[LOGO OMITTED]
FLAG INVESTORS
INVESTING WITH A DIFFERENCE(REGISTRATION MARK)
INTERNATIONAL
EQUITY FUND
Annual Report
October 31, 2000
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FLAG INVESTORS INTERNATIONAL EQUITY FUND
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TABLE OF CONTENTS
REPORT HIGHLIGHTS ................................... 1
LETTER TO SHAREHOLDERS .............................. 2
PERFORMANCE ......................................... 11
FLAG INVESTORS INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities .............. 18
Statement of Operations .......................... 19
Statements of Changes in Net Assets .............. 20
Financial Highlights ............................. 22
Notes to Financial Statements .................... 27
Report of Independent Accountants ................ 34
Tax Information .................................. 35
Shareholder Meeting .............................. 36
INTERNATIONAL EQUITY PORTFOLIO
Schedule of Investments ........................... 37
Statement of Assets and Liabilities ............... 46
Statement of Operations ........................... 47
Statements of Changes in Net Assets ............... 48
Financial Highlights .............................. 50
Notes to Financial Statements ..................... 52
Report of Independent Accountants ................. 58
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REPORT HIGHLIGHTS
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o The Fund's Class A Shares produced a total return of -24.34% (excluding sales
charges) for the twelve months ended October 31, 2000, underperforming the
Morgan Stanley Capital International ("MSCI") EAFE Index return of -2.90% for
the same time period.
o Most world equity markets achieved new highs during the closing weeks of 1999,
as Y2K fears abated. However, lingering concerns that stock valuations had
become stretched while economic fundamentals were weakening led investors to
flee European, Japanese, Asian and emerging equities markets during much of
2000. A series of interest rate increases in the US and Europe, as well as
Japan's first rate hike in a decade, further clouded investor sentiment.
o The Fund experienced two major changes during the twelve month period. First,
as indicated in previous shareholder reports, the Deutsche Asset Management
portfolio management team assumed responsibility for this Fund on February 29,
2000, and began changing the structure of the portfolio at that time. Second,
just as the team completed the process of restructuring the portfolio, the
EAFE markets were hit by extreme volatility. For the six months ended October
31, 2000, the MSCI EAFE Index was down 9.01%.
o Overall, we believe that recent international market weakness can be
attributed to short-term influences rather than fundamental economic or
political crises seen in previous years. We remain constructive on the
overseas markets over the long term, as demographics and public policy are
favorable for continued and expanding equity ownership by investors throughout
the world. Based on management activity since the end of February, we believe
the Fund's portfolio is currently well-positioned to benefit from this
positive outlook.
1
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LETTER TO SHAREHOLDERS
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Dear Shareholder:
We are pleased to present you with this annual report for the Flag
Investors International Equity Fund (formerly the Flag Investors International
Fund; the "Fund"). It provides a detailed review of the markets, the Portfolio,
and our outlook as well as a complete financial summary of the Fund's operations
and a listing of the Portfolio's holdings.
FUND PERFORMANCE
For the fiscal year, the International Equity Fund underperformed its
benchmark. The Fund's Class A shares produced a return of -24.34% (excluding
sales charges) for the twelve months ended October 31, 2000, as compared to
-2.90% for the MSCI EAFE Index. The Fund's Class B and Class C shares have an
inception date of February 29, 2000 and the Fund's Institutional Shares have an
inception date of July 31, 2000. Thus, these share classes have not been in
operation for a full twelve months.
The Fund experienced two major changes during the twelve month period.
First, as indicated in previous shareholder reports, the Deutsche Asset
Management portfolio management team assumed responsibility for this Fund on
February 29, 2000 and began changing the structure of the portfolio at that
time. Second, just as the team completed the process of restructuring the
portfolio, the EAFE markets were hit by extreme volatility based on questionable
growth expectations. Short-term sector rotations also led to the kind of abrupt
swings in performance not seen since the emerging market crises of 1997 and
1998. For the six months ended October 31, 2000, the MSCI EAFE Index was down
9.01%. Still, based on management activity since the end of February, we believe
the Fund's portfolio is currently well-positioned to benefit from a positive
outlook for the world's equity markets.
SINCE WE BEGAN MANAGING THE FUND, WE PURSUED A PREFERENCE FOR CONTINENTAL
EUROPEAN EQUITIES, WHILE MAINTAINING A NEUTRAL WEIGHTING IN THE REGION.
o We believe the profound changes taking place in the Eurozone will have a
deep and long-lasting impact on trade, economic growth and domestic
prosperity both within the region and throughout the world. As part of
the ongoing restructuring of European businesses, spin-offs of non-core
assets and strategic alliances also provided rare opportunities.
o We were underweight in the United Kingdom and Japan, EAFE's largest
markets, because we felt better stock specific investment opportunities
lay elsewhere.
2
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o We significantly reduced Fund exposure to Asia ex-Japan and emerging
markets based on sensitivities to a slowing in global economic growth
rates.
o We were buyers of Canada, the best performing market of the past year,
because of exciting technology, capital equipment and financial sector
opportunities there.
OVER THE LAST SIX MONTHS OF THE PERIOD, WE SIGNIFICANTLY REDUCED THE FUND'S
EXPOSURE TO THE VOLATILE TELECOMMUNICATIONS AND TECHNOLOGY SECTORS, BASED ON
WHAT WE BELIEVED TO BE RICH VALUATIONS, PEAKING FUNDAMENTALS AND HIGHER CAPITAL
EXPENDITURE REQUIREMENTS. WE REMAINED OVERWEIGHT IN ATTRACTIVELY PRICED
TECHNOLOGY STOCKS AND UNDERWEIGHT IN TELECOMMUNICATIONS.
o We expect that next year will represent the near-term peak in
semiconductor profits, but unlike previous cycles, supply restraint will
prevent earnings from collapsing. We sold or trimmed several
semiconductor-related companies such as Europe's ASM Lithography and
STMicroelectronics, Japan's PC giant Fujitsu, and emerging Asia's Samsung
Electronics, Hyundai Electronics, United Microelectronics and Malaysian
Pacific Industries.
o Evidence of slowing handset sales and lower capital spending by telecom
operators led us to take profits in communications equipment
manufacturers Nokia, Alcatel and Nortel and to sell Ericsson. Software
names were also reduced, including Sema Group, Intershop Communications,
and Satyam Computer.
o European governments' overly successful auctions for third generation
mobile licenses highlighted the high cost of participation in this
competitive arena. Margin pressures, compounded by capacity buildups, are
also emerging for telecom providers globally. Thus, we lowered our
overall exposure through the reduction or sale of KPN, KPNQwest, Sonera,
Telefonica, Cable & Wireless, Colt, NTT, NTT Docomo, Optus, Telstra, SK
Telecom, Embratel, and Telmex.
THE COMBINATION OF A WEAKENING GLOBAL ECONOMY AND EXPECTATIONS OF A SHARP
FALL-OFF IN INTERNET ADVERTISING LED US TO UNDERWEIGHT THE FUND'S MEDIA POSITION
DURING THE LAST SIX MONTHS OF THE PERIOD.
o We believe the Internet will expand as a powerful force in
communications, commerce and productivity. However, valuations remain a
persistent issue.
o We sold cable and broadcast players Canal Plus, NTL, PT Multimedia and
Ucoma as well as other media concerns including Seat Pagine, TF1, News
Corp, Singapore Press Holdings and Televisa.
3
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LETTER TO SHAREHOLDERS (CONTINUED)
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WE SIGNIFICANTLY RE-ORIENTED THE PORTFOLIO TOWARDS FINANCIAL STOCKS,
PRIMARILY AS A RESULT OF ATTRACTIVE CONTINENTAL EUROPEAN AND CANADIAN GROWTH
PROSPECTS AND VALUATIONS.
o As we near what we feel to be the peak of the current interest rate cycle
and an economy undergoing a soft landing, we believe banks will be key
beneficiaries of widening interest rate spreads and moderate economic
growth. We feel comfortable with the European and Canadian banks' asset
quality given the less extended credit cycle there. We particularly favor
asset-gathering banks and insurance companies that are well positioned to
capture the rising equity culture, especially in continental Europe.
o We were overweight in the insurance group with several additions to the
Portfolio. These include Canada's Sun Life Financial Services and
Manulife Financial, Italy's Riunione Adriaticadi Sicurta and Generali,
and Switzerland's Zurich Financial and Swiss Reinsurance.
o Other financials that were added include Germany's Dresdner Bank,
Netherlands' ABN Amro Holdings and Fortis, Spain's Banco Popular Espanol,
UK's Royal Bank of Scotland and Hungary's OTP Bank.
o In Spain, we sold Banco Santander Central Hispano given its similar
profile to and our preference for Banco Bilbao Vizcaya Argenta. We sold
Japanese consumer finance companies Nichiei and Shohkoh Fund due to
deteriorating industry fundamentals.
WE INCREASED HOLDINGS IN THE ENERGY AND OIL SERVICES SECTOR TO CAPTURE
IMPROVING INDUSTRY FUNDAMENTALS AND THE RECOVERY IN DRILLING ACTIVITY.
o OPEC production restraint amidst higher global demand led to a tripling
of oil prices, benefiting many key industry participants.
o We purchased integrated oil leader BP Amoco, which has bid for ARCO, and
Shell T&T, an undervalued oil major with significant restructuring
potential. We also added to the Portfolio's position in Total Fina Elf,
which is benefiting from merger synergies.
o We purchased emerging market oil companies Petrobras of Brazil and
PetroChina, oil services firms Petroleum Geo Services and Saipem, and
wind turbine developer Vestas Wind Systems.
OTHER SIGNIFICANT ACTIVITY IN THE PORTFOLIO WAS FOCUSED ON DEFENSIVE GROWTH
AREAS.
o Within the consumer staples sector, we either purchased or added to
positions in food retailer Ahold, food producer Nestle and Numico,
household products manufacturer Reckitt Benckiser, and tobacco firm
Altadis.
4
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o We moved to an overweighting in pharmaceutical and biotechnology through
investments in Aventis, Elan, Glaxo Wellcome, Serono, and Celltech.
o We added select consumer discretionary firms viewed as more resilient to
any consumption slowdown. These included Japan's audio and video
equipment leader Pioneer and France's luxury goods manufacturer Christian
Dior.
INVESTMENT ENVIRONMENT
MOST WORLD EQUITY MARKETS ACHIEVED NEW HIGHS DURING THE CLOSING WEEKS OF
1999, AS Y2K FEARS ABATED. HOWEVER, LINGERING CONCERNS THAT STOCK VALUATIONS HAD
BECOME STRETCHED WHILE ECONOMIC FUNDAMENTALS WERE WEAKENING LED INVESTORS TO
FLEE EQUITIES DURING MUCH OF 2000.
o A series of interest rate increases in the US and Europe, as well as
Japan's first rate hike in a decade, further clouded the outlook for
equities.
o A dramatic rise in the tech-laden NASDAQ Composite Index in the early
months of the fiscal year and a relatively tight correlation with foreign
stocks offering similar attributes was followed by a sharp downturn in
global equity indices beginning in mid-March. The dot.com bubble burst,
and sectors rotated abruptly. Valuations, which seemed to matter little
to investors during the first half of the period, suddenly became
important.
o Europe was particularly impacted by the failure of central bank
coordination and intervention to stop the euro currency from touching new
lows against the US dollar and Japanese yen.
o The abrupt departure of foreign investors from the Japanese market, due
to concerns regarding the pace of both economic recovery and
restructuring efforts, unwound 20 months of strong Nikkei performance.
o After being adversely impacted by higher interest rates and decreased
liquidity, emerging markets were further hurt by fears that impending
slower world economic growth would cut short domestic economic recovery
and export demand.
EUROPE
EUROPE OVERALL POSTED A BARELY POSITIVE 1.2% RISE IN US DOLLAR TERMS FOR
THE FISCAL YEAR, GIVING BACK DURING THE SECOND HALF MUCH OF THE GAINS EARNED
DURING THE FIRST HALF. THE CONTINENT (EXCLUDING THE UK) OUTPERFORMED, WITH
RETURNS IN US DOLLAR TERMS OF 3.8% VERSUS -5.9% FOR THE UK.
o The euro's 19.3% decline over the twelve months due to strong demand for
assets outside of the region, and particularly in the US, severely
dampened returns.
