which shareholders are not required to elect directors under the Investment
Company Act of 1940, as amended (the "1940 Act") even if the Corporation is
holding a meeting of the shareholders for a purpose other than the election of
directors. If the Corporation is required by the 1940 Act to hold a meeting to
elect directors, the meeting shall be designated as the Annual Meeting of
shareholders for that year and shall be held within 120 days after the
occurrence of an event requiring the election of directors. The Board of
Directors may, in its discretion, hold a meeting to be designated as the Annual
Meeting of shareholders on a date within the month of March, in any year where
an election of directors by shareholders is not required under the 1940 Act. The
date of an Annual Meeting shall be set by appropriate resolution of the Board of
Directors, and shareholders shall vote on the election of directors and transact
any other business as may properly be brought before the Annual Meeting.
<PAGE>
Section 2. Special Meetings. Special meetings of the
shareholders, unless otherwise provided by law or by the Charter of the
Corporation, may be called for any purpose or purposes by a majority of the
Board of Directors or the President, and shall be called by the President or
Secretary on the written request of the shareholders as provided by the Maryland
General Corporation Law. Such request shall state the purpose or purposes of the
proposed meeting and the matters proposed to be acted on at it; provided,
however, that unless requested by shareholders entitled to cast a majority of
all the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the shareholders held during the preceding twelve
(12) months.
Section 3. Place of Meetings. The regular meeting, if any, and
any special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder
List. (a) Notice of the place, date and time of the holding of each regular and
special meeting of the shareholders and the purpose or purposes of the meeting
shall be given personally or by mail, not less then ten nor more than ninety
days before the date of such meeting, to each shareholder entitled to vote at
such meeting and to each other shareholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
records of the Corporation, with postage thereon prepaid. The notice of every
meeting of shareholders may be accompanied by a form of proxy approved by the
Board of Directors in favor of such actions or persons as the Board of Directors
may select.
(b) Notice of any meeting of shareholders shall be
deemed waived by any shareholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a signed waiver
of notice which is filed with the records of the meeting. A meeting of
shareholders convened on the date for which it was called may be adjourned from
time to time without further notice to a date not more than 120 days after the
original record date.
(c) At least five (5) days prior to each meeting of
shareholders, the officer or agent having charge of the share transfer books of
the Corporation shall make a complete list of shareholders entitled to vote at
such meeting, in alphabetical order with the address of and the number of shares
held by each shareholder.
Section 5. Organization. At each meeting of the shareholders,
the Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
-2-
<PAGE>
Section 6. Voting. (a) Except as otherwise provided by statute
or the Charter of the Corporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting
of shareholders may authorize another person or persons to act as proxy for the
shareholder by (1) a written authorization signed by such shareholder or the
shareholder's authorized agent; or (2) by telephone, a telegram, cablegram,
datagram or other means of electronic transmission to the person authorized to
act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy to
receive the transmission. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where such proxy states that it is irrevocable and where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
the Charter of the Corporation or these By-Laws, any corporate action to be
taken by vote of the shareholders shall be authorized by a majority of the total
votes cast at a meeting of shareholders at which a quorum is present by the
holders of shares present in person or represented by proxy and entitled to vote
on such action, except that a plurality of all the votes cast at a meeting at
which a quorum is present is sufficient to elect a director.
(c) If a vote shall be taken on any question other
than the election of directors, which shall be by written ballot, then unless
required by statute or these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the shareholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
-3-
<PAGE>
Section 7. Inspectors. The Board may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with the
records of shareholders' meetings: (i) a unanimous written consent which sets
forth the action and is signed by each shareholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the shareholders by law or by the Charter
of the Corporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
-4-
<PAGE>
Section 3. Election and Term of Directors. Directors shall be
elected by plurality vote of a quorum cast by written ballot at the regular
meeting of shareholders, if any, or at a special meeting held for that purpose.
The term of office of each director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed as hereinafter provided in these By-Laws, or as otherwise provided by
statute or the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the shareholders by a vote of a majority of the
votes entitled to be cast for the election of directors.
Section 6. Vacancies. The shareholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of Directors; provided, however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a director serves for the balance of the term of the
removed director.
Section 7. Regular Meetings. Regular meetings of the Board may
be held with notice at such times and places as may be determined by the Board
of Directors.
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
-5-
<PAGE>
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services addressed to him at his residence or
usual place of business, at least three days before the day on which such
meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another director chosen by a majority of the directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
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Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; provided, however, that for so long as
the Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time; provided, however, that for so
long as the Corporation is registered as an investment company under the 1940
Act, this Section shall be inapplicable to the approval of any investment
advisory agreement, sub-advisory agreement or any plan (or agreement containing
a plan) pursuant to Rule 12b-1 under the 1940 Act.
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee, Audit Committee and Nomination Committee,
each of which shall consist of two or more of the directors of the Corporation,
which committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than as set forth in Section 3 of this
Article IV.
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Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the
Board shall have power or authority to:
(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or take any other action required to be taken by the Board of
Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new
By-Laws;
(d) declare dividends or other distributions or issue
capital stock of the Corporation; and
(e) approve any merger or share exchange which does
not require shareholder approval.
