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[INSERT FLAG INVESTORS LOGO]
International Equity Fund
(Class A, Class B, and Class C Shares)
Prospectus & Application - February 29, 2000, as supplemented through
March 16, 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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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
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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.
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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,**
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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
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*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)
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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)
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(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.
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FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
Shareholder Fees:
(fees paid directly from your investment)
<TABLE>
<CAPTION>
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Class A Shares Class B Shares Class C Shares
Initial Sales Deferred Deferred
Charge Sales Charge Sales Charge
Alternative Alternative Alternative
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<S> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 5.50% None None
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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)
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Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
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Redemption Fee None None None
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Exchange Fee None None None
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Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)(4)
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Management Fees 0.65% 0.65% 0.65%
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Distribution and/or Service (12b-1) Fees 0.25% 0.75% 0.75%
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Other Expenses (including a 0.25% shareholder
servicing fee for Class B and Class C Shares) 1.85% 2.10%(5) 2.10%(5)
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Total Annual Fund Operating Expenses 2.75% 3.50% 3.50%
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Less: Fee Waivers and/or Expense Reimbursement(6) (1.25)% (1.25)% (1.25)%
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Net Expenses 1.50% 2.25% 2.25%
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</TABLE>
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(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.
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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
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* 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
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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 Class A Shares of the
Fund also have an expense ratio of 1.50% after fee waivers. The performance
results shown do not reflect the maximum sales charge applicable to such Shares.
Year Deutsche Fund Returns MSCI EAFE Index Returns
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1993 37.38% 32.56%
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1994 4.11% 7.78%
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1995 16.10% 11.21%
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1996 21.32% 6.05%
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1997 17.37% 1.78%
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1998 20.82% 20.00%
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1999 32.22% 26.96%
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Year Deutsche Fund Returns MSCI EAFE Index Returns
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1 year 32.22% 26.96%
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5 years 21.44% 12.83%
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Since inception (8/4/92) 19.25% 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
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The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Class A Shares,
the price you pay may be increased by a sales charge. When you redeem 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.
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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
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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
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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
[3/00]