5
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LETTER TO SHAREHOLDERS (CONTINUED)
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o Despite several attempts by the European Central Bank to prop up the
sagging euro with interest rate increases and foreign exchange market
intervention, the currency continued to set new lows.
o The fall from grace experienced by bellwether European technology, media
and telecommunications service and equipment stocks lowered domestic
indices.
o Downward revisions in the pace of European economic growth weighed on
investor sentiment.
o Although currency weakness may contribute to the illusion that confidence
is lacking in the region, European markets continued to demonstrate the
benefits of Economic and Monetary Union, corporate restructuring and tax
reform efforts. In fact, for the European investor, this was a banner
year for domestic equity market performance. Local investors enjoyed a
27.8% annual return on the continent (excluding the UK) and a 6.4% annual
return in the UK.
FOR THE SECOND HALF OF THE FISCAL YEAR, EUROPE RETURNED -6.7% IN US DOLLAR
TERMS. AFTER POSTING A STRONG FIRST HALF AND A FLAT SECOND HALF IN LOCAL
CURRENCY, THE WEAK EURO AND CORRELATED CURRENCIES LED TO NEARLY ACROSS THE BOARD
LOSSES. THE IMPACT WAS FELT BOTH IN CORE LARGE MARKETS AND TECHNOLOGY-SENSITIVE
NORDIC MARKETS.
o Germany led the way down on weaker economic news falling 12.2%, while
neighbor France dropped 6.4% in US dollar terms.
o Finland and Sweden lost 30.8% and 27.2%, respectively, weighed down by
bellwethers Nokia and Ericsson.
o Italy was able to buck the trend by rising 1.9% on strong financial
sector performance.
o Although not part of the Eurozone, the United Kingdom also saw currency
weakness drag down a respectable local currency gain to register a 2.8%
decline in dollars.
ASIA
AFTER LEADING MAJOR EQUITY INDICES IN CALENDAR 1999, THE JAPANESE EQUITY
MARKET GAVE BACK ALL OF ITS GAINS AND MORE, FALLING 14.4% OVER THE LAST SIX
MONTHS AND 11.6% FOR THE FISCAL YEAR IN US DOLLAR TERMS.
o Foreign investors were punished for believing that a sustainable economic
recovery, which could buoy company profits, was in place.
o The anemic pace of corporate restructuring announcements, the rollback of
financial reform efforts and the increasing number of small and large
company bankruptcies further undermined investor sentiment. For example,
the collapse of retailer Sogo and insurers Kyoei Life and Chiyoda Life,
after desperate attempts to prop up sagging balance sheets, severely
diminished investor confidence.
6
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o The beleaguered bank sector had been declared saved after massive
government capital injections. However, it lost nearly one-third of its
value during the fiscal period, experiencing its 33rd consecutive month
of lending declines.
o Hope that with the maturity of postal savings accounts domestic investors
would flood into equities was dashed as the market tumbled just after the
end of the March 31 fiscal year.
o The first hike in Japanese interest rates in a decade was seen as a
threat to the fragile recovery, much as a previous consumption tax
increase had done so.
ASIA EX-JAPAN CONTRACTED 25.5% IN US DOLLAR TERMS DURING THE SIX-MONTH
PERIOD ENDING OCTOBER 31 AND 5.3% OVER THE TWELVE MONTH PERIOD.
o The region suffered from domestic challenges as well as negative
international factors. These included slowing global growth, higher oil
prices, a downturn in the semiconductor cycle, a de-rating of global
telecom companies and increased global risk aversion.
o Hong Kong and Singapore were least exposed to these factors and benefited
from their traditional "safe haven" status in times of market volatility.
o On the other hand, higher oil prices had a detrimental effect on Korea,
India, the Philippines and Thailand.
o Taiwan and South Korea were hurt by domestic concerns, dropping 36.6% and
35.1% over the last six months and 30.0% and 33.8% for the fiscal year,
respectively. These declines were despite high earnings growth and
inexpensive valuations. Exposure to the global technology cycle and
political uncertainty were felt in both markets.
o South Korea's credit crunch and dissatisfaction with its reform progress
hampered equity purchases despite the pledge of 40-50 trillion won for
financial restructuring. Ford Motor's pullout in September of its Daewoo
Motor purchase damaged sentiment.
OTHER MARKETS
Emerging markets fell 19.9% in US dollar terms for the latter half of the
period and 8.8% for the full fiscal year.
LATIN AMERICAN MARKETS OVERALL PERFORMED STRONGLY, WITH BOTH MEXICO AND
VENEZUELA BENEFITING FROM HIGHER OIL PRICES.
o Argentina, however, shook regional confidence with its fiscal problems,
political scandal and debt load concerns.
7
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LETTER TO SHAREHOLDERS (CONTINUED)
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o Brazil was hurt by weakness in telecom stocks, concerns over the
inflationary impact of higher oil prices and Argentina contagion fears.
Investor sentiment improved following Moody's upgrade of Brazil's debt
rating to B1.
EMERGING EUROPE, OFF 24.2% IN DOLLAR TERMS FOR THE SECOND HALF OF THE YEAR
AND 5.6% OVER TWELVE MONTHS, PROVED TO BE LESS RESILIENT.
o Turkey led the region down on concerns that it would be unable to adhere
to International Monetary Fund proposals.
o Poland and Hungary were lackluster, given deterioration in continental
Europe's leading indicators.
o Although Russia was a beneficiary of high oil prices, its market declined
following lapses in corporate governance.
LOOKING AHEAD
As we near what we believe to be the peak of the current interest rate
cycle, we believe there is considerable room for rate reductions in the coming
year to spur economic growth. We believe that in the near term earnings
expansion may slow to reflect moderate global demand. Our most likely scenario
is for a "soft-landing."
IN EUROPE, WE ANTICIPATE A FIRMER EURO AND GREATER INVESTOR CONFIDENCE IN
EQUITIES IN THE MONTHS AHEAD.
o The 11 member countries of the Eurozone saw unemployment fall to 9.0% in
September, down from over 10.0% a year ago.
o With currency risk mitigated by the introduction of the euro, Eurozone
investors continue to shift from money market and bond investments to
equities. However, they are still significantly underexposed to
longer-term savings products versus Anglo-Saxon investors.
o Though reduced, the outlook for earnings growth is still positive. With
short-term interest rates believed to be at or near peak levels and scope
for bond yields expected to decline, equity valuations should be well
supported. From a valuation perspective, the UK is looking the most
attractive of the major European markets for the first time in two years,
and we are intensifying our bottom-up research efforts there.
o Tax reform, both corporate and household, is proceeding more rapidly than
we initially anticipated. Marginal rates throughout the region are
expected to be at or below US levels in several years.
o Restructuring and consolidation, heightened sensitivity to minority
shareholders and shareholder value, and improving labor force flexibility
are resulting in pressure to allocate capital more rationally.
8
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o These trends support the rapid rise of an equity culture. They are also
expected to lead to positive fund flows into the region from both
portfolio and corporate investors.
WE BELIEVE THAT THE MUCH-TRUMPETED JAPANESE RECOVERY OFFERS LITTLE OF
SUBSTANCE FOR MANY DEEP-ROOTED AND FUNDAMENTAL REASONS.
o A lack of political resolve has led to a "lost decade" for economic
growth, which is clearly being felt by consumers refusing to spend.
o The pace of fiscal and financial sector reform has stalled and
announcements of corporate restructuring efforts have all but ended.
o A rollback of many of the "big bang" efforts to stimulate the troubled
financial sector bodes ill for financial transparence and equity demand.
o Foreigners are not likely to be strong net buyers of the Japanese equity
market in the near future, given the miserable turnabout they have
experienced recently.
o Thus, investors will need to be selective and willing to trade out of
positions quickly in order to preserve gains in this contradictory
market.
IN ASIA EX-JAPAN AND THE EMERGING MARKETS OVERALL, CONCERNS ABOUT SLOWING
GLOBAL GROWTH, THE GLOBAL TECHNOLOGY CYCLE, RESTRUCTURING, COMMODITY PRICES AND
THE DIRECTION OF THE US ECONOMY ARE LIKELY TO CONTINUE TO WEIGH ON EQUITIES FOR
THE NEAR TERM. HOWEVER, PROFITABILITY, DOMESTIC GROWTH AND ATTRACTIVE VALUATIONS
ARE ALL SUPPORTIVE GOING FORWARD. WE ARE CONTENT TO HAVE EXPOSURE TO THESE
MARKETS BUT AT LEVELS THAT BALANCE RISK WITH POTENTIAL RETURNS.
o The sharp correction in Asian stocks has left valuations more attractive.
However, in the short term, Asia lacks an obvious catalyst to ignite a
sustained rally. If high energy price levels are sustained in 2001, Asia
is expected to suffer from a combination of decelerating growth, higher
inflation and deteriorating trade balances.
o We remain cautious in Mexico due to above-trend economic growth and a
tight labor market. Lower rates in Brazil are spurring growth, while
inflation targeting is keeping a lid on overheating.
o Emerging Europe is less vulnerable to global volatility, given its lower
exposure to the telecommunications and technology sectors. The concerted
action among European, US and Japanese central banks to support the euro
above 0.85 against the US dollar could be positive for emerging European
markets.
o In our view, euro strength would also improve the inflation outlook in
central Europe and take some pressure off the Polish zloty in particu
lar. We believe it would help Turkish exporters and reduce the likelihood
of cash flow out of Greece.
9
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LETTER TO SHAREHOLDERS (CONCLUDED)
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THE DIFFICULT MARKET CONDITIONS THIS PAST FISCAL YEAR CERTAINLY TEST THE
RESOLVE OF INVESTORS AFTER SEVERAL YEARS OF STRONG EQUITY RETURNS. THAT IS WHY
IT IS IMPORTANT TO PUT CORRECTIVE PERIODS INTO A LONG-TERM CONTEXT AND TO TREAT
THEM AS PAUSES RATHER THAN EMERGING TRENDS PROVIDED THAT THE FUNDAMENTAL
ECONOMIC, DEMOGRAPHIC AND POLITICAL ENVIRONMENT REMAINS SOUND.
o We believe recent market weakness can be primarily attributed to
short-term influences -- higher interest rates, restrained economic
growth, rising oil prices -- rather than fundamental economic or
political crises like those seen in previous years.
o Although the bursting of the Internet bubble has had a significant impact
on investor confidence, developed market demographics and public policy
are favorable for continued and expanding equity ownership by investors
the world over.
o Many positive variables that can benefit international equities lie
ahead. We believe these include an interest rate cycle that has likely
peaked, expanding tax reduction and pension reform measures and commodity
prices that are expected to soften.
We will, of course, continue to monitor economic conditions and political
initiatives and their effect on financial markets as we seek long-term capital
appreciation. We appreciate your ongoing support of Flag Investors International
Equity Fund, and we look forward to continuing to serve your investment needs
for many years ahead.