Section 4. General. One-third, but not less than two members,
of the members of any committee shall be present in person at any meeting of
such committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
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ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board may from time to time elect or appoint, or
delegate to the President the power to appoint, such other officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer. Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a director of the Corporation.
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Section 6. Bonds or other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex-officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
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Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all ether
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 12. Assistant Secretaries. In the absence or
disability of the Secretary, or when so directed by the Secretary, any Assistant
Secretary may perform any or all of the duties of the Secretary, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any Director.
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ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
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Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof
), receive a dividend, or be allotted or exercise ether rights. The record date
may not be more than ninety (90) days before the date on which the action
requiring the determination will be taken; and, in the case of a meeting of
shareholders, the record date shall be at least ten (10) days before the date of
the meeting. The Board of Directors shall not close the books of the Corporation
against transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Leaders. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
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ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of October in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
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ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the Board of Directors or the shareholders in
accordance with the provisions of the 1940 Act.
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ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify
its directors to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify its Directors
and officers who while serving as Directors or officers also serve at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent consistent with
law. This Article XIII shall not protect any such person against any liability
to the Corporation or any shareholder thereof to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former director or officer
of the Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 (the "1933 Act") and the
1940 Act, as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former
director or officer requesting indemnification or an advance under this Article
XIII, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, the 1933 Act and
the 1940 Act, as such statutes are now or hereafter in force, whether the
standards required by this Article XIII have been met.
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Section 4. Other Rights. The indemnification provided by this
Article XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to time
amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
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1701 Market Street MORGAN, LEWIS
Philadelphia, PA 19103 & BOCKIUS L L P
(215)963-5000 C O U N S E L O R S A T L A W
Fax: (215)963-5299
February 17, 2000
Flag Investors International Fund, Inc.
One South Street
Baltimore, Maryland 21202
Re: Opinion of Counsel regarding Post-Effective Amendment No. 24 to the
Registration Statement filed on Form N-1A under the Securities
Act of 1933 (File No. 33-8479)
---------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Flag Investors International Fund, Inc.
(the "Fund") a Maryland corporation, in connection with the above-referenced
Registration Statement which relates to the Fund's shares of common stock, par
value $.001 per share (the "Shares"). This opinion is being delivered to you in
connection with the Fund's filing of Post-Effective Amendment No. 24 to the
Registration Statement (the "Amendment") to be filed with the Securities and
Exchange Commission pursuant to Rule 485(b) under the Securities Act of 1933.
With your permission, all assumptions and statements of reliance herein have
been made without any independent investigation or verification on our part,
except to the extent otherwise expressly stated, and we express no opinion with
respect to the subject matter or accuracy of such assumptions or items relied
upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the State of Maryland to the existence and good
standing of the Fund dated February 14, 1999;
(b) the Articles of Incorporation of the Fund and all amendments
and supplements thereto (the "Articles of Incorporation");
(c) a certificate executed by Amy M. Olmert, the Secretary of
the Fund, certifying as to the Fund's Articles of
Incorporation and By-Laws and certain resolutions adopted by
the Board of Directors of the Fund authorizing the issuance
of the shares; and
(d) a printer's proof of the Amendment.
<PAGE>
In our capacity as counsel to the Fund, we have examined the originals,
or certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer's proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of
the opinion that the Shares, when issued and sold in accordance with the
Articles of Incorporation and By-Laws, and for the consideration described in
the Registration Statement, will be legally issued, fully paid and nonassessable
under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not concede that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ Morgan, Lewis and Bockius LLP
<PAGE>
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made as of January 15, 2000, by and between FLAG INVESTORS
SERIES FUNDS, INC., a Maryland corporation (the "Fund"), and INVESTMENT COMPANY
CAPITAL CORP., a Maryland corporation ("ICC").
W I T N E S E T H:
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund desires to retain ICC to provide certain services on behalf
of the Fund, as set forth in the Appendices to this Agreement, and ICC is
willing so to serve.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints ICC to perform such services and to
serve such functions on behalf of the Fund as set forth in the Appendices to
this Agreement, on the terms set forth in this Agreement and the Appendices
hereto. ICC accepts such appointment and agrees to furnish such services and
serve such functions. The Fund may have currently outstanding one or more series
or classes of its shares of common stock, par value $.001 per share ("Shares")
and may from time to time hereafter issue separate series or classes of its
Shares or classify and reclassify Shares of any series or class, and the
appointment effected hereby shall constitute appointment for the provision of
services with respect to all existing series and classes and any additional
series and classes unless the parties shall otherwise agree in writing.
2. Delivery of Documents. The Fund has furnished ICC with copies properly
certified or authenticated of the following documents and will furnish ICC from
time to time with copies, properly certified or authenticated, of all amendments
of or supplements thereto, if any:
(a) Resolutions of the Fund's Board of Directors authorizing the appointment
of ICC to act in such capacities on behalf of the Fund as set forth in the
Appendices to this Agreement, and the entering into of this Agreement by the
Fund;
(b) The Fund's Articles of Incorporation and all amendments thereto (the
"Charter") and the Fund's By-Laws and all amendments thereto (the "By-Laws");
(c) The Fund's most recent Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") and under the 1940 Act as
filed with the Securities and Exchange Commission (the "SEC") relating to the
Shares; and
(d) Copies of the Fund's most recent prospectus or prospectuses, including
amendments and supplements thereto (collectively, the "Prospectus").
