<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 26, 1996.
FILE NO. 33-78648
FILE NO. 811-8500
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 4 / X /
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 6 / X /
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
135 East Baltimore Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (410) 727-1700
Edward J. Veilleux
135 East Baltimore Street
Baltimore, Maryland 21202
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
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It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
__X__ on May 1, 1996 pursuant to paragraph (b)
_____ 60 days after filing pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on (date) pursuant to paragraph (a) of Rule 485
- --------------------------------------------------------------------------------
Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for its fiscal year ended December 31,
1995 was filed with the Commission on February 23, 1996.
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<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
Cross Reference Sheet
April 26, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Requires by Form N-1A Location
- --------------------------- --------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page........................................ Cover Page
Item 2. Synopsis.......................................... Fund Expenses
Item 3. Condensed Financial
Information....................................... Financial Highlights
Item 4. General Description of
Registrant........................................ Investment Program; General
Information
Item 5. Management of the Fund............................ Management of the Fund;
Investment Advisor and Sub-
Advisor; Distributor; Custodian,
Transfer Agent, Accounting
Services
Item 5A. Management's Discussion of Fund
Performance....................................... **
Item 6. Capital Stock and Other
Securities........................................ Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being
Offered........................................... How to Invest in the Fund;
Distributor
Item 8. Redemption or Repurchase.......................... How to Redeem Shares
Item 9. Pending Legal Proceedings......................... *
Part B - Information Required in a
- ------ Statement of Additional
Information
Item 10. Cover Page........................................ Cover Page
Item 11. Table of Contents................................. Table of Contents
Item 12. General Information and
History........................................... General Information and
History
Item 13. Investment Objectives and
Policies.......................................... Investment Objectives and
Policies
Item 14. Management of the Fund............................ Management of the Fund
Holders of Securities
- ------------------------
* Omitted since the answer is negative or the item is not applicable.
** Information required by Item 5A is contained in the 1995 Annual Report to Shareholders.
<PAGE>
Item 15. Control Persons and Principal
Holders of Securities............................. Control Persons and Principal
Item 16. Investment Advisory and Other
Services.......................................... Investment Advisory and Other
Services; Custodian, Transfer
Agent, Accounting Services;
Independent Auditors
Item 17. Brokerage Allocation.............................. Brokerage
Item 18. Capital Stock and Other
Securities........................................ Capital Stock; Reports
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered........................................... Valuation of Shares and
Redemption
Item 20. Tax Status........................................ Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters...................................... Distribution of Fund Shares
Item 22. Calculation of Performance
Data.............................................. Performance Information
Item 23. Financial Statements.............................. Financial Statements
Part C - Other Information
- ------
Part C contains the information required by the items contained
therein under the items set forth in the form.
- -----------------------
* Omitted since the answer is negative or the item is not applicable.
</TABLE>
ii
<PAGE>
LOGO
FLAG INVESTORS
REAL ESTATE SECURITIES FUND, INC.
(Class A and Class B Shares)
This mutual fund (the "Fund") is designed to seek total return primarily
through investments in equity securities of companies that are principally
engaged in the real estate industry.
Shares of the Fund are available through Alex. Brown & Sons Incorporated
("Alex. Brown"), as well as through Participating Dealers and Shareholder
Servicing Agents. This Prospectus relates to Class A and Class B Shares of
the Fund. The separate classes provide investors with alternatives as to
sales load and fund expenses. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated May 1, 1996 has been
filed with the Securities and Exchange Commission (the "SEC") and is hereby
incorporated by reference. It is available upon request and without charge by
calling the Fund at (800) 767-FLAG.
- ------------------------------------------------------------------------------
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1996
PROSPECTUS
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND, INC.
(Class A and Class B Shares)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
-----------------
Page
1. Fee Table ....................................... 2
2. Financial Highlights ............................ 3
3. Investment Program .............................. 4
4. Risk Factors .................................... 7
5. Investment Restrictions ......................... 8
6. How to Invest in the Fund ....................... 9
7. How to Redeem Shares ............................ 17
8. Telephone Transactions .......................... 18
9. Dividends and Taxes ............................. 19
10. Management of the Fund .......................... 21
11. Investment Advisor and Sub-Advisor .............. 21
12. Distributor ..................................... 23
13. Custodian, Transfer Agent, Accounting Services .. 24
14. Performance Information ......................... 25
15. General Information ............................. 26
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information
must not be relied upon as having been authorized by the Fund or its
distributor. This Prospectus does not constitute an offering by the Fund or
by its distributor in any jurisdiction in which such offering may not
lawfully be made. Shares may be offered only to residents of those states in
which such shares are eligible for purchase.