\S\ SIGNATURE MICHAEL LEVY
\S\ SIGNATURE ROBERT REINER
\S\ SIGNATURE JULIE WANG
Michael Levy, Robert Reiner and Julie Wang
Portfolio Managers of the INTERNATIONAL EQUITY PORTFOLIO
October 31, 2000
10
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FLAG INVESTORS INTERNATIONAL EQUITY FUND
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CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS A SHARES 1
NOVEMBER 18, 1986-OCTOBER 31, 2000
$10,000 invested in the Flag Investors International
Equity Fund Class A Shares at inception on
November 18, 1986 was worth $22,062 on October 31, 2000
11/18/86 10,000
12/31/86 10,300
1/31/87 11,080
2/28/87 11,480
3/31/87 11,890
4/30/87 12,860
5/31/87 12,900
6/30/87 12,940
7/31/87 13,610
8/31/87 13,920
9/30/87 14,460
10/31/87 10,810
11/30/87 10,840
12/31/87 11,443
1/31/88 11,560
2/29/88 12,040
3/31/88 12,498
4/30/88 12,786
5/31/88 12,328
6/30/88 11,997
7/31/88 11,997
8/31/88 11,411
9/30/88 11,827
10/31/88 12,562
11/30/88 12,968
12/31/88 13,085
1/31/89 13,407
2/28/89 13,193
3/31/89 13,418
4/30/89 13,869
5/31/89 13,730
6/30/89 13,665
7/31/89 15,126
8/31/89 15,126
9/30/89 15,556
10/31/89 14,729
11/30/89 15,320
12/31/89 16,281
1/31/90 16,002
2/28/90 15,466
3/31/90 15,139
4/30/90 14,918
5/31/90 16,107
6/30/90 16,316
7/31/90 16,969
8/31/90 15,058
9/30/90 12,925
10/31/90 13,752
11/30/90 13,170
12/31/90 13,030
1/31/91 13,344
2/28/91 14,296
3/31/91 13,193
4/30/91 13,356
5/31/91 13,506
6/30/91 12,780
7/31/91 13,256
8/31/91 12,918
9/30/91 13,506
10/31/91 13,319
11/30/91 12,855
12/31/91 13,573
1/31/92 13,623
2/29/92 13,535
3/31/92 12,867
4/30/92 13,245
5/31/92 13,762
6/30/92 12,817
7/31/92 12,111
8/31/92 11,746
9/30/92 11,733
10/31/92 11,481
11/30/92 11,670
12/31/92 12,174
1/31/93 12,212
2/28/93 12,615
3/31/93 12,956
4/30/93 13,321
5/31/93 13,485
6/30/93 13,876
7/31/93 14,506
8/31/93 15,388
9/30/93 15,426
10/31/93 16,446
11/30/93 16,182
12/31/93 18,302
1/31/94 18,960
2/28/94 18,235
3/31/94 17,363
4/30/94 17,591
5/31/94 17,712
6/30/94 17,444
7/31/94 18,222
8/31/94 19,067
9/30/94 18,598
10/31/94 18,772
11/30/94 17,954
12/31/94 16,947
1/31/95 15,740
2/28/95 15,726
3/31/95 16,088
4/30/95 16,478
5/31/95 16,813
6/30/95 16,692
7/31/95 17,632
8/31/95 17,189
9/30/95 17,377
10/31/95 17,028
11/30/95 17,256
12/31/95 17,846
1/31/96 18,329
2/29/96 18,410
3/31/96 18,464
4/30/96 19,215
5/31/96 19,202
6/30/96 19,269
7/31/96 18,772
8/31/96 18,678
9/30/96 19,108
10/31/96 19,094
11/30/96 20,318
12/31/96 20,540
1/31/97 20,060
2/28/97 20,156
3/31/97 20,321
4/30/97 20,375
5/31/97 21,815
6/30/97 22,583
7/31/97 23,639
8/31/97 22,103
9/30/97 24,009
10/31/97 22,432
11/30/97 22,254
12/31/97 22,313
1/31/98 23,164
2/28/98 23,888
3/31/98 25,003
4/30/98 25,310
5/31/98 25,240
6/30/98 25,045
7/31/98 25,338
8/31/98 22,313
9/30/98 22,188
10/31/98 23,610
11/30/98 24,794
12/31/98 25,422
1/31/99 25,926
2/28/99 25,185
3/31/99 25,814
4/30/99 27,073
5/31/99 26,682
6/30/99 28,053
7/31/99 28,990
8/31/99 29,592
9/30/99 29,396
10/31/99 29,158
11/30/99 29,130
12/31/99 30,945
1/31/00 28,926
2/29/00 28,810
3/31/00 27,637
4/30/00 25,223
5/31/00 24,492
6/30/00 25,478
7/31/00 24,679
8/31/00 25,325
9/30/00 23,456
10/31/00 22,062
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURNS TOTAL RETURNS
Since Since
Periods ended Past 1 Past 3 Past 5 Past 10 inception Past 1 Past 3 Past 5 Past 10 inception
October 31, 2000 year years years years 11/18/86 year years years years 11/18/86
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Flag Investors
International
Equity Fund
Class A Shares 1 -24.34% -1.65% 29.56% 60.42% 120.62% -24.34% -0.55% 5.32% 4.84% 5.84%
-------------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index 2,4 -2.90% 30.99% 51.41% 111.88% 215.61% -2.90% 9.42% 8.65% 7.80% 8.61%
-------------------------------------------------------------------------------------------------------------------------------
Lipper International
Equity Funds
Average 3,4 2.70% 34.13% 62.88% 149.02% 268.25% 2.70% 9.96% 9.93% 9.30% 9.53%
<FN>
-------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.These figures assume the
reinvestment of dividend and capital gain distributions and exclude the impact
of any sales charges. Performance figures for the classes differ because each
class maintains a distinct expense structure. Performance would have been
lower during the specified periods if certain fees and expenses had not been
waived by the Fund.
2 The MSCI EAFE Index is an unmanaged capitalization weighted index containing
approximately 1,100 equity securities of companies located in Europe,
Australasia and the Far East. Index returns do not reflect expenses, which
have been deducted from the Fund's returns.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Inc. as falling into the category
indicated. These figures do not reflect sales charges.
4 Benchmark returns are for the period beginning 11/30/86.
</FN>
</TABLE>
11
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
CLASS B AND CLASS C SHARES
CUMULATIVE TOTAL RETURNS
Since inception
Period ended October 31, 2000 2/29/00
--------------------------------------------------------------------------------
FLAG INVESTORS INTERNATIONAL EQUITY FUND CLASS B 1 -22.54%
--------------------------------------------------------------------------------
MSCI EAFE Index 2 -10.45%4
Lipper International Equity Funds Average 3 -14.84%4
FLAG INVESTORS INTERNATIONAL EQUITY FUND CLASS C 1 -23.95%
MSCI EAFE Index 2 -10.45%4
Lipper International Equity Funds Average 3 -14.84%4
INSTITUTIONAL SHARES
CUMULATIVE TOTAL RETURNS
Since inception
Period ended October 31, 2000 7/31/00
--------------------------------------------------------------------------------
Flag Investors International Equity
Fund Institutional Shares 1 -11.09%
--------------------------------------------------------------------------------
MSCI EAFE Index 2 -6.31%5
Lipper International Equity Funds Average 3 -7.71%5
-------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.These figures assume the
reinvestment of dividend and capital gain distributions and exclude the impact
of any sales charges. Performance figures for the classes differ because each
class maintains a distinct expense structure. Performance would have been
lower during the specified periods if certain fees and expenses had not been
waived by the Fund.
2 The MSCI EAFE Index is an unmanaged capitalization weighted index containing
approximately 1,100 equity securities of companies located in Europe,
Australasia and the Far East. Index returns do not reflect expenses, which
have been deducted from the Fund's returns.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Inc. as falling into the category
indicated. These figures do not reflect sales charges.
4 Benchmark returns are for the period beginning 2/29/00.
5 Benchmark returns are for the period beginning 7/31/00.
12
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, a line graph comparing the performance of
each of the Fund's classes to that of an appropriate market index. This graph
measures the growth of a $10,000 hypothetical investment from the inception date
of the respective class through the end of the most recent fiscal year-end. The
SEC also requires that we report the total return of each class, according to a
standardized formula, for various time periods through the end of the most
recent fiscal year.
Both the line graph and the SEC standardized total return figures include
the impact of the 5.50% maximum initial sales charge for the Class A Shares and
the contingent deferred sales charge applicable to the specified time period for
the Class B and Class C Shares. Returns would be higher for Class A Shares
investors who qualified for a lower initial sales charge or for Class B or Class
C Shares investors who continued to hold their shares past the end of the
specified time period.
While the graphs and the total return figures are required by SEC rules,
such comparisons are of limited utility since the total return of the Fund's
classes are adjusted for sales charges and expenses while the total return of
the indices are not. In fact, if you wished to replicate the total return of
these indices, you would have to purchase the securities they represent, an
effort that would require a considerable amount of money and would incur
expenses that are not reflected in the index results.
The SEC total return figures may differ from total return figures in the
shareholder letter because the SEC figures include the impact of sales charges
while the total return figures in the shareholder letter do not. Any performance
figures shown are for the full period indicated.
13
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONTINUED)
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS A SHARES 1
NOVEMBER 18, 1986-OCTOBER 31, 2000
Flag Investors Lipper International
International Equity Fund MSCI EAFE Equity Funds
- Class A $20,849 Index 2 $31,573 Average 3 $36,825
11/18/1986 9,450 10,000 10,000
10/31/87 10,215 12,622 10,653
10/31/88 11,871 15,803 12,596
10/31/89 13,919 17,090 14,491
10/31/90 12,996 14,899 14,444
10/31/91 12,586 15,937 15,613
10/31/92 10,850 13,831 15,042
10/31/93 15,541 19,013 20,244
10/31/94 17,740 20,930 22,614
10/31/95 16,091 20,854 22,811
10/31/96 18,044 23,039 25,494
10/31/97 21,198 24,104 28,763
10/31/98 22,311 26,424 30,244
10/31/99 27,554 32,509 36,800
10/31/00 20,849 31,573 36,825
AVERAGE ANNUAL TOTAL RETURN 1
PERIODS ENDED 10/31/00 1-YEAR 5-YEARS 10-YEARS SINCE INCEPTION 4
----------------------------- ------ ------- -------- ----------------
Class A Shares -28.50% 4.13% 4.25% 5.41%
---------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.These figures assume the
reinvestment of dividend and capital gain distributions and include the Fund's
maximum 5.50% sales charge. Performance figures for the classes differ because
each class maintains a distinct sales charge and expense structure.
Performance would have been lower during the specified periods if certain fees
and expenses had not been waived by the Fund.
2 The MSCI EAFE Index is an unmanaged capitalization weighted index containing
approximately 1,100 equity securities of companies located in Europe,
Australasia and the Far East. Index returns do not reflect expenses, which
have been deducted from the Fund's returns. Benchmark returns are for the
period beginning 11/30/86.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Inc. as falling into the category
indicated. Benchmark returns are for the period beginning 11/30/86.
4 November 18, 1986.
14
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS B SHARES 1
FEBRUARY 29, 2000-OCTOBER 31, 2000
Flag Investors Lipper International
International Equity Fund MSCI EAFE Equity Funds
- Class B $7,359 Index 2 $8,955 Average 3 $8,516
02/29/00 10,000 10,000 10,000
03/31/00 9,113 10,388 10,059
04/30/00 8,312 9,842 9,424
05/31/00 8,211 9,601 9,117
06/30/00 8,530 9,977 9,523
07/31/00 8,256 9,559 9,185
08/31/00 8,424 9,642 9,339
09/30/00 7,836 9,172 8,808
10/31/00 7,359 8,955 8,516
CUMULATIVE TOTAL RETURN 1
PERIOD ENDED 10/31/00 SINCE INCEPTION 4
------------------------- -----------------
Class B Shares -26.41%
-------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.These figures assume the
reinvestment of dividend and capital gain distributions and include the Fund's
contingent deferred sales charge applicable to the specified time period. The
contingent deferred sales charge for ClassB shares declines over time from a
maximum of 5.00% to 0% after six years. Performance figures for the classes
differ because each class maintains a distinct sales charge and expense
structure. Performance would have been lower during the specified period if
certain fees and expenses had not been waived by the Fund.
2 The MSCI EAFE Index is an unmanaged capitalization weighted index containing
approximately 1,100 equity securities of companies located in Europe,
Australasia and the Far East. Index returns do not reflect expenses, which
have been deducted from the Fund's returns. Benchmark returns are for the
period begininng 2/29/00.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Inc. as falling into the category
indicated. Benchmark returns are for the period begininng 2/29/00.