3. Services to be Provided; Fees. During the term of this Agreement, ICC shall
perform the services and act in such capacities on behalf of the Fund as set
forth herein and in the Appendices to this Agreement. For the services performed
by ICC for the Fund, the Fund will compensate ICC in such amounts as may be
agreed to from time to time by the parties in writing.
4. Records. The books and records pertaining to the Fund that are in the
possession of ICC shall be the property of the Fund. Such books and records
<PAGE>
shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during ICC's normal business hours. Upon the reasonable request of the
Fund, ICC shall provide copies of any such books and records to the Fund or the
Fund's authorized representative at the Fund's expense.
5. Cooperation with Accountants. In addition to any obligations set forth in an
Appendix hereto, ICC shall cooperate with the Fund's independent accountants and
shall take all reasonable actions in the performance of its obligations under
this Agreement to ensure that the necessary information is made available to
such accountants for the expression of such accountants' opinion of the Fund's
financial statements or otherwise, as such may be required by the Fund from time
to time.
6. Compliance with Governmental Rules and Regulations. The Fund assumes full
responsibility for insuring that the Fund complies with all applicable
requirements of the 1933 Act, the Securities Exchange Act of 1934(the "1934
Act"), the 1940 Act, and any laws, rules and regulations of governmental
authorities having jurisdiction. ICC undertakes to comply with all applicable
requirements of the 1933 Act, the 1934 Act, the 1940 Act, the Commodities
Exchange Act (if applicable), and all laws, rules and regulations of
governmental authorities having jurisdiction with respect to the performance by
ICC of its duties under this Agreement, including the Appendices hereto.
7. Expenses. (a) ICC shall bear all expenses of its employees and overhead
incurred in connection with its duties under this Agreement and shall pay all
salaries and fees of the Fund's directors and officers who are employees of ICC.
(b) The Fund assumes and shall pay or cause to be paid all other expenses of
the Fund, including, without limitation: the fees for investment advisory
services, the fees of the administrator and distributor; the charges and
expenses of any registrar, any custodian or depositary appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
stock 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 cost and expense of
engraving or printing of stock certificates representing Shares; all costs and
expenses in connection with maintenance of registration of the Fund and its
Shares with the SEC and various states and other jurisdictions (including filing
fees and legal fees and disbursements of counsel); the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of directors or members of any
advisory board or committee other than such directors or members who are
"interested persons" of the Fund (as defined in the 1940 Act); 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; charges and expenses of legal counsel, including
counsel to the directors of the Fund who are not "interested persons" of the
Fund (as defined in the 1940 Act), and of independent accountants, in connection
with any matter relating to the Fund; a portion of 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
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<PAGE>
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 operation unless
otherwise explicitly provided herein.
8. Liability; Indemnification. Neither ICC nor any of its officers, directors or
employees shall be liable for any error of judgment or for any loss suffered by
the Fund in connection with the matters to which this Agreement, including the
Appendices hereto, relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on its or their part in the performance of, or
from reckless disregard by it or them of, its or their obligations and duties
under this Agreement. The Fund agrees to indemnify and hold harmless ICC and its
nominees from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the 1933 Act, the 1934
Act, the 1940 Act, and any state and foreign securities and blue sky laws, all
as currently in existence or as amended from time to time) and expenses,
including (without limitation) attorneys' fees and disbursements, arising
directly or indirectly from any action or thing which ICC takes or does or omits
to take or do at the request or on the direction of or in reliance on the advice
of the Fund; provided, that neither ICC nor any of its nominees shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability)arising out of ICC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement. Notwithstanding anything else in this
Agreement or any Appendix hereto to the contrary, ICC shall have no liability to
the Fund for any consequential, special or indirect losses or damages which the
Fund may incur or suffer as a consequence of ICC's performance of the services
provided in this Agreement or any Appendix hereto.
9. Responsibility of ICC. ICC shall be under no duty to take any action on
behalf of the Fund except as specifically set forth herein or as may be
specifically agreed to by ICC in writing. In the performance of its duties
hereunder, ICC shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits in performing
services provided for under this Agreement, but ICC shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of ICC or reckless disregard by ICC of its duties
under this Agreement. Notwithstanding anything in this Agreement to the
contrary, ICC shall have no liability to the Fund for any consequential, special
or indirect losses or damages which the Fund may incur or suffer by or as a
consequence of ICC's performance of the services provided hereunder.
10. Non-Exclusivity. The services of ICC to the Fund are not to be deemed
exclusive and ICC shall be free to render accounting or other services to others
(including other investment companies) and to engage in other activities. It is
understood and agreed that directors, officers or employees of ICC may serve as
directors or officers of the Fund, and that directors or officers of the Fund
may serve as directors, officers and employees of ICC to the extent permitted by
law; and that directors, officers and employees of ICC are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
11. Notice. Any notice or other communication required to be given pursuant to
this Agreement shall be deemed duly given if delivered or mailed by registered
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mail, postage prepaid, to the Fund at One South Street, Baltimore, Maryland
21202, Attention: Fund Counsel, or to ICC at One South Street, Baltimore,
Maryland 21202, Attention: Mr. Edward J.Veilleux.