1
<PAGE>
- -------------------------------------------------------------------------------
1. FEE TABLE
- -------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Alternative Alternative
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ......................... 4.50%* None
Maximum Sales Charge Imposed on Reinvested Dividends ......... None None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever is lower) .. 0.50%* 4.00%**
- ------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (net of fee waivers and reimbursements):
(as a percentage of average daily net assets)
- ------------------------------------------------------------------------------------------------------
Management Fees (net of fee waivers and reimbursements) ...... .00%*** .00%***
12b-1 Fees ................................................... .25% .75%
Other Expenses (including a .25% shareholder
servicing fee for Class B Shares) .......................... 1.00% 1.25%****
----- -----
Total Fund Operating Expenses (net of fee waivers and
reimbursements) ............................................ 1.25%*** 2.00%***
===== =====
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Purchases of $1 million or more of Class A Shares by persons not
otherwise eligible for sales load waivers are not subject to an initial
sales charge, however, a contingent deferred sales charge of .50% may be
imposed on such purchases. (See "How to Invest in the Fund -- Class A
Shares.")
** A declining contingent deferred sales charge will be imposed on
redemptions of Class B Shares made within six years of purchase. Class B
Shares will automatically convert to Class A Shares six years after
purchase. (See "How to Invest in the Fund -- Class B Shares.")
*** The Fund's investment advisor currently intends to waive its fee or to
reimburse the Fund on a voluntary basis to the extent required so that
Total Fund Operating Expenses do not exceed 1.25% of the Class A Shares'
average daily net assets and 2.00% of the Class B Shares' average daily
net assets. Absent fee waivers and reimbursements, Management Fees would
be .65% of the Fund's average daily net assets and Total Fund Operating
Expenses would be 3.25% of the Class A Shares' average daily net assets
and 4.05% of the Class B Shares' average daily net assets.
**** A portion of the shareholder servicing fee is allocated to member firms
of the National Association of Securities Dealers, Inc. and qualified
banks for continued personal service by such members to investors in
Class B Shares, such as responding to shareholder inquiries, quoting net
asset values, providing current marketing materials and attending to
other shareholder matters.
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:* 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------------
Class A Shares ................................. $57 $84 $113 $199
Class B Shares ................................. $61 $95 $133 $213**
- --------------------------------------------------------------------------------------------------------
</TABLE>
*The Example is based on Total Fund Operating Expenses, net of fee waivers
and reimbursements. Absent such fee waivers and reimbursements, expenses
would be higher.
**Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class
B expenses and four years of Class A expenses.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on the
same investment, assuming no redemption:* 1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------------
Class B Shares ............................. $21 $65 $113 $213**
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The Example is based on Total Fund Operating Expenses, net of fee waivers
and reimbursements. Absent such fee waivers and reimbursements, expenses
would be higher.
**Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class
B expenses and four years of Class A expenses.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases shares of either class through a financial institution
may be charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in the
Fund -- Offering Price", "Investment Advisor and Sub-Advisor" and
"Distributor.") The Expenses and Example appearing in the table above are
based on the Fund's expenses for the fiscal year ended December 31, 1995
which, net of fee waivers, were 1.25% of the Class A Shares' average daily
net assets and 2.00% of the Class B Shares' average daily net assets.
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, certain investors may qualify for reduced sales
charges or no sales charge at all. (See "How to Invest in the Fund -- Class A
Shares.") Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more than the equivalent of the maximum
front-end sales charges permitted by the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. ("NASD Rules").
- --------------------------------------------------------------------------------
2. FINANCIAL HIGHLIGHTS
The financial highlights included in this table are a part of the Fund's
financial statements for the period indicated and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements
and financial highlights for the period ended December 31, 1995 and the
report thereon of Coopers & Lybrand L.L.P. are included in the Statement of
Additional Information. Additional performance information is contained in
the Fund's Annual Report for the period ended December 31, 1995, which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.