4 February 29, 2000.
15
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONCLUDED)
CHANGE IN VALUE OF A $10,000 INVESTMENT IN CLASS C SHARES 1
FEBRUARY 29, 2000-OCTOBER 31, 2000
Flag Investors Lipper International
International Equity Fund MSCI EAFE Equity Funds
- Class C $7,505 Index 2 $8,955 Average 3 $8,516
02/29/00 10,000 10,000 10,000
03/31/00 9,497 10,388 10,059
04/30/00 8,662 9,842 9,424
05/31/00 8,399 9,601 9,117
06/30/00 8,726 9,977 9,523
07/31/00 8,446 9,559 9,185
08/31/00 8,609 9,642 9,339
09/30/00 8,013 9,172 8,808
10/31/00 7,505 8,955 8,516
CUMULATIVE TOTAL RETURN 1
PERIOD ENDED 10/31/00 SINCE INCEPTION 4
------------------------- -----------------
Class C Shares -24.95%
-----------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. These figures assume the
reinvestment of dividend and capital gain distributions and include the Fund's
contingent deferred sales charge applicable to the specified time period. The
contingent deferred sales charge for Class C shares is 1.00% for shares
redeemed within one year of purchase. Performance figures for the classes
differ because each class maintains a distinct sales charge and expense
structure. Performance would have been lower during the specified period if
certain fees and expenses had not been waived by the Fund.
2 The MSCI EAFE Index is an unmanaged capitalization weighted index containing
approximately 1,100 equity securities of companies located in Europe,
Australasia and the Far East. Index returns do not reflect expenses, which
have been deducted from the Fund's returns. Benchmark returns are for the
period beginning 2/29/00.
3 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Inc. as falling into the category
indicated. Benchmark returns are for the period beginning 2/29/00.
4 February 29, 2000.
16
<PAGE>
TEN LARGEST HOLDINGS
--------------------------------------------------------------------------------
PERCENTAGES ARE
BASED ON THE
NET ASSETS OF
COMPANY THE PORTFOLIO
--------------------------------------------------------------------------------
1. VODAFONE GROUP PLC 3.63%
The world's largest mobile telecommunications company.
2. ING GROEP NV 2.59%
Provides a wide range of insurance, both life and
non-life, and banking services.
3. TAKEDA CHEMICAL INDUSTRIES LTD. 2.19%
Manufactures prescription pharmaceuticals.
4. TOTAL FINA SA 2.18%
A leading oil and gas supplier.
5. SHELL TRANSPORT & TRADING CO. PLC 2.17%
Predominantly provides oil and gas as well as
exploration for oil and gas.
6. ROYAL BANK OF SCOTLAND 2.14%
Provides banking, insurance and other financial
services.
7. AVENTIS SA 2.10%
Mainly produces pharmaceuticals and other specialty
chemicals.
8. ELAN CORP. PLC ADR 1.94%
Develops and licenses drug delivery systems formulated
to increase the therapeutic value of certain
medications with reduced side effects.
9. RECKITT & BENCKISER PLC 1.89%
Creates and distributes household products, food and
pharmaceutical products.
10. KONINKLIJKE AHOLD NV 1.87%
The largest food retailer in the Netherlands,
operating supermarkets and other specialty food
stores.
17
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31,
--------------------------------------------------------------------------
2000
Assets
Investment in International Equity Portfolio, at value $ 15,962,339
Receivable for shares of beneficial interest subscribed 100,068
Due from Bankers Trust ................................ 82,612
Prepaid expenses and other ............................ 20,005
------------
Total assets ............................................. 16,165,024
------------
Liabilities
Accrued expenses and other ............................ 83,618
------------
Total liabilities ........................................ 83,618
------------
Net assets ............................................... $ 16,081,406
============
Composition of Net Assets
Paid-in capital ....................................... $ 22,823,402
Distributions in excess of net investment income ...... (20,183)
Accumulated net realized loss from investment and
foreign currency transactions ....................... (1,675,477)
Net unrealized depreciation on investments and
foreign currencies .................................. (5,046,336)
------------
Net assets ............................................... $ 16,081,406
============
Net Asset Value, Offering and Redemption Price Per Share
Class A Shares
($14,185,006 (DIVIDE) 1,092,997 shares) ...................... $12.98
======
Class B Shares
($727,963 (DIVIDE) 55,424 shares) ............................ $13.13
======
Class C Shares
($1,079,497 (DIVIDE) 83,757 shares) .......................... $12.89
======
Institutional Shares
($88,940 (DIVIDE) 6,887 shares) .............................. $12.91
======
Maximum Offering Price Per Share
Class A Shares ($ 12.98 / 0.945) ............................. $13.74
======
Class B Shares ............................................... $13.13
======
Class C Shares ............................................... $12.89
======
Institutional Shares ......................................... $12.91
======
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS 1
FOR THE
YEAR ENDED
OCTOBER 31,
---------------------------------------------------------------------------
2000
Investment Income
Income allocated from International Equity Portfolio, net $ 113,922
Dividends ............................................... 63,698
Interest ................................................ 16,234
Less: foreign taxes withheld ............................ (7,717)
-----------
Total income ....................................... 186,137
-----------
Expenses
Distribution fees
Class A Shares ........................................ 35,668
Class B Shares ........................................ 3,862
Class C Shares ........................................ 5,093
Professional fees ....................................... 141,699
Printing and shareholder reports ........................ 62,767
Registration fees ....................................... 54,799
Investment advisory fee ................................. 32,687
Accounting fees ......................................... 32,583
Administrative fee ...................................... 29,856
Transfer agent fee ...................................... 16,645
Custody fees ............................................ 5,020
Miscellaneous ........................................... 11,976
-----------
Total expenses ............................................. 432,655
-----------
Less: fee waivers or expenses .............................. (282,604)
-----------
Net expenses ............................................... 150,051
-----------
Net investment income ...................................... 36,086
-----------
Realized and Unrealized Gain (Loss) on Investment and
Foreign Currency Transactions
Net realized gain (loss) from:
Investment transactions: .............................. 3,670,183
Option transactions ................................... (53,728)
Foreign currency transactions ......................... (67,701)
Foreign futures transactions .......................... (82,061)
Forward foreign currency transactions ................. 145,914
Net change in unrealized appreciation/depreciation on
investments and foreign currencies ...................... (8,274,576)
-----------
Net realized and unrealized loss on investments
and foreign currencies ................................. (4,661,969)
-----------
Net decrease in net assets from operations ................. $(4,625,883)
===========
---------
1 On February 29, 2000, the Flag Investors International Equity Fund (the
"Fund") became a feeder of the International Equity Portfolio. The Statement
of Operations includes the stand-alone and feeder fund for their respective
periods.
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS 1
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------------
2000 1999
Increase (Decrease) in Net Assets:
Operations:
Net investment income ....................... $ 36,086 $ 94,771
Net realized gain from investment and foreign
currency transactions ..................... 3,612,607 1,474,566
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ........................ (8,274,576) 1,074,043
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................. (4,625,883) 2,643,380
------------ ------------
Dividends to Shareholders from:
Net investment income and net realized
short-term gains .......................... (591,571) (48,602)
Return of capital ........................... (1,764,932) --
------------ ------------
Total distributions ......................... (2,356,503) (48,602)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares ................ 13,019,002 9,655,136
Value of shares issued in reinvestment of
dividends ................................. 2,098,197 40,630
Cost of shares repurchased .................. (5,824,151) (10,706,756)
------------ ------------
Total increase (decrease) in net assets
derived from capital share transactions ... 9,293,048 (1,010,990)
------------ ------------
Total increase in net assets ................ 2,310,662 1,583,788
Net Assets:
Beginning of year ........................... 13,770,744 12,186,956
------------ ------------
End of year (including undistributed
(distributions in excess of) net
investment income of $(20,183) and
$94,599 for the years ended October 31,
2000 and October 31, 1999,
respectively) ............................. $ 16,081,406 $ 13,770,744
============ ============
-----------
1 On February 29, 2000, the Flag Investors International Equity Fund (the
"Fund") became a feeder of the International Equity Portfolio. The Statements
of Changes in Net Assets include the stand-alone and feeder fund for their
respective periods.
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
OCTOBER 31, FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value, beginning of year ......................... $ 20.83 $ 16.94 $ 16.36 $ 14.20 $ 12.69
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income ...................................... 0.37 0.48 0.08 0.11 0.26
Net realized and unrealized gain (loss) on investments 1 ... (4.53) 3.48 0.76 2.34 1.28
------- ------- ------- ------- -------
Total from investment operations ........................... (4.16) 3.96 0.84 2.45 1.54
------- ------- ------- ------- -------
Distributions to Shareholders
Net investment income and net realized short-term gains .... (0.93) (0.07) (0.10) (0.18) (0.03)
Distributions in excess of net investment income and
short-term gains ......................................... -- -- (0.16) (0.11) --
Return of capital .......................................... (2.76) -- -- -- --
------- ------- ------- ------- -------
Total distributions ........................................ (3.69) (0.07) (0.26) (0.29) (0.03)
------- ------- ------- ------- -------
Net asset value, end of year ............................... $ 12.98 $ 20.83 $ 16.94 $ 16.36 $ 14.20
======= ======= ======= ======= =======
Total return 2 ................................................ (24.34)% 23.5% 5.25% 17.48% 12.13%
Supplemental Data and Ratios:
Net assets, end of year (000s) ............................. $14,185 $13,771 $12,187 $13,982 $12,930
Ratios to Average Daily Net Assets:
Expenses (including expenses of the
International Equity Portfolio)3 ........................ 1.50% 1.50% 1.50% 1.50% 1.50%
Net investment income ...................................... 0.29% 0.75% 0.62% 1.18% 1.91%
Portfolio turnover rate4 ................................... 17%5 18% 27% 21% 13%
<FN>
-------------
1 The years ended October 31, 2000, 1999, 1998, 1997 and 1996 include net
realized currency gains (losses).
2 Total return excludes the effect of sales charge.
3 Without the waiver of advisory fees and reimbursement of expenses (Note 2),the
ratio of expenses to average daily net assets would have been 3.66% (including
expenses of the International Equity Portfolio), 3.10%, 2.78%, 2.24% and 2.30%
for the years ended October 31, 2000, 1999, 1998, 1997 and 1996, respectively.
4 Beginning on February 29, 2000, the Flag Investors International Equity Fund
became a feeder of the International Equity Portfolio and portfolio turnover
rate was no longer applicable to the Fund.
5 Portfolio turnover is for the period 11/1/99 through 2/28/00.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22-23
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE PERIOD
FEBRUARY 29, 2000 1
TO OCTOBER 31,
------------------------------------------------------------------------------
2000
Per Share Operating Performance:
Net asset value, beginning of period .................... $16.95
Income from Investment Operations
Expenses in excess of income ............................ (0.04)
Net realized and unrealized loss on investments ......... (4.04)
------
Total from investment operations ........................... (4.08)
------
Other capital activity ..................................... 0.26 2
Net asset value, end of period ............................. $13.13
======
Total return 3 ............................................. (22.54)%2,4
Supplemental Data and Ratios:
Net assets, end of period (000s) ........................ $ 728
Ratios to Average Net Assets:
Expenses (including expenses of the
International Equity Portfolio) .................... 2.25%5,6
Expenses in excess of income .......................... (0.59)%5
----------
1 Commencement of operations.
2 Class B's performance benefited from an accounting gain for the processing of
certain as-of shareholder trades.
3 Total return excludes the effect of sales charge.
4 Cumulative total return since inception on February 29, 2000.
5 Annualized.
6 Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of expenses to average daily net assets would have been 4.37%
(including expenses of the International Equity Portfolio) (annualized) for
the eight months ended October 31, 2000.
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
FINANCIALHIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE PERIOD
FEBRUARY 29, 2000 1
TO OCTOBER 31,
-------------------------------------------------------------------------------
2000
Per Share Operating Performance:
Net asset value, beginning of period ........................... $16.95
Income from Investment Operations
Expenses in excess of income ................................... (0.03)
Net realized and unrealized loss on investments ................ (4.03)
------
Total from investment operations .................................. (4.06)
------
Net asset value, end of period ................................. $12.89
======
Total return 2 .................................................... (23.95)%3
Supplemental Data and Ratios:
Net assets, end of period (000s) ............................... $1,079
Ratios to Average Net Assets:
Expenses (including expenses of the
International Equity Portfolio) ........................... 2.25%4,5
Expenses in excess of income ................................. (0.50)%4
----------
1 Commencement of operations.
2 Total return excludes the effect of sales charge.
3 Cumulative total return since inception on February 29, 2000.
4 Annualized.
5 Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of expenses to average daily net assets would have been 4.30%
(including expenses of the International Equity Portfolio) (annualized) for
the eight months ended October 31, 2000.