12. Miscellaneous. (a) This Agreement shall become effective as of the date
first above written and shall remain in force until terminated. This Agreement,
or any Appendix hereto, may be terminated at any time without the payment of any
penalty, by either party hereto on sixty (60) days' written notice to the other
party.
(b) This Agreement shall be construed in accordance with the laws of the
State of Maryland.
(c) If any provisions of this Agreement shall be held or made invalid in
whole or in part, the other provisions of this Agreement shall remain in force.
Invalid provisions shall, in accordance with the intent and purpose of this
Agreement, be replaced by mutual consent of the parties with such valid
provisions which in their economic effect come as close as legally possible to
such invalid provisions.
(d) Except as otherwise specified in the Appendices hereto, ICC shall be
entitled to rely on any notice or communication believed by it to be genuine and
correct and to have been sent to it by or on behalf of the Fund.
(e) ICC agrees on behalf of itself and its employees to treat confidentially
all records and other information relative to the Fund and its prior, present,
or potential shareholders, except, after prior notification to and approval in
writing by the Fund, which approval shall not be unreasonably withheld and may
not be withheld where ICC may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such information by
duly constituted authorities, or when so requested by the Fund.
(f) Any part of this Agreement or any Appendix attached hereto may be
changed or waived only by an instrument in writing signed by both parties
hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
FLAG INVESTORS SERIES FUNDS, INC.
____________________________________
By: ____________________________________
Title: ____________________________________
INVESTMENT COMPANY CAPITAL CORP.
____________________________________
By: Edward J. Veilleux
Title: ____________________________________
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<PAGE>
Appendix I
ADMINISTRATION AND SERVICES APPENDIX to
MASTER SERVICES AGREEMENT between
FLAG INVESTORS SERIES FUNDS, INC. and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is dated as of January 15, 2000, and is hereby
incorporated into and made a part of the Master Services Agreement (the "Master
Services Agreement") between FLAG INVESTORS SERIES FUNDS, INC. (the "Fund") and
INVESTMENT COMPANY CAPITAL CORP. ("ICC"). Defined terms not otherwise defined
herein shall have the meaning set forth in the Master Services Agreement.
In consideration of the promises and mutual covenants herein contained,
it is agreed between the parties hereto as follows:
1. Duties.
(a) Administrator. ICC shall, on a continuous basis, furnish the Fund with
such administrative services as the Board of Directors of the Fund reasonably
deems necessary for the proper administration of the Fund. Without limiting the
generality of the foregoing, ICC will
(i) supply executive and administrative services;
(ii) negotiate arrangements with, and supervise and coordinate the
activities of, agents and others retained by the Fund to supply
services to the Fund and/or its shareholders;
(iii) supply stationery and office supplies;
(iv) supply statistical and research data;
(v) prepare agendas and minutes and supply supporting documentation
for meetings of the Boards of Directors of the Fund;
(vi) provide monitoring reports and assistance regarding the Fund's
compliance with its Articles of Incorporation, By-Laws, investment
objectives and policies and federal and state securities laws,
including monthly (or more frequently if required) reports
indicating the legal residence of each beneficial owner (of which
ICC has knowledge) of shares of the Fund purchased during that
month;
(vii) arrange for dissemination of yield and other performance
information in newspapers;
(viii) supply data processing services, clerical, accounting, bookkeeping
and recordkeeping services (including without limitation the
maintenance of such books and records as are required under the
Act and the rules thereunder, except as maintained by other agents
of the Fund);
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(ix) calculate the net asset value, net income and realized capital
gains or losses of the Fund;
(x) prepare and file reports to and filings with the Securities and
Exchange Commission and various state Blue Sky authorities,
including Fund registration statements, periodic reports,
prospectuses, proxy statements and Blue Sky and Rule 24f-2
registrations;
(xi) prepare reports to shareholders of the Fund;
(xii) prepare and file tax returns;
(xiii) arrange for fidelity bond and errors and omissions insurance
coverage; and
(xiv) generally assist in all aspects of the Fund's operations.
2. Delegation of Responsibilities. ICC will from time to time employ or
associate with itself such person or persons as ICC may believe to be
particularly suited to assist it in the performance of this Agreement. The
compensation of such person or persons shall be paid by ICC and no obligation
shall be incurred on behalf of the Fund in such respect.
3. Compensation. As compensation for the services performed by ICC for the Fund
pursuant to this Appendix, the Fund will pay to ICC such amounts as may be
agreed to from time to time by the parties in writing.
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Appendix II
TRANSFER AGENCY SERVICES APPENDIX to
MASTER SERVICES AGREEMENT between
FLAG INVESTORS SERIES FUNDS, INC. and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is dated as of January 15, 2000, and is hereby
incorporated into and made a part of the Master Services Agreement (the "Master
Services Agreement") between FLAG INVESTORS SERIES FUNDS, INC. (the "Fund") and
INVESTMENT COMPANY CAPITAL CORP. ("ICC"). Defined terms not otherwise defined
herein shall have the meaning set forth in the Master Services Agreement.
1. Definitions.
(a) "Authorized Person." The term "Authorized Person" shall mean any officer
of the Fund and any other person, who is fully authorized by the Fund's Board of
Directors, to give Oral and Written Instructions on behalf of the Fund. Such
persons are listed in the Certificate attached hereto.