3
<PAGE>
(For a share outstanding throughout the period)*
<TABLE>
<CAPTION>
For the Period
January 3, 1995**
through
December 31, 1995
----------------------
Class A Class B
- --------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period .......................... $ 10.00 $ 10.00
------- -------
Income from Investment Operations:
Net investment income .............. 0.56 0.50
Net realized and unrealized gain on
investments ..................... 1.21 1.20
------- -------
Total from Investment Operations . 1.77 1.70
------- -------
Less Distributions:
Dividends from net investment income (0.52) (0.47)
Distributions from short-term
capital gains ................... (0.05) (0.05)
------- -------
Total distributions ................ (0.57) (0.52)
------- -------
Net asset value at end of period ... $ 11.20 $ 11.18
======= =======
Total Return (Aggregate) ............. 18.19% 17.40%
Ratios to Average Net Assets:
Expenses(2) ........................ 1.19%(1) 1.90%(1)
Net investment income(3) ........... 5.95%(1) 5.25%(1)
Suplemental Data:
Net assets at end of period (000) .. $ 7,171 $ 3,016
Portfolio turnover rate ............ 28% 28%
</TABLE>
- --------------------------------------------------------------------------------
* Computed based upon average shares outstanding.
** Commencement of operations.
(1) Annualized.
(2) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 3.25% (annualized) for Class A Shares and 4.05%
(annualized) for Class B Shares.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average net assets would have been 3.98% (annualized) for Class A
Shares and 3.09% (annualized) for Class B Shares.
- --------------------------------------------------------------------------------
3. INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is total return primarily through
investments in equity securities of companies that are principally engaged in
the real estate industry. This investment objective is a fundamental policy
of the Fund and cannot be changed without shareholder approval.
Under normal conditions at least 65% of the Fund's total assets will be
invested in the equity securities of companies principally engaged in the
4
<PAGE>
real estate industry. A company is "principally engaged" in the real estate
industry if (i) it derives at least 50% of its revenues or profits from the
ownership, construction, management, financing or sale of residential,
commercial or industrial real estate or (ii) it has at least 50% of the fair
market value of its assets invested in residential, commercial or industrial
real estate. Companies in the real estate industry may include among others:
real estate investment trusts ("REITs"), master limited partnerships that
invest in interests in real estate and which are traded on a national
securities exchange; real estate brokers or developers; and companies with
substantial real estate holdings, such as paper and lumber producers. By
investing in master limited partnerships through the Fund, shareholders
indirectly bear a proportionate share of the operating expenses of the
underlying master limited partnership, in addition to the similar expenses of
the Fund. Equity securities include common stock, rights or warrants to
purchase common stock, preferred stock, and securities convertible into
common stock. The Fund may invest up to 10% of its total assets in securities
of foreign real estate companies.
The Fund may invest in securities of REITs. REITs pool investors' funds
for investment primarily in income producing real estate or real estate
related loans or interests. A REIT is not taxed on income distributed to its
shareholders or unitholders if it complies with regulatory requirements
relating to its organization, ownership, assets and income, and with a
regulatory requirement that it distribute to its shareholders or unitholders
at least 95% of its taxable income for each taxable year. Generally, REITs
can be classified as Equity REITs, Mortgage REITs and Hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and
derive their income primarily from rents and capital gains from appreciation
realized through property sales. Mortgage REITs invest the majority of their
assets in real estate mortgages and derive their income primarily from
interest payments. Hybrid REITs combine the characteristics of both Equity
and Mortgage REITs. A shareholder in the Fund should realize that by
investing in REITs indirectly through the Fund, he will bear not only his
proportionate share of the expenses of the Fund, but also indirectly, similar
expenses of underlying REITs.