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FOR THE PERIOD
JULY 31, 2000 1
TO OCTOBER 31,
-------------------------------------------------------------------------------
2000
Per Share Operating Performance:
Net asset value, beginning of period ......................... $14.52
Income from Investment Operations
Net investment income ........................................ -- 2
Net realized and unrealized loss on investments .............. (1.61)
------
Total from investment operations ................................ (1.61)
------
Net asset value, end of period .................................. $12.91
======
Total return .................................................... (11.09)%3
Supplemental Data and Ratios:
Net assets, end of period (000s) ............................. $ 89
Ratios to Average Net Assets:
Expenses (including expenses of the
International Equity Portfolio) ......................... 1.25%4,5
Net investment income ...................................... 0.09%4
--------------
1 Commencement of operations.
2 Amount represents $0.003.
3 Cumulative total return since inception on July 31, 2000.
4 Annualized.
5 Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of expenses to average daily net assets would have been 4.00%
(including expenses of the International Equity Portfolio) (annualized) for the
three months ended October 31, 2000.
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Flag Investors Series Funds, Inc. (the "Company"), is a Maryland
Corporation. The Company began operations as a Massachusetts business trust on
November 18, 1986, and reorganized as a Maryland corporation in 1993. The
Company is registered under the Investment Company Act of 1940 as a diversified,
open-end management investment company. Flag Investors International Equity Fund
("Fund") is currently the only series fund offered to investors by the Company.
On February 29, 2000 the Fund became a feeder of the International Equity
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company registered under the Investment Company Act of 1940. The Fund's
objective, through its investment in the Portfolio, is to seek long-term capital
appreciation, primarily through investments in stocks and other equity
securities of companies in developed countries outside of the United States. The
value of the investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio. At October 31, 2000, the Fund's
investment was less than 1.0% of the Portfolio.
The financial statements of the Portfolio, including the Schedule
of Portfolio Investments, are contained elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
The Fund consists of four share classes: Class A Shares, which began
operations November 18, 1986; Class B Shares, which began operations February
29, 2000; Class C Shares, which began operations February 29, 2000; and
Institutional Shares, which began operations on July 31, 2000. All classes of
shares have identical rights to earnings, assets, and voting privileges, except
that each class has its own expenses and exclusive voting rights with respect to
matters affecting it.
The Class A, Class B, Class C and Institutional Shares are subject to
different sales charges. The Class A Shares have a front-end sales charge and
the Class B and C Shares have a contingent deferred sales charge. In addition,
the Class A Shares have a different distribution fee than the Class B and Class
C Shares. The Institutional Shares have neither a front end sales charge, nor a
distribution fee, nor a contingent deferred sales charge.
27
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 (CONTINUED)
When preparing the Fund's financial statements, management makes
estimates and assumptions to comply with accounting principles generally
accepted in the United States. These estimates affect: 1) the assets and
liabilities that we report at the date of the financial statements; 2) the
contingent assets and liabilities that we disclose at the date of the financial
statements; and 3) the revenues and expenses that we report for the period. Our
estimates could be different from the actual results.
The Fund's significant accounting policies are:
A. VALUATION OF SECURITIES -- Valuation of securities by the Portfolio is
discussed in Note 1B of the Portfolio's Notes to Financial Statements,
which are included elsewhere in this report.
B. INVESTMENT INCOME -- The Fund earns income, net of expenses, daily on
its investment in the Portfolio. All of the net investment income and
realized and unrealized gains and losses from securities transactions of
the Portfolio are allocated pro rata among the investors in the
Portfolio at the time of such determination. Net investment income is
allocated daily to each class of shares based upon its relative
proportion of net assets.
C. DISTRIBUTIONS -- It is the Fund's policy to declare and distribute
dividends annually to shareholders from net investment income. Dividends
and distributions payable to shareholders are recorded by the Fund on
the ex-dividend date. Distributions of net realized short-term and
long-term capital gains, if any, earned by the Fund are made annually to
the extent they exceed capital loss carryforwards.
D. FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and distribute substantially all of its taxable
income to shareholders. Therefore, no federal income tax provision is
required.
E. OTHER -- The Company accounts separately for the assets, liabilities and
operations of each of its funds and each of its classes. Expenses
directly attributable to each fund or class are charged to that fund or
class, while expenses that are attributable to the Company or all
classes within the Fund are allocated based on its respective average
net assets.
28
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTE 1 (CONCLUDED)
The following significant accounting policies were applicable to the Fund
for the period prior to February 29, 2000.
A. VALUATION OF SECURITIES -- The Fund valued a portfolio security that was
primarily traded on a national exchange by using the last price reported
for the day. When the security was listed on more than one exchange, the
Fund used the last price on the exchange where the security was
primarily traded. If there were no sales or the security was not traded
on a listed exchange, the Fund valued the security at the last bid price
in the over-the-counter market. When a market quotation was not readily
available, the Investment Advisor determined a fair value using
procedures that the Board of Directors established and monitored. The
Fund valued short-term obligations with maturities of 60 days or less at
amortized cost which approximated fair market value.
B. FOREIGN CURRENCY TRANSLATION -- The Fund's books and records were
maintained in U.S. dollars. Transactions denominated in foreign
currencies were recorded in the Fund's records at the effective exchange
rate when earned or incurred. Asset and liability accounts that were
denominated in foreign currencies were adjusted to reflect the current
exchange rate. Transaction gains or losses that were a result of changes
in the exchange rate during the reporting period or upon settlement of
the foreign currency transactions were reported in realized and
unrealized gain or loss on investments for the current period.
The Fund was authorized to enter into forward foreign exchange
contracts as a hedge against either specific transactions or portfolio
positions. These contracts were not reflected in the Fund's financial
statements. However, the net income or loss from these contracts was
recorded from the contract's inception date. Premiums or discounts were
amortized over the life of the contracts.
C. SECURITY TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND OTHER -- The
Fund used the trade date to account for security transactions and the
specific identification cost method for financial reporting and income
tax purposes to determine the gain or loss on investments sold or
redeemed. Interest income was recorded on an accrual basis. Dividend
income and distributions to shareholders were recorded on the
ex-dividend date.
29
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES
Prior to February 29, 2000, Investment Company Capital Corp. ("ICCC"), an
indirect wholly-owned subsidiary of Deutsche Bank AG, served as the investment
advisor, and the Glenmede Trust Company served as sub-advisor, to the Fund. As
compensation for its advisory services, the Fund paid ICCC an annual fee based
on the average net assets of the Fund that was calculated daily and paid monthly
at the annual rate of 0.75%. As compensation for subadvisory services, ICCC paid
Glenmede an annual fee based on the Fund's average daily net assets. The fee was
calculated monthly and paid quarterly at the annual rate of 0.55%. On February
29, 2000, the Fund became a feeder of the InternationalEquity Portfolio, and
subsequently investment advisory fees are now accounted for at the Portfolio
level. Subsequent to February 29, 2000, Bankers Trust Company, an indirect
wholly-owned subsidiary of Deutsche Bank AG, became the investment advisor and
administrator to the Portfolio and ICCC became the Fund's administrator.
ICCC is entitled to receive an annual fee, for providing administrative
services to the Fund, that is calculated daily and paid monthly at an annual
rate of 0.20%. For the year ended October 31, 2000,ICCC's fee was $29,856 of
which $29,856 was payable at October 31, 2000.
Certain officers and directors of the Fund are also officers or directors
of the Fund's prior investment advisor and sub-advisor and the Fund's current
administrator. These persons are not paid by the Fund for serving in these
capacities.
ICCC provides accounting services to the Fund for which the Fund pays ICCC
an annual fee that is calculated daily and paid monthly from the Fund's average
daily net assets. For the year ended October 31, 2000, ICCC's fee was $32,583 of
which $4,763 was payable at October 31, 2000.
ICCC also provides transfer agent services to the Fund for which the Fund
pays ICCC a per-account fee that is calculated and paid monthly. For the year
ended October 31, 2000, ICCC's fee was $16,645 of which $2,406 was payable at
October 31, 2000.
Bankers Trust Company is the Fund's custodian. For the year ended October
31, 2000, Bankers Trust Company's fee was $5,020 of which $1,453 was payable at
October 31, 2000.
Bankers Trust Company and ICCC have contractually agreed to limit their
fees and reimburse expenses to the extent necessary so that the Fund's
30
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTE 2 (CONCLUDED)
Total Annual Fund Operating Expenses, including expenses of the Portfolio, do
not exceed 1.50% for Class A Shares and 2.25% for each of the Class B and C
Shares and 1.25% for the Institutional Shares. This agreement will continue
until at least February 28, 2002, for Class A, Class B and Class C Shares and
July 31, 2002 for the Institutional Shares, and may be extended.
ICC Distributors, Inc., ("ICC Distributors"), a non-affiliated entity,
provides distribution services to the Fund for which it is paid an annual fee,
pursuant to rule 12b-1, that is calculated daily and paid monthly, as a
percentage of the Fund's average daily net assets, at an annual rate equal to
0.25% for Class A Shares, and 0.75% for Class B and Class C Shares. Class B and
Class C Shares are also subject to a 0.25% shareholder servicing fee. No
distribution fees are charged to the Institutional Shares.
The Fund participates along with other Flag Investors Funds in a retirement
plan for eligible Directors. For the year ended October 31, 2000, the
actuarially computed pension expense allocated to the Fund was $348, and the
accrued liability was $1,100.
NOTE 3 -- CAPITAL SHARE TRANSACTIONS
The Fund is authorized to issue up to 38 million shares of $.001 par value
capital stock (10 million Class A, 2 million Class B, 15 million Class C, 10
million Institutional and 1 million undesignated).
CLASS A SHARES
------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999
----------------- ----------------
Shares sold ............................ 598,681 482,274
Shares issued to shareholders on
reinvestment of dividends ........... 118,387 2,257
Shares redeemed ........................ (285,104) (542,832)
----------- ------------
Net increase (decrease) in
shares outstanding .................. 431,964 (58,301)
=========== ============
Proceeds from sale of shares ........... $10,308,265 $ 9,655,136
Value of reinvested dividends .......... 2,098,197 40,630
Cost of shares redeemed ................ (5,373,802) (10,706,756)
----------- ------------
Net increase (decrease) from capital
share transactions .................. $ 7,032,660 $ (1,010,990)
=========== ============
31
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 3 (CONTINUED)
CLASS B SHARES
--------------------
FOR THE PERIOD
FEBRUARY 29, 2000 1
TO OCTOBER 31, 2000
--------------------
Shares sold .................................................... 80,221
Shares issued to shareholders on reinvestment of dividends ..... --
Shares redeemed ................................................ (24,797)
-----------
Net increase in shares outstanding ............................. 55,424
===========
Proceeds from sale of shares ................................... $ 1,265,055
Value of reinvested dividends .................................. --
Cost of shares redeemed ........................................ (383,148)
-----------
Net increase from capital share transactions ................... $ 881,907
===========
CLASS C SHARES
-------------------
FOR THE PERIOD
FEBRUARY 29, 2000 1
TO OCTOBER 31, 2000
-------------------
Shares sold .................................................... 88,364
Shares issued to shareholders on reinvestment of dividends ..... --
Shares redeemed ................................................ (4,607)
-----------
Net increase in shares outstanding ............................. 83,757
-----------
-----------
Proceeds from sale of shares ................................... $ 1,345,682
Value of reinvested dividends .................................. --
Cost of shares redeemed ........................................ (67,201)
-----------
Net increase from capital share transactions ................... $ 1,278,481
===========
------------
1 Commencement of Operations.
32
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
NOTE 3 (CONCLUDED)
INSTITUTIONAL SHARES
--------------------
FOR THE PERIOD
JULY 31, 20001
TO OCTOBER 31, 2000
--------------------
Shares sold ................................................... 6,887
Shares issued to shareholders on reinvestment of dividends .... --
Shares redeemed ............................................... --
--------
Net increase in shares outstanding ............................ 6,887
========
Proceeds from sale of shares .................................. $100,000
Value of reinvested dividends ................................. --
Cost of shares redeemed ....................................... --
--------
Net increase from capital share transactions .................. $100,000
========
----------------
1 Commencement of Operations.
NOTE 4 -- FEDERAL INCOME TAX INFORMATION
The Fund may periodically make reclassifications among certain of its
capital accounts as a result of differences in the characterization and
allocation of certain income and capital gain distributions determined annually
in accordance with federal tax regulations which may differ from generally
accepted accounting principles.