(b) "Oral Instructions." The term "Oral Instructions" shall mean oral
instructions received by ICC from an Authorized Person or from a person
reasonably believed by ICC to be an Authorized Person.
(c) "Written Instructions." The term "Written Instructions" shall mean
written instructions signed by two Authorized Persons and received by ICC. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Instructions. Unless otherwise provided in this Appendix, ICC shall act only
upon Oral and Written Instructions. ICC shall be entitled to rely upon any Oral
and Written Instruction it receives from an Authorized Person (or from a person
reasonably believed by ICC to be an Authorized Person) pursuant to this
Agreement. ICC may assume that any Oral or Written Instruction received
hereunder is not in any way inconsistent with the provisions of the Fund's
Articles of Incorporation, the Master Services Agreement, or any Appendix
attached thereto, or of any vote, resolution or proceeding of the Fund's Board
of Directors or shareholders.
The Fund agrees to forward to ICC Written Instructions confirming Oral
Instructions so that ICC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by ICC shall in no way
invalidate the transactions or enforceability of the transactions authorized by
the Oral Instructions. The Fund further agrees that ICC shall incur no liability
to the Fund in acting upon Oral or Written Instructions provided such
instructions reasonably appear to have been received from an Authorized Person.
If ICC is in doubt as to any action it should or should not take, ICC may
request directions or advice, including Oral or Written Instructions, from the
Fund. ICC shall be protected in any action it takes or does not take in reliance
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upon directions, advice or Oral or Written Instructions it receives from the
Fund or from counsel and which ICC believes, in good faith, to be consistent
with those directions, advice or Oral of Written Instructions. Notwithstanding
the foregoing, ICC shall have no obligation (i) to seek such directions, advice
or Oral or Written Instructions, or (ii) to act in accordance with such
directions, advice or Oral or Written Instructions unless, under the terms of
other provisions of this Appendix, the same is a condition of ICC's properly
taking or not taking such action.
3. Description of Services.
(a) General Services to be Provided. ICC shall provide to the Fund the
following services on an ongoing basis:
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with shareholders, if
necessary, to complete or correct information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in conjunction with proxy
solicitations; solicit and tabulate proxies; receive and tabulate
proxy cards for meetings of the Fund's shareholders;
(vi) Countersign securities;
(vii) Direct shareholder confirmation of activity;
(viii) Provide toll-free lines for direct shareholder use, plus customer
liaison staff for on-line inquiry response;
(ix) Mail duplicate confirmation to broker-dealers of their clients'
activity, whether executed through the broker-dealer or directly
with ICC;
(x) Provide periodic shareholder lists and statistics to the Fund;
(xi) Provide detail for underwriter/broker confirmations;
(xii) Mail periodic year-end tax and statement information;
(xiii) Provide timely notification to investment advisor, accounting
agent, and custodian of Fund activity; and
(xiv) Perform other participating broker-dealer shareholder services as
may be agreed upon from time to time.
(b) Purchase of Shares. ICC shall issue and credit an account of an investor,
in the manner described in the Prospectus, once it receives: (i)a purchase
order; (ii) proper information to establish a shareholder account; and (iii)
confirmation of receipt by, or crediting of funds for such order to, the Fund's
custodian.
(c) Redemption of Shares. ICC shall redeem the Fund's shares only in
accordance with the provisions of the Prospectus and each shareholder's
individual directions. Shares shall be redeemed at such time as the shareholder
tenders his or her shares and directs the method of redemption in accordance
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with the terms set forth in the Prospectus. If securities are received in proper
form, Shares shall be redeemed before the funds are provided to ICC. When the
Fund provides ICC with funds, redemption proceeds will be wired (if requested)or
a redemption check issued. All redemption checks shall be drawn to the
recordholder unless third party payment authorizations have been signed by the
recordholder and delivered to ICC.
(d) Dividends and Distributions. Upon receipt of certified resolutions of the
Fund's Board of Directors authorizing the declaration and payment of dividends
and distributions, ICC shall issue the dividends and distributions in shares,
or, upon shareholder election, pay such dividends and distributions in cash.
Such issuance or payment shall be made after deduction and payment of the
required amount of funds to be withheld in accordance with any applicable tax
laws or other laws, rules or regulations. The Fund's shareholders shall receive
tax forms and other information, or permissible substitute notice, relating to
dividends and distributions, paid by the Fund as are required to be filed and
mailed by applicable law, rule or regulation. ICC shall maintain and file with
the IRS and other appropriate taxing authorities reports relating to all
dividends and distributions paid by the Fund to its shareholders as required by
tax or other law, rule or regulation.
(e) Shareholder Account Services. If authorized in the Prospectus, ICC shall
arrange for the following services, in accordance with the applicable terms set
forth in the Prospectus: (i) the issuance of Shares obtained through any
pre-authorized check plan and direct purchases through broker wire orders,
checks and applications; (ii) exchanges of shares of any fund for Shares of the
Fund with which the Fund has exchange privileges; (iii)automatic redemption from
an account where that shareholder participates in an automatic redemption plan;
and (iv) redemption of Shares from an account with a check writing privilege.
(f) Communications to Shareholders. Upon timely Written Instructions, ICC
shall mail all communications by the Fund to its shareholders, including,
reports to shareholders, confirmations of purchases and sales of Shares, monthly
or quarterly statements, dividend and distribution notices, and proxy material.