Under normal conditions the portfolio may invest up to 35% of its total
assets in securities of companies outside the real estate industry and
nonconvertible debt securities such as bonds. Investment Company Capital
Corp. ("ICC"), the Fund's investment advisor, and ABKB/LaSalle Securities
Limited Partnership ("ABKB/LaSalle"), the Fund's sub-advisor (collectively,
the "Advisors"), currently anticipate that investments outside the real
estate industry will be primarily in securities of companies whose products
5
<PAGE>
and services are related to the real estate industry. They may include
manufacturers and distributors of building supplies, financial institutions
which make or service mortgages and companies whose real estate assets are
substantial relative to their stock market valuations, such as retailers and
railroads. The Fund may invest up to 5% of its net assets in zero coupon or
other original issue discount securities. The debt securities purchased by
the Fund will be of investment grade or better quality (i.e., of a quality
equivalent to the ratings Baa or better of Moody's Investors Service, Inc.
("Moody's") or BBB or better of Standard & Poor's Ratings Group ("S&P")).
While classified as "investment grade," securities rated Baa by Moody's or
BBB by S&P have speculative characteristics. The ratings categories of S&P
and Moody's are described more fully in the Appendix to the Statement of
Additional Information.
For temporary defensive purposes the Fund may invest up to 100% of its
assets in short-term money market instruments consisting of securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities,
repurchase agreements, certificates of deposit and bankers' acceptances
issued by banks or savings and loan associations having net assets of at
least $500 million as of the end of their most recent fiscal year, high-grade
commercial paper rated, at time of purchase, in the top two categories by a
national rating agency or determined to be of comparable quality by ICC or
ABKB/LaSalle at the time of purchase and other long- and short-term debt
instruments which are rated A or higher by S&P or Moody's at the time of
purchase, and may hold a portion of its assets in cash. The Fund has the
ability to invest in warrants, futures contracts and options, but has no
intention to do so during the coming year.
Subject to the Fund's overall investment limitations on investing in
illiquid securities and restricted securities, the Fund may purchase Rule
144A Securities. Rule 144A Securities are restricted securities in that they
have not been registered under the Securities Act of 1933, but they may be
traded between certain qualified institutional investors, including
investment companies. The presence or absence of a secondary market may
affect the value of the Rule 144A Securities. The Fund's Board of Directors
has established guidelines and procedures to be utilized to determine the
liquidity of such securities.
...............................................................................
REPURCHASE AGREEMENTS
The Fund may agree to purchase U.S. Treasury securities from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the securities at an established time and price. U.S.
6
<PAGE>
Treasury securities include Treasury bills, Treasury notes, Treasury bonds
and Separate Trading of Registered Interest and Principal of Securities
("STRIPS"), all of which are direct obligations of the U.S. Government and
are supported by the full faith and credit of the United States. The Fund
will enter into repurchase agreements only with banks and broker-dealers that
have been determined to be creditworthy by the Fund's Board of Directors
under criteria established with the assistance of the Advisors. Default by
the seller may, however, expose the Fund to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
obligations. In addition, if bankruptcy proceedings are commenced with
respect to the seller of the security, the Fund may be delayed or limited in
its ability to sell the collateral.
- -------------------------------------------------------------------------------
WHEN-ISSUED SECURITIES
The Fund may purchase securities on a when-issued basis, which means that
delivery and payment for such securities normally take place within 45 days
after the date of the commitment to purchase. The payment obligation and the
interest rate that will be received on a when-issued security are fixed at
the time the purchase commitment is entered into, although no interest on
such security accrues to the Fund prior to payment and delivery. A segregated
account of the Fund consisting of cash, cash equivalents or U.S. Government
securities or other high quality liquid debt securities equal at all times to
the amount of the when-issued commitments will be established and maintained
by the Fund at the Fund's custodian. Additional cash or liquid debt
securities will be added to the account when necessary. While the Fund will
purchase securities on a when-issued basis only with the intention of
acquiring the securities, the Fund may sell the securities before the
settlement date if it is deemed advisable to limit the effects of adverse
market action. The securities so purchased or sold are subject to market
fluctuation so, at the time of delivery of the securities, their value may be
more or less than the purchase or sale price.
- --------------------------------------------------------------------------------
4. RISK FACTORS
Because the Fund invests primarily in the real estate industry, its
investments may be subject to certain risks. These risks include: declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property
taxes and operating expenses, demographic trends and variations in rental
income. Generally, increases in interest rates will decrease the value of
high yielding securities and increase the costs of obtaining financing, which
7
<PAGE>
could directly and indirectly decrease the value of the Fund's investments.