These book/tax differences are either temporary or permanent in nature.To
the extent these differences are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain, as appropriate, in the period
that the differences arise.Accordingly, permanent differences as of October 31,
2000 have been primarily attributable to partnership tax allocations, net
operating losses, and foreign currency transactions, and have been reclassified
to the following accounts:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NETREALIZED PAID-IN
FUND INCOME (LOSS) GAINS (LOSSES) CAPITAL
---- -------------- -------------- ----------
Flag International Equity $440,703 $(4,748,048) $4,307,345
On October 31, 2000, there was a tax capital loss carryforward available to
offset future realized gains, of $1,675,477, of which $1,135,441 expires in
2008, and $540,036 which expires in 2001.
NOTE 5 -- INVESTMENTTRANSACTIONS
Excluding short-term and US Government Obligations, purchases of investment
securities aggregated $1,708,549 and sales of investment securities aggregated
$13,342,61 for the period ended February 28, 2000.
33
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Flag Investors Series Funds, Inc. and
Shareholders of Flag Investors International Equity Fund
In our opinion, the accompanying statement of assets and liabilities and
the related statements of operations and of changes in net assets and the
financial highlights present fairly, in all material respects, the financial
position of Flag Investors International Equity Fund (one of the portfolios
comprising Flag Investors Series Funds, Inc., hereafter referred to as the
"Fund") at October 31, 2000, and the results of its operations, the changes in
its net assets and the financial highlights for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of securities at October 31, 2000 by correspondence with the
transfer agent, provides a reasonable basis for our opinion. The statement of
changes in net assets for the year endedOctober 31, 1999 and the financial
highlights for each of the four years in the period ended October 31, 1999, were
audited by other independent accountants whose report dated December 3, 1999,
expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
Baltimore,Maryland
December 20, 2000
34
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
FOR THE TAX YEAR ENDED OCTOBER 31, 2000
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
During the year ended October 31, 2000, the Fund received income from
foreign sources in the amount of $227,008 or $0.183 per share.The Fund has paid
foreign taxes in the amount of $22,887 or $0.019 per share. Such amounts are
eligible for the foreign tax credit. You should consult your tax advisor
relating to the appropriate treatment of foreign taxes paid.
35
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
SHAREHOLDER MEETING (UNAUDITED)
A Special Meeting of Shareholders of the Flag Investors International
Equity Fund, Inc. (the "Special Meeting") was held on February 16, 2000, at
which time shareholders voted to elect the Board of Directors. Shareholders also
voted to approve the reorganization of the Fund's structure with modifications
to the Fund's investment objective and certain fundamental investment policies.
The results of the shareholder voting at the Special Meeting are as
follows:
Withheld/
Proposal For Against Abstain
--------------------------------------------------------------------------------
Elect Truman T. Semans 390,262 2,058
--------------------------------------------------------------------------------
Elect Richard A. Burt 391,009 1,311
--------------------------------------------------------------------------------
Elect Richard T. Hale 391,009 1,311
--------------------------------------------------------------------------------
Elect Joseph R. Hardiman 391,009 1,311
--------------------------------------------------------------------------------
Elect Louis E. Levy 390,262 2,058
--------------------------------------------------------------------------------
Elect Eugene J. McDonald 389,590 2,730
--------------------------------------------------------------------------------
Elect Rebecca W. Rimel 390,262 2,058
--------------------------------------------------------------------------------
Elect Robert H. Wadsworth 391,009 1,311
--------------------------------------------------------------------------------
Approve reorganization of the
Fund's structure with
modifications to the Fund's
investment objective and certain
fundamental investment policies. 384,095 5,890 2,335
--------------------------------------------------------------------------------
36
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS October 31, 2000
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
INVESTMENTS IN UNAFFILIATED ISSUERS
COMMON STOCKS -- 95.24%
AUSTRALIA -- 2.02%
848,383 Brambles Industries Ltd.
(Industrials) .............$ 21,988,386
771,972 News Corporation Ltd. ADR
(Consumer Discretionary) .. 28,952,162
4,355,240 Qantas Airways Ltd.2
(Industrials) ............. 8,756,090
-------------
59,696,638
-------------
BRAZIL -- 0.94%
601,720 Petroleo Brasileiro SA ADR 1
(Energy) .................. 17,487,487
469,808 Tele Norte Leste Participacoes
ADR (Telecommunication
Services) ................. 10,394,502
-------------
27,881,989
-------------
CANADA -- 5.82%
2,001,268 Bombardier Inc. "B"
(Industrials) ............. 31,383,734
173,900 C-Mac Industries Inc.1
(Information Technology) .. 9,651,450
284,100 Canada Life Financial Corp.
(Financials) .............. 6,622,395
383,679 Celestica Inc.1 (Information
Technology) ............... 27,333,218
684,025 Manulife Financial Corp.
(Financials) .............. 17,736,218
704,859 Nortel Networks Corp.
(Information Technology) .. 31,891,441
235,900 Seagram Co. Ltd.
(Consumer Discretionary) .. 13,475,787
1,658,251 Sun Life Financial Services 1
(Financials) .............. 34,202,249
-------------
172,296,492
-------------
CHINA -- 0.79%
427,046 China Unicom ADR 1
(Telecommunication
Services) ................. 8,754,443
69,759,700 PetroChina Co. Ltd., H
(Energy) .................. 14,669,600
-------------
23,424,043
-------------
FINLAND -- 0.62%
429,904 Nokia OYJ ADR
(Information Technology) .. 18,378,396
-------------
37
<PAGE>>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED) October 31, 2000
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
COMMON STOCKS (continued)
FRANCE -- 13.70%
397,207 Alcatel 2 (Information
Technology) ............... $ 24,566,873
71,160 Altran Technologies SA
(Information Technology) .. 14,530,707
863,331 Aventis SA (Health Care) .... 62,202,847
320,601 AXA 2 (Financials) .......... 42,393,910
446,280 Banque Nationale de Paris
(Financials) .............. 38,433,960
295,005 Business Objects SA ADR 1
(Information Technology) .. 23,245,472
331,930 Christian Dior
(Consumer Discretionary) .. 16,853,392
140,300 France Telecom SA
(Telecommunications
Services) ................. 14,651,510
606,630 Societe Generale -- A
(Financials) .............. 34,400,441
339,758 STMicroelectronics NV
(Information Technology) .. 17,646,181
231,162 Suez Lyonnaise des Eaux
(Utilities) ............... 35,230,608
452,598 Total Fina Elf (Energy) ..... 64,682,114
233,425 Vivendi SA (Utilities) ...... 16,758,872
-------------
405,596,887
-------------
GERMANY -- 5.61%
96,300 Comverse Technology Inc.1
(Information Technology) .. 10,761,525
845,018 Deutsche Lufthansa
(Industrials) ............. 16,689,214
623,230 Dresdner Bank AG
(Financials) .............. 25,859,198
911,140 E.ON AG (Utilities) ......... 46,262,164
217,390 Epcos AG 1 (Information
Technology) ............... 16,492,124
386,940 Intershop Communications AG 1,2
(Information Technology) .. 16,727,376
51,963 Muenchener Rueckversicherungs-
Gesellschaft AG
(Financials) .............. 16,385,178
5,027 Porsche AG Pfd.
(Consumer Discretionary) .. 16,831,390
-------------
166,008,169
-------------
38
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
COMMON STOCKS (continued)
HONG KONG -- 2.88%
4,778,200 China Telecom Ltd.1
(Telecommunication
Services) ................. 30,787,201
1,882,800 HSBC Holdings PLC 2
(Financials) .............. 26,194,116
1,947,330 Hutchison Whampoa
(Financials) .............. 24,157,965
2,869,500 MTR Corp.1 (Industrials) .... 4,249,698
-------------
85,388,980
-------------
HUNGARY -- 0.29%
185,280 OTP Bank Rt (Financials) ....$ 8,583,428
-------------
INDIA -- 0.00%
50 Niit Ltd. (Information
Technology) ............... 1,683
-------------
IRELAND -- 4.68%
5,855,616 Bank of Ireland
(Financials) .............. 45,068,431
2,376,131 CRH PLC (Materials) ......... 36,012,386
1,106,790 Elan Corp. PLC ADR 1,2
(Health Care) ............. 57,483,906
-------------
138,564,723
-------------
ITALY -- 8.69%
769,100 Assicurazioni Generali
(Financials) .............. 25,262,046
2,280,170 Banca Intesa SPA
(Financials) .............. 9,451,268
9,306,744 ENI SPA (Energy) ............ 50,330,640
3,230,849 Riunione Adriatica di
Sicurta SPA
(Financials) .............. 42,366,343
2,001,370 Saipem (Energy) ............. 10,416,211
1,879,600 San Paolo -- IMI SPA 1
(Financials) .............. 30,430,761
3,803,609 Telecom Italia SPA
(Telecommunication
Services) ................. 44,009,104
8,864,634 Unicredito Italiano SPA 2
(Financials) .............. 45,084,376
-------------
257,350,749
-------------
39
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED) October 31, 2000
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
COMMON STOCKS (continued)
JAPAN -- 9.53%
303,500 Fanuc Ltd. (Industrials) .... 27,240,602
1,514,000 Fujitsu Ltd.2 (Information
Technology) ............... 26,955,914
1,623 Nippon Telegraph & Telephone
Corp. (Telecommunication
Services) ................. 14,760,453
1,506,000 Nissan Motor Co. Ltd.1
(Consumer Discretionary) .. 10,330,913
818,000 Pioneer Corp.2
(Consumer Discretionary) .. 25,322,229
102,644 Rohm Company Industries
(Information Technology) .. 25,861,641
161,600 Sony Corp.2
(Consumer Discretionary) .. 12,905,944
985,900 Takeda Chemical Industries Ltd.
(Health Care) ............. 64,922,268
1,379,000 The Furukawa Electric Co. Ltd.2
(Industrials) ............. 36,247,503
5,293,000 Toshiba Corporation
(Information Technology) .. 37,811,893
-------------
282,359,360
-------------
NETHERLANDS -- 11.48%
1,533,997 ABN Amro Holdings NV 2
(Financials) ..............$ 35,497,777
1,969,748 Buhrmann NV (Industrials) ... 53,762,635
911,610 Fortis (NL) NV (Financials) . 27,817,980
677,070 Hagemeyer NV (Consumer
Discretionary) ............ 15,983,533
1,117,640 ING Groep NV (Financials) ... 76,660,530
1,911,835 Koninklijke Ahold NV 2
(Consumer Staples) ........ 55,471,679
472,554 Koninklijke Numico NV 2
(Consumer Staples) ........ 22,070,748
1,343,587 Phillips Electronics NV 2
(Consumer Discretionary) .. 52,741,755
-------------
340,006,637
-------------
NORWAY -- 0.18%
393,860 Petroleum Geo-Services ASA 1,2
(Energy) .................. 5,420,761
-------------
40
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
COMMON STOCKS (continued)
POLAND -- 0.44%
276,168 Bank Pekao 144a 3
(Financials) .............. 2,782,393
2,058,291 Telekomunikacja Polska SA GDR
Rule 144A 3 (Telecommunication
Services) ................. 10,239,998
-------------
13,022,391
-------------
SINGAPORE -- 0.57%
1,426,000 DBS Group Holdings Ltd.
(Financials) .............. 16,815,109
-------------
SOUTH KOREA -- 0.64%
282,600 Korea Electric Power Corp.