(g) Records. ICC shall maintain records of the accounts for each shareholder
showing the following information: (i) name, address and U.S. Tax Identification
or Social Security number; (ii) number and class of Shares held and number and
class of Shares for which certificates, if any, have been issued, including
certificate numbers and denominations; (iii) historical information regarding
the account of each shareholder, including dividends and distributions paid and
the date and price for all transactions on a shareholder's account; (iv) any
stop or restraining order placed against a shareholder's account; (v) any
correspondence relating to the current maintenance of a shareholder's account;
(vi) information with respect to withholdings; and (vii) any information
required in order for ICC to perform any calculations contemplated or required
by this Appendix or the Master Services Agreement.
(h) Lost or Stolen Certificates. ICC shall place a stop notice against any
certificate reported to be lost or stolen and comply with all applicable federal
regulatory requirements for reporting such loss or alleged misappropriation. A
new certificate shall be registered and issued upon: (i) the shareholder's
pledge of a lost instrument bond or such other appropriate indemnity bond issued
by a surety company approved by ICC; and (ii) completion of a release and
indemnification agreement signed by the shareholder to protect ICC.
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(i) Shareholder Inspection of Stock Records. Upon requests from Fund
shareholders to inspect stock records, ICC will notify the Fund and the Fund
shall deliver Oral or Written Instructions granting or denying each such
request. Unless ICC has acted contrary to the Fund's Instructions, the Fund
agrees to release ICC from any liability for refusal or permission for a
particular shareholder to inspect the Fund's shareholder records.
(j) Withdrawal of Shares and Cancellation of Certificates. Upon receipt of
Written Instructions, ICC shall cancel outstanding certificates surrendered by
the Fund to reduce the total amount of outstanding shares by the number of
shares surrendered by the Fund.
(k) Telephone Transactions. In accordance with the terms of the Prospectus,
ICC shall act upon shareholder requests made by telephone for redemption or
exchange of shares; provided that (i) the shareholder has authorized telephone
transactions on the Fund's Account Application or otherwise in writing, (ii) if
the request is a redemption, the amount to be redeemed does not exceed $50,000
and (iii) ICC has complied with the identification and other security procedures
required by the Fund in connection with telephone transactions.
4. Fees. As compensation for the services performed by ICC for the Fund pursuant
to this Appendix, the Fund will pay to ICC such amounts as may be agreed to from
time to time by the parties in writing.
5. Delegation of Responsibilities. ICC may subcontract to any third party all or
any part of its obligations under this Appendix; provided that any such
subcontracting shall not relieve ICC of any of its obligations under this
Appendix. All subcontractors shall be paid by ICC.
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Appendix III
ACCOUNTING SERVICES APPENDIX to
MASTER SERVICES AGREEMENT between
FLAG INVESTORS SERIES FUNDS, INC. and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is dated as of January 15, 2000, and is hereby incorporated
into and made a part of the Master Services Agreement (the "Master Services
Agreement") between FLAG INVESTORS SERIES FUNDS, INC. (the "Fund") and
INVESTMENT COMPANY CAPITAL CORP. ("ICC"). Defined terms not otherwise defined
herein shall have the meaning set forth in the Master Services Agreement.
1. Accounting Services to be Provided. ICC will perform the following accounting
functions if required:
(a) Journalize investment, capital share and income and expense;
(b) Verify investment buy/sell trade tickets when received from the Fund's
investment advisor and transmit trades to the Fund's custodian for proper
settlement;
(c) Maintain individual ledgers for investment securities;
(d) Maintain tax lots for each security;
(e) Reconcile cash and investment balances with the custodian, and provide
the Fund's investment advisor with the beginning cash balance available
for investment purposes;
(f) Update the cash availability throughout the day as required by the Fund's
investment advisor;
(g) Post to and prepare the Fund's Statement of Net Assets and Liabilities
and the Statement of Operations;
(h) Calculate various contractual expenses (e.g., advisor and custody fees);
(i) Monitor the expense accruals and notify Fund management of any proposed
adjustments;
(j) Control all disbursements from the Fund and authorize such disbursements
upon written instructions from the President or any other officer of the
Fund or the investment advisor;
(k) Calculate capital gains and losses;
(l) Determine the Fund's net income;
(m) Obtain security market quotes from independent pricing services approved
by the investment advisor, or if such quotes are unavailable, then obtain
such prices from the investment advisor, and in either case calculate the
market value of portfolio investments;
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(n) Transmit or mail a copy of the daily portfolio valuation to the Fund's
investment advisor;
(o) Compute the Fund's net asset value;
(p) As appropriate, compute the yields, total return, expense ratios,
portfolio turnover rate;
(q) Prepare a monthly financial statement, which will include the following
items:
o Schedule of Investments;
o Statement of Net Assets and Liabilities;
o Statement of Operations;
o Statement of Changes in Net Assets;
o Cash Statement;
o Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
o Federal and State Tax Returns;
o Excise Tax Returns;
o Annual, Semi-Annual and Quarterly Shareholder Reports;
o Rules 24 (e)-2 and 24 (f)-2 Notices;
o Annual and Semi-Annual Reports on Form N-SAR;
o Monthly and Quarterly Statistical Data Information Reports Sent to
Performance Tracking Companies;
(s) Assist in the Blue Sky and Federal registration and compliance process;
(t) Assist in the review of registration statements; and
(u) Assist in monitoring compliance with Sub-Chapter M of the Internal
Revenue Code.