(Utilities) ............... 6,310,580
345,972 Korea Telecom Corp ADR 1
(Telecommunication
Services) ................. 12,757,718
-------------
19,068,298
-------------
SPAIN -- 4.36%
2,191,194 Altadis SA 2 (Consumer
Staples) ................... 32,782,309
2,546,696 Banco Bilbao Vizcaya Argenta
(Financials) ............... 33,891,498
1,195,950 Banco Popular Espanol
(Financials) ............... 35,734,372
1,398,013 Telefonica SA 1
(Telecommunication
Services) .................. 26,627,371
-------------
129,035,550
-------------
SWITZERLAND -- 3.49%
17,946 Nestle SA (Consumer
Staples) ..................$ 37,177,803
3,152 Roche Holding AG --
Genusscheine
(Health Care) ............. 28,783,867
6,292 Schweizerische
Ruckversicherungs-
Gesellschaft (Financials) . 12,404,942
9,621 Serono SA 2 (Health Care) ... 8,652,070
33,629 Zurich Financial Services Group
(Financials) .............. 16,271,328
-------------
103,290,010
-------------
41
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED) October 31, 2000
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
COMMON STOCKS (continued)
TAIWAN -- 0.31%
5,178,600 United Microelectronics Corp.
(Information Technology) .. 9,121,792
-------------
TURKEY -- 0.22%
75,792,021 Yapi Ve Kredi Bankasi
(Financials) .............. 6,548,994
-------------
UNITED KINGDOM -- 17.98%
7,151,617 BAE Systems PLC
(Industrials) ............. 40,812,540
1,627,960 Barclays PLC (Financials) ... 46,570,058
466,136 BP Amoco PLC ADR (Energy) ... 23,743,803
1,310,520 British Telecommunications PLC
(Telecommunications
Services) ................. 15,395,330
1,383,770 Celltech Group PLC 1
(Healthcare) .............. 27,689,171
1,339,190 Energis PLC
(Telecommunications
Services) ................. 11,424,755
1,471,620 Glaxo Wellcome PLC
(Health Care) ............. 42,332,799
1,029,520 Logica PLC (Information
Technology) ............... 30,198,334
4,256,560 Reckitt Benckiser PLC (Consumer
Staples) .................. 56,092,167
2,764,621 Royal Bank of Scotland 1
(Financials) .............. 3,271,825
2,813,691 Royal Bank of Scotland Group PLC
(Financials) .............. 63,288,477
7,964,355 Shell Transport & Trading Co. PLC
(Energy) .................. 64,186,016
25,741,535 Vodafone Group PLC
(Telecommunications
Services) ................. 107,372,064
-------------
532,377,339
-------------
TOTAL COMMON STOCKS
(Cost $2,629,124,487) ................2,820,238,418
-------------
42
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
OPTION -- 0.42%
133,000,000 Euro FX Nov 00.86
(Strike Price of
.86 and Expiration
11/27/00) .................$ 3,305,981
66,022,587 Japan Bank Index Option
(Strike Price of 74.1477 and
Expiration 3/9/01) ........ 3,021,194
66,022,587 Japan Bank Index Option
(Strike Price of 78.0649 and
Expiration 3/9/01) ........ 3,182,289
665,081 Nikkei 225 Index (Options on
Nikkei Exchange with Strike
Price of 153.39 and
Expiration 12/8/00) ....... 142,992
763,906 Nikkei 225 Index (Options on Nikkei
Exchange with Strike Price of
154.2354 and Expiration
12/8/00) .................. 98,162
462,714 Nikkei 225 Index (Options on Nikkei
Exchange with Strike Price of
155.9718 and Expiration
12/8/00) .................. 40,719
620,685 Nikkei 225 Index (Options on Nikkei
Exchange with Strike Price of
156.9378 and Expiration
12/8/00) .................. 44,131
679,309 Nikkei 225 Index (Options on Nikkei
Exchange with Strike Price of
174.1110 and Expiration
12/8/00) .................. 679
7,774 Nikkei 225 Index (Options on Nikkei
Exchange with Strike Price of
177.034 and Expiration
12/8/00) .................. 10,054
725,546 Nikkei 225 Index (Options on Nikkei
Exchange with Strike Price of
147.5900 and Expiration
3/8/01) ................... 2,540,937
-------------
TOTAL OPTION
(Cost $39,443,304) ................... 12,387,138
-------------
TOTAL INVESTMENTS IN UNAFFILIATED ISSUERS
(Cost $2,668,567,791) ................2,832,625,556
-------------
43
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
SCHEDULE OF PORTFOLIO INVESTMENTS (CONCLUDED) October 31, 2000
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED
INVESTMENT COMPANIES
SHORT-TERM INSTRUMENTS -- 6.87%
MUTUAL FUNDS -- 6.87%
203,485,701 Cash Management
Institutional ............$ 203,485,701
--------------
TOTAL SHORT-TERM INSTRUMENTS
(Cost $203,485,701) ................. 203,485,701
--------------
TOTAL INVESTMENTS
(Cost $2,872,053,492) .......102.53% 3,036,111,257
LIABILITIES IN EXCESS
OF OTHER ASSETS .............. (2.53) (74,791,610)
------ --------------
NET ASSETS .....................100.00% $2,961,319,647
====== ==============
----------
1 Non-income producing security.
2 Securities on loan.
3 This security may be resold in transactions exempt from registrations,
normally to qualified institutional buyers.
Abbreviations
ADR -- American Depository Receipt
GDR -- Global Depository Receipt
SEE NOTES TO FINANCIAL STATEMENTS
44
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
INDUSTRY DIVERSIFICATION OCTOBER 31, 2000
(AS A PERCENT OF
TOTAL INVESTMENTS
IN THE PORTFOLIO)
-------------------
Financials ................................... 30.15%
Information Technology ....................... 12.10
Telecommunications Services .................. 10.89
Health Care .................................. 10.36
Energy ....................................... 8.90
Industrials .................................. 8.55
Consumer Staples ............................. 7.22
Consumer Discretionary ....................... 6.85
Utilities .................................... 3.70
Materials .................................... 1.28
------
100.00%
======
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------------------------------------------------------------------------
2000
<S> <C>
Assets
Investments in unaffiliated issuers, at value (cost $2,668,567,791) ........ $2,832,625,556
Investments in affiliated investment companies, at value (cost $203,485,701) 203,485,701
--------------
Total investments, at value ................................................... 3,036,111,257
Cash 1 ..................................................................... 26,626,119
Receivable for securities sold ............................................. 62,954,505
Collateral under securities lending agreements ............................. 111,939,340
Unrealized appreciation on forward foreign currency contracts .............. 5,325,983
Dividends and interest receivable .......................................... 2,180,936
Receivable for foreign taxes withheld ...................................... 4,439,306
Receivable for shares of beneficial interest subscribed .................... 11,185,345
Prepaid expenses and other ................................................. 61,999
--------------
Total assets .................................................................. 3,260,824,790
--------------
Liabilities
Payable for options sold (cost $1,323,350) ................................. 1,652,991
Payable for securities purchased ........................................... 179,104,308
Payable for collateral under securities lending agreements ................. 111,939,340
Unrealized depreciation on forward foreign currency contracts .............. 5,096,089
Payable for shares of beneficial interest redeemed ......................... 4,228
Due to Bankers Trust ....................................................... 1,690,751
Accrued expenses and other ................................................. 17,436
--------------
Total liabilities ............................................................. 299,505,143
--------------
Net assets .................................................................... $2,961,319,647
==============
Composition of Net Assets
Paid-in capital ............................................................ $2,798,983,614
Net unrealized appreciation on investments and foreign currencies .......... 162,336,033
--------------
Net Assets .................................................................... $2,961,319,647
==============
<FN>
-------
1 Includes foreign cash of $25,078,895 with a cost of $25,167,979.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
OCTOBER 31,
-----------------------------------------------------------------------------------------------
2000
<S> <C>
Investment Income
Dividends (net of foreign withholding tax of $4,159,803) .................... $ 49,346,482
Interest .................................................................... 557,607
Securities lending income ................................................... 1,864,852
-------------
Total investment income ........................................................ 51,768,941
-------------
Expenses
Advisory fees ............................................................... 23,413,787
Administration and services fees ............................................ 5,427,579
Professional fees ........................................................... 82,222
Trustees fees ............................................................... 5,375
Printing and shareholder reports ............................................ 823
Miscellaneous ............................................................... 71,317
-------------
Total expenses ................................................................. 29,001,103
Less: fee waivers or expense reimbursements .................................... (3,779,381)
-------------
Net expenses ................................................................... 25,221,722
-------------
Net investment income .......................................................... 26,547,219
-------------
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions
Net realized gain (loss) from:
Investment transactions ................................................... 422,025,517
Option transactions ....................................................... (14,932,190)
Foreign futures transactions .............................................. (28,337,693)
Foreign currency transactions ............................................. (4,969,209)
Forward foreign currency transactions ..................................... 26,331,329
Net change in unrealized appreciation/depreciation on
investments and foreign currencies ........................................ (327,798,168)
-------------
Net realized and unrealized gain on investments and foreign currencies ......... 72,319,586
-------------
Net increase in net assets from operations ..................................... $ 98,866,805
=============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD FOR THE
YEAR ENDED OCTOBER 1, 1999 YEAR ENDED
OCTOBER 31, TO OCTOBER 31, SEPTEMBER 30,
------------------------------------------------------------------------------------------------
2000 1999 1 1999
<S> <C> <C> <C>
Increase (Decrease) in Net Assets from:
Operations
Net investment (expenses in excess of)
income ............................... $ 26,547,219 $ (323,887) $ 26,238,345
Net realized gain (loss) from investment
and foreign currency transactions .... 400,117,754 (9,960,988) 4,300,697
Net change in unrealized appreciation/
depreciation on investments and
foreign currencies ................... (327,798,168) 146,111,035 345,753,008
--------------- --------------- ---------------
Net increase in net assets from operations 98,866,805 135,826,160 376,292,050
--------------- --------------- ---------------
Capital Transactions
Proceeds from capital invested ......... 6,227,652,526 340,860,574 3,135,914,534
Value of capital withdrawn ............. (6,382,560,518) (357,182,232) (2,446,602,079)
--------------- --------------- ---------------
Net increase (decrease) in net assets from
capital transactions ................... (154,907,992) (16,321,658) 689,312,455
--------------- --------------- ---------------
Total increase (decrease) in net assets ... (56,041,187) 119,504,502 1,065,604,505
Net Assets
Beginning of period .................... 3,017,360,834 2,897,856,332 1,832,251,827
--------------- --------------- ---------------
End of period .......................... $ 2,961,319,647 $ 3,017,360,834 $ 2,897,856,332
=============== =============== ===============
<FN>
-----------
1 On September 8, 1999, the Board of Trustees approved the change of the fiscal
year end from September 30 to October 31.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR PERIOD
ENDED OCT. 1, 1999 FOR THE YEARS ENDED SEPTEMBER 30,
OCT. 31, TO OCT. 31, -------------------------------------------
2000 1999 2 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Supplemental Data and Ratios:
Net assets, end of period
(000s omitted) ................... $2,961,320 $3,017,361 $2,897,856 $1,832,252 $572,405 $164,813
Ratios to average net assets:
Net investment (expenses
in excess of) income .......... 0.74% (0.13)%1 1.00% 1.52% 1.35% 1.76%
Expenses after waivers ........... 0.70% 0.70%1 0.70% 0.66% 0.65% 0.65%
Expenses before waivers .......... 0.80% 0.83%1 0.80% 0.81% 0.82% 0.85%
Portfolio turnover rate ............ 140% 5% 106% 65% 63% 68%
<FN>
---------
1 Annualized.
2 On September 8, 1999, the Board of Trustees approved the change of the fiscal
year end from September 30 to October 31.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50-51
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION -- The International Equity Portfolio (the "Portfolio") is
registered under the Investment Company Act of 1940 (the "Act"), as
amended, as an open-end management investment company. The Portfolio was
organized as an unincorporated trust under the laws of New York and
began operations on August 4, 1992. The Declaration of Trust permits the
Board of Trustees (the "Trustees") to issue beneficial interests in the
Portfolio.
B. VALUATION OF SECURITIES -- The Portfolio's investments listed or traded
on National Stock Exchanges or other domestic or foreign exchanges are
valued based on the closing price of the securities traded on that
exchange prior to the time when the Portfolio assets are valued.
Short-term debt securities are valued at market value until such time as
they reach a remaining maturity of 60 days, whereupon they are valued at
amortized cost using their value on the 61st day. All other securities
and other assets are valued at their fair value as determined in good
faith under procedures established by and under the general supervision
of the Trustees.