2. Records. ICC shall keep the following records: (a) all books and records with
respect to the Fund's books of account; and (b) records of the Fund's securities
transactions.
3. Liaison with Accountants. In addition to ICC's obligations relating to the
Fund's independent accountants set forth in the Master Services Agreement, ICC
shall act as liaison with the Fund's independent accountants and shall provide
account analyses, fiscal year summaries, and other audit related schedules.
4. Compensation. For services performed by ICC pursuant to this Appendix, the
Fund will pay to ICC compensation for such services as the parties may agree to
from time to time in writing.
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INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 24 to Registration Statement No. 33-8479 of our report dated December 3,
1999 appearing in the Flag Investors International Fund, Inc. Annual Report for
the year ended October 31, 1999, which is also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" in the Prospectus and "Independent Accountants"
in the Statement of Additional Information, both of which are parts of such
Registration Statement.
Deloitte & Touche LLP
Princeton, New Jersey
February 25, 2000
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the reference to us under the heading "Independent
Accountants" in the Statement of Additional Information in the Post-Effective
Amendment No. 24 to the Registration Statement of Flag Investors International
Fund, Inc. on Form N-1A.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 24, 2000
<PAGE>
EHHIBIT 24.1
FLAG INVESTORS SERIES FUNDS, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, 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 or her 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 or her 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 Equity 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 any 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 or her hand
and seal as of the date set forth below.
/s/ Rebecca W. Rimel
-------------------------
Rebecca W. Rimel
Date: February 29, 2000
<PAGE>
EXHIBIT 24.1
FLAG INVESTORS SERIES FUNDS, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his or her 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 or her 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 Equity 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 any 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 or her hand
and seal as of the date set forth below.
/s/ Richard T. Hale
-------------------------
Richard T. Hale
Date: February 29, 2000
<PAGE>
FORM OF
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 15th day of
January, 2000 by and among FLAG INVESTORS SERIES FUNDS, INC., on behalf of
Flag Investors International Equity Fund, a Maryland corporation (the " Fund"),
INTERNATIONAL EQUITY PORTFOLIO, a New York trust (the "Portfolio"), BANKERS
TRUST, a New York corporation (the "Advisor") and INVESTMENT COMPANY CAPITAL
CORP., a Maryland corporation (the "ICC" or the "Administrator"), with respect
to the following:
WHEREAS, the Advisor serves as the Portfolio's investment advisor
pursuant to an Investment Advisory Agreement dated June 4, 1999 and ICC serves
as the Fund's administrator pursuant to a Master Services Agreement dated
February 29, 2000; and
WHEREAS, the Fund, the Advisor and the Administrator desire to enter
into a contractual fee waiver and expense reimbursement arrangement for the
period beginning on January 15, 2000 and ending on February 28, 2001.
NOW THERETOFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. The Advisor and Administrator agree to waive their fees and
reimburse expenses for the period from February 29, 2000 and ending
on February 28, 2001 to the extent necessary so that the Fund's
total annual operating expenses do not exceed 1.50% of the Class A
Shares' average daily net assets and 2.25% of the Class B Shares'
and the Class C Shares' respective average daily net assets.
2. Upon the termination of the Investment Advisory Agreement or the
Master Services Agreement, this Agreement shall automatically
terminate.
3. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term
or provision of the Investment Company Act of 1940 as amended (the
"1940 Act") shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any,
by the United States Courts or in the absence of any controlling
decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this
Agreement is revised by rule, regulation or order of the SEC, such
provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement
shall be interpreted in accordance with the laws of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL]
FLAG INVESTORS SERIES FUNDS, INC.
Attest: by:
-------------------- -----------------------------
Name: Daniel O. Hirsch By: Amy Olmert
Title: Secretary
INTERNATIONAL EQUITY PORTFOLIO
Attest: by:
-------------------- -----------------------------
Name: Amy M. Olmert By: Daniel O. Hirsch
Title: Secretary
BANKERS TRUST
Attest: by:
-------------------- -----------------------------
Name: Amy M. Olmert By: Ross Youngman
Title: Managing Director
INVESTMENT COMPANY CAPITAL CORP.
Attest: by:
-------------------- -----------------------------
Name: Amy M. Olmert By: Edward J. Veilleux
Title: Executive Vice President
<PAGE>
FLAG INVESTORS SERIES FUNDS, INC. - CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in Rule 12b-1
(the "Rule") under the Investment Company Act of 1940, as amended (the "1940
Act") of the Flag Investors Class B Shares (the "Shares") of the series (as set
forth in Exhibit A) of Flag Investors Series Funds, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) The Fund's distributor (the "Distributor") is
authorized, pursuant to the Plan, to make payments to any Participating Dealer
under a Sub-Distribution Agreement, to accept payments made to it under the
Distribution Agreement and to make payments on behalf of the Fund to Shareholder
Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to the Distributor under
the Distribution Agreement with respect to distribution of the Shares which is
an annual fee, calculated on an average daily net basis and paid monthly, equal
to 0.75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. The Distributor is authorized, pursuant to the Plan,
from sums paid to it under the Distribution Agreement, to purchase advertising
for the Shares, to pay for promotional or sales literature and to make payments
to sales personnel affiliated with it for their efforts in connection with sales
of Shares. Any such advertising and sales material may include references to
other open-end investment companies or other investments, provided that expenses
relating to such advertising and sales material will be allocated among such
other investment companies or investments in an equitable manner, and any sales
personnel so paid are not required to devote their time solely to the sale of
Shares.