C. SECURITIES TRANSACTIONS AND INTEREST INCOME -- Securities transactions
are accounted for on a trade date basis. Dividend income, less foreign
taxes withheld, if any, is recorded on the ex-dividend date or upon
receipt of ex-dividend notification in the case of certain foreign
securities. Interest income is recorded on the accrual basis and
includes amortization of premium and accretion of discount on
investments. Expenses are recorded as incurred. Realized gains and
losses from securities transactions are recorded on the identified cost
basis.
All of the net investment income and realized and unrealized gains
and losses from the securities and foreign currency transactions of the
Portfolio are allocated pro rata among the investors in the Portfolio at
the time of such determination.
D. FOREIGN CURRENCY TRANSACTIONS -- The books and records of the Portfolio
are maintained in US dollars. All assets and liabilities initially
expressed in foreign currencies are converted into US dollars at
prevailing exchange rates. Purchases and sales of investment securities,
dividend and interest income and certain expenses are translated at the
rates of exchange prevailing on the respective dates of such
transactions.
52
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
NOTE 1 (CONTINUED)
E. FORWARD FOREIGN CURRENCY CONTRACTS -- The Portfolio may enter into
forward foreign currency contracts for the purpose of settling specific
purchases or sales of securities denominated in a foreign currency or
with respect to the Portfolio's investments. The net US dollar value of
foreign currencies underlying all contractual commitments held by the
Portfolio and the resulting unrealized appreciation or depreciation are
determined using prevailing exchange rates. With respect to forward
foreign currency contracts, losses in excess of amounts recognized in
the Statement of Assets and Liabilities may arise due to changes in the
value of the foreign currencies or if the counterparty does not perform
under the contract.
F. OPTION CONTRACTS -- Upon the purchase of a put option or a call option
by the Portfolio, the premium paid is recorded as an investment and
marked-to-market daily to reflect the current market value. When a
purchased option expires, the Portfolio will realize a loss in the
amount of the cost of the option. When the Portfolio enters into a
closing sale transaction, the Portfolio will realize a gain or loss
depending on whether the sale proceeds from the closing sale transaction
are greater or less than the cost of the option. When the Portfolio
exercises a put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale will be decreased by
the premium originally paid. When the Portfolio exercises a call option,
the cost of the security which the Portfolio purchases upon exercise
will be increased by the premium originally paid.
G. FUTURES CONTRACTS -- The Portfolio may enter into financial futures
contracts, which are contracts to buy a standard quantity of securities
at a specified price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Variation margin payments are made or
received by the Portfolio each day, depending on the daily fluctuations
in the value of the underlying securities, and are recorded for
financial statement purposes as unrealized gains or losses by the
Portfolio.
Futures contracts are valued at the settlement price established
each day by the board of trade or exchange on which they are traded.
53
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 (CONCLUDED)
H. FEDERAL INCOME TAXES -- The Portfolio is considered a Partnership under
the Internal Revenue Code. Therefore, no federal income tax provision is
necessary.
I. SECURITY LOANS -- The Portfolio receives compensation in the form of
fees or it retains a portion of interest on the investment of any cash
received as collateral. The Portfolio also continues to receive interest
or dividends on the securities loaned. The loans are secured by
collateral at least equal, at all times, to the fair value of the
securities loaned plus accrued interest. Gain or loss in the fair value
of the securities loaned that may occur during the term of the loan will
be for the account of the Portfolio.
J. ESTIMATES -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts in the financial statements. Actual results could differ from
those estimates.
NOTE 2 -- FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio has entered into an Administration and Services Agreement
with Bankers Trust Company ("Bankers Trust"), an indirect wholly owned
subsidiary of Deutsche Bank AG. Under this agreement, Bankers Trust provides
administrative and custody services to the Portfolio. These services are
provided in return for a fee computed daily and paid monthly at an annual rate
of 0.15% of the Portfolio's average daily net assets.
The Portfolio has entered into an Advisory Agreement with Bankers Trust.
Under this agreement, the Portfolio pays Bankers Trust a fee computed daily and
paid monthly at an annual rate of 0.65% of the Portfolio's average daily net
assets.
Bankers Trust has contractually agreed to waive its fees and reimburse
expenses of the Portfolio, through February 28, 2002, to the extent necessary,
to limit all expenses to 0.70% of the average daily net assets of the Portfolio.
54
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
NOTE 2 (CONCLUDED)
The Portfolio may invest in Cash Management Institutional ("Cash
Management"), an open-end management investment company managed by Bankers
Trust. Cash Management is offered as a cash management option to the Portfolio
and other accounts managed by Bankers Trust. Distributions from Cash Management
to the Portfolio for the year ended October 31, 2000, amounted to $8,717,662 and
are included in dividend income.
At October 31, 2000, the Portfolio was a participant with other affiliated
entities in a revolving credit facility in the amount of $200,000,000, which
expires April 27, 2001. A commitment fee on the average daily amount of the
available commitment is payable on a quarterly basis and apportioned among all
participants based on net assets. No amounts were drawn down or outstanding for
this Portfolio under the credit facility for the year ended October 31, 2000.
The Portfolio may use cash collateral from its securities lending
transactions, described in Note 1.I. to purchase shares of an affiliated fund
and may pay fees generated from those transactions to Bankers Trust.
For the year ended October 31, 2000, affiliates of Deutsche Bank AG
received $80,614 in brokerage commissions from the Portfolio as a result of
executing agency transactions in portfolio securities.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the year ended October 31, 2000, were
$4,715,457,241 and $4,888,426,453, respectively.
For Federal income tax purposes, the tax basis of investments held at
October 31, 2000, was $2,886,184,610. The aggregate gross unrealized
appreciation for all investments at October 31, 2000, was $268,397,859 and the
aggregate gross unrealized depreciation for all investments was $118,800,853.
55
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4 -- OPEN FORWARD FOREIGN CURRENCY CONTRACTS
On October 31, 2000 the Portfolio had the following open forward foreign
currency contracts outstanding:
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION/
CONTRACT DEPRECIATION
CONTRACTS TO DELIVER IN EXCHANGE FOR SETTLEMENT DATE VALUE (US$) (US$)
---------------------------------------------------------------------------------------------------------------------
SALES
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
British Pound 3,580,000 US Dollar $ 5,196,800 11/2/00 $ 5,198,522 $ (1,722)
Hong Kong Dollar 6,700,000 US Dollar 859,018 11/1/00 859,102 (83)
Hong Kong Dollar 6,781,000 US Dollar 869,448 11/2/00 869,488 (40)
Japanese Yen 7,316,741,250 US Dollar 68,250,000 11/16/00 67,011,544 1,238,456
Japanese Yen 14,830,042,500 US Dollar 138,469,118 11/16/00 135,823,314 2,645,804
---------------------------------------------------------------------------------------------------------------------
Total Sales $3,882,415
---------------------------------------------------------------------------------------------------------------------
PURCHASES
---------------------------------------------------------------------------------------------------------------------
Swiss Franc 38,822,000 US Dollar $ 21,480,662 11/1/00 $ 21,590,748 $ 110,086
Swiss Franc 12,901,000 US Dollar 7,171,206 11/2/00 7,174,855 3,649
Swiss Franc 113,738,625 US Dollar 65,000,000 11/16/00 63,255,422 (1,744,578)
Swiss Franc 113,723,350 US Dollar 65,000,000 11/16/00 63,246,927 (1,753,073)
Swiss Franc 114,236,850 US Dollar 65,000,000 11/16/00 63,532,508 (1,467,492)
Swiss Franc 116,678,900 US Dollar 65,000,000 11/16/00 64,890,648 (109,352)
Euro 3,000,000 US Dollar 2,529,600 11/1/00 2,542,935 13,335
Euro 25,000,000 US Dollar 21,190,000 11/2/00 21,191,125 1,125
Euro 77,325,581 US Dollar 64,276,889 11/29/00 65,544,642 1,267,753
British Pound 2,100,000 US Dollar 3,010,140 11/1/00 3,049,412 39,272
British Pound 8,060,000 US Dollar 11,716,016 11/3/00 11,703,934 (12,082)
BritishPound 9,620,000 US Dollar 13,962,709 11/6/00 13,969,212 6,503
Japanese Yen 357,347,000 US Dollar 3,280,218 11/1/00 3,272,820 (7,399)
Japanese Yen 68,997,000 US Dollar 632,188 11/2/00 631,920 (268)
---------------------------------------------------------------------------------------------------------------------
Total Purchases $(3,652,521)
---------------------------------------------------------------------------------------------------------------------
Total Unrealized Appreciation $ 229,894
---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5 -- CALL AND PUT OPTIONS
Call and Put Options written and related premiums received during the
period were as follows:
<TABLE>
<CAPTION>
CALLS -- ACTUAL PUTS -- ACTUAL
-----------------------------------------------------------------------------------------------------------------
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding, October 31, 1999 8,643 7,766,496 -- --
Options written 5,116,964 65,675,821 1,878,372 13,155,196
Options closed (581,977) (11,886,877) (644,972) (6,492,491)
Options expired (416,969) (21,962,366) (413,800) (359,775)
Options exercised (69,600) (675,120) (620,100) (4,454,230)
-------------------------------------------------------------------------------------------------------------------
Options outstanding, October 31, 2000 4,057,061 38,917,954 199,500 1,848,700
-------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
NOTE 6 -- LENDING OF PORTFOLIO SECURITIES
The Portfolio has the ability to lend its securities to brokers, dealers
and other financial organizations. Loans of portfolio securities are
collateralized by cash and/or government securities that are maintained at all
times in an amount equal to 102% and 105% of the current market value of the
loaned securities for domestic and international securities, respectively.
At October 31, 2000
MARKET VALUE MARKET VALUE % OF PORTFOLIO
OF LOANED SECURITIES OF COLLATERAL ON LOAN
-------------------- ------------- --------------
$106,043,552 $111,939,340 3.74
NOTE 7 -- RISKS OF INVESTING IN FOREIGN SECURITIES
The Portfolio invests in foreign securities. Investing in securities of
foreign companies and foreign governments involves special risks and
considerations not typically associated with investing in securities of US
companies and the US government. These risks include devaluation of currencies
and future adverse political and economic developments. Lack of liquidity and
greater volatility in market prices. This is particularly true with respect to
emerging markets in developing countries.
57
<PAGE>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Holders of Beneficial Interest of
International Equity Portfolio:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of portfolio investments, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the International Equity Portfolio
(hereafter referred to as the "Portfolio") at October 31, 2000, the results of
its operations, the changes in its net assets and the financial highlights for
each of the fiscal periods presented, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Portfolio's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 2000 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
December 20, 2000
58
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
TRUMAN T. SEMANS
CHAIRMAN
CARL W. VOGT, ESQ.
PRESIDENT
RICHARD R. BURT
DIRECTOR
RICHARD T.HALE
DIRECTOR
JOSEPH R. HARDIMAN
DIRECTOR
LOUIS E. LEVY
DIRECTOR
EUGENE J. MCDONALD
DIRECTOR
REBECCA W.RIMEL
DIRECTOR
ROBERT H. WADSWORTH
DIRECTOR
CHARLES A. RIZZO
TREASURER
AMY M. OLMERT
SECRETARY
DANIEL O. HIRSCH
ASSISTANT SECRETARY
INVESTMENT OBJECTIVE
A mutual fund seeking long-term growth of capital primarily through investment
in stocks and other equity securities of companies in developed countries
located outside of the United States.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
<PAGE>
[LOGO OMITTED]
FLAG INVESTORS
INVESTING WITH A DIFFERENCE(REGISTRATION MARK)
DOMESTIC EQUITY
Communications Fund
Emerging Growth Fund
Equity Partners Fund
Real Estate Securities Fund
Top 50 US
Value Builder Fund
INTERNATIONAL EQUITY
European Mid-Cap Fund
International Equity Fund
Japanese Equity Fund
Top 50 Asia
Top 50 Europe
Top 50 World
FIXED INCOME
Managed Municipal Fund Shares
Short-Intermediate Income Fund
Total Return US Treasury Fund Shares
MONEY MARKET
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
WWW.FLAGINVESTORS.COM
Distributed by:
ICC DISTRIBUTORS, INC.
INTLANN (12/00)