<PAGE>
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which the Distributor is
authorized to pay or cause to be paid on its behalf and such payments shall not
be included in the limitations contained in this Plan. These expenses include:
the fees of the Fund's investment advisor and the Distributor; 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 fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with maintenance of registration of the Fund and its shares with the
Securities and Exchange Commission and various states and other jurisdictions
(including filing fees and 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 of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director 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 Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public 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 operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. The Distributor and Participating Dealers may
expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. The Distributor will report to
the Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following:
(i) the amounts of all payments under the Plan, the identity of the
recipients of each such payment;
(ii) the basis on which the amount of the payment to such recipient was
made;
(iii) the amounts of expenses authorized under this Plan and the purpose of
each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case
during the preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a) This Plan has
been approved by a vote of the Board of Directors of the Fund and of a majority
of the Directors who are not interested persons (as defined in the 1940 Act),
cast in person at a meeting called for the purpose of voting on this Plan. This
Plan shall, unless terminated as hereinafter provided, continue in effect from
year to year only so long as such continuance is specifically approved at least
annually by the vote of the Fund's Board of Directors and by the vote of a
majority of the Directors of the Fund who are not interested persons (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of voting
on such continuance.
(b) This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the amount of
payments to be made without approval by a vote of the holders of at least a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) and all amendments must be approved by the Board of Directors in the manner
set forth under (a) above.
Page 2
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
for
FLAG INVESTORS SERIES FUNDS, INC.
CLASS B SHARES
The following series are covered under the Distribution Plan for Class
B Shares of the Flag Investors Series Funds, Inc.:
Flag Investors International Equity Fund - Class B Shares
Page 3
<PAGE>
FLAG INVESTORS SERIES FUNDS, INC. - CLASS C SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in Rule 12b-1
(the "Rule") under the Investment Company Act of 1940, as amended (the "1940
Act") of the Flag Investors Class C Shares (the "Shares") of the series (as set
forth in Exhibit A) of Flag Investors Series Funds, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) The Fund's distributor (the "Distributor") is
authorized, pursuant to the Plan, to make payments to any Participating Dealer
under a Sub-Distribution Agreement, to accept payments made to it under the
Distribution Agreement and to make payments on behalf of the Fund to Shareholder
Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to the Distributor under
the Distribution Agreement with respect to distribution of the Shares which is
an annual fee, calculated on an average daily net basis and paid monthly, equal
to 0.75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. The Distributor is authorized, pursuant to the Plan,
from sums paid to it under the Distribution Agreement, to purchase advertising
for the Shares, to pay for promotional or sales literature and to make payments
to sales personnel affiliated with it for their efforts in connection with sales
of Shares. Any such advertising and sales material may include references to
other open-end investment companies or other investments, provided that expenses
relating to such advertising and sales material will be allocated among such
other investment companies or investments in an equitable manner, and any sales
personnel so paid are not required to devote their time solely to the sale of
Shares.
<PAGE>
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which the Distributor is
authorized to pay or cause to be paid on its behalf and such payments shall not
be included in the limitations contained in this Plan. These expenses include:
the fees of the Fund's investment advisor and the Distributor; 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 fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with maintenance of registration of the Fund and its shares with the
Securities and Exchange Commission and various states and other jurisdictions
(including filing fees and 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 of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director 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 Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public 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 operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. The Distributor and Participating Dealers may
expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. The Distributor will report to
the Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following:
(i) the amounts of all payments under the Plan, the identity of the
recipients of each such payment;
(ii) the basis on which the amount of the payment to such recipient was
made;
(iii) the amounts of expenses authorized under this Plan and the purpose of
each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case
during the preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a) This Plan has
been approved by a vote of the Board of Directors of the Fund and of a majority
of the Directors who are not interested persons (as defined in the 1940 Act),
cast in person at a meeting called for the purpose of voting on this Plan. This
Plan shall, unless terminated as hereinafter provided, continue in effect from
year to year only so long as such continuance is specifically approved at least
annually by the vote of the Fund's Board of Directors and by the vote of a
majority of the Directors of the Fund who are not interested persons (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of voting
on such continuance.
(b) This Plan may be terminated at any time by a vote of a majority of
the Directors who are not interested persons (as defined in the 1940 Act) or by
the vote of the holders of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the amount of
payments to be made without approval by a vote of the holders of at least a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) and all amendments must be approved by the Board of Directors in the manner
set forth under (a) above.
Page 2
<PAGE>
EXHIBIT A
DISTRIBUTION PLAN
for
FLAG INVESTORS SERIES FUNDS, INC.
CLASS C SHARES
The following series are covered under the Distribution Plan for Class
C Shares of the Flag Investors Series Funds, Inc.:
Flag Investors International Equity Fund - Class C Shares
Page 3