The Fund's share price and investment return fluctuate, and a shareholder's
investment when redeemed may be worth more or less than his original cost.
Because the Fund may invest in REITs, it may also be subject to certain risks
associated with the direct investments of the REITs. Equity REITs may be
affected by changes in the value of the underlying property owned by the
REITs, while Mortgage REITs may be affected by the quality of credit
extended. Equity and Mortgage REITs are dependent upon management skill, have
limited diversification and are subject to the risks of financing projects.
Such REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self liquidation and the possibility of failing to qualify for
tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended or failing to maintain their exemptions from registration under the
Investment Company Act of 1940.
Investing in securities issued by foreign corporations involves
considerations and possible risks not typically associated with investing in
securities issued by domestic corporations. The values of foreign investments
are affected by changes in currency rates or exchange control regulations,
application of foreign tax laws, including withholding taxes, changes in
governmental administration or economic or monetary policy (in the United
States or abroad) or changed circumstances in dealings between nations. Costs
are incurred in connection with conversions between various currencies. In
addition, foreign brokerage commissions are generally higher than in the
United States, and foreign securities markets may be less liquid, more
volatile and less subject to governmental supervision than in the United
States. Investments in foreign countries could be affected by other factors
not present in the United States, including expropriation, confiscatory
taxation, lack of uniform accounting and auditing standards, potential
difficulties in enforcing contractual obligations and the possibility of
extended settlement periods. For additional risk disclosure see "Repurchase
Agreements" and "When-Issued Securities."
- --------------------------------------------------------------------------------
5. INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of restrictions which
reflect both self imposed standards and federal and state regulatory
limitations. The investment restrictions numbered 1 through 3 below are
matters of fundamental policy and may not be changed without the affirmative
vote of a majority of the outstanding shares. The vote of a majority
8
<PAGE>
of the outstanding shares of the Fund means the lesser of: (i) 67% or more of
the shares present at a shareholder meeting at which the holders of more than
50% of the shares are present or represented or (ii) more than 50% of the
outstanding shares of the Fund. Investment restriction number 4 may be
changed by a vote of the majority of the Board of Directors. The Fund will
not:
1) With respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer or invest more than 5% of
the value of its total assets in the securities of any one issuer, except
the U.S. Government, its agencies and instrumentalities;
2) Concentrate 25% or more of its total assets in securities of issuers in
any one industry, except that the Fund will concentrate in the real estate
industry (for these purposes the U.S. Government and its agencies and
instrumentalities are not considered an issuer);
3) Borrow money except as a temporary measure to facilitate settlements and
for extraordinary or emergency purposes and then only from banks and in an
amount not exceeding 10% of the value of the total assets of the Fund at
the time of such borrowing, provided that, while borrowings by the Fund
equalling 5% or more of the Fund's total assets are outstanding, the Fund
will not purchase securities; or
4) Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven
days.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
- --------------------------------------------------------------------------------
6. HOW TO INVEST IN THE FUND
Class A and Class B Shares may be purchased from Alex. Brown, 135 East
Baltimore Street, Baltimore, Maryland 21202, through any securities dealer
which has entered into a dealer agreement with Alex. Brown ("Participating
Dealers") or through any financial institution which has entered into a
Shareholder Servicing Agreement with the Fund ("Shareholder Servicing
Agents"). Shares of either class may also be purchased by completing the
Application Form attached to this Prospectus and returning it, together with
payment of the purchase price, (including any applicable front-end sales
charge), to the address shown on the Application Form. Participating Dealers
or Shareholder Servicing Agents and their investment representatives may
receive different levels of compensation depending on which class of shares
they sell.
9
<PAGE>
The Class A and Class B alternatives permit an investor to choose the
method of purchasing shares that is more beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and
other circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the combination of sales
charge, distribution fee and contingent deferred sales charge on Class A
Shares is more favorable than the combination of distribution/service fees
and contingent deferred sales charge on Class B Shares. In almost all cases,
investors planning to purchase $100,000 or more of Fund shares will pay lower
aggregate charges and expenses by purchasing Class A Shares. Accordingly, the
Fund will not accept purchases for Class B Shares in excess of $100,000 per
account. (See "Fee Table.")
The minimum initial investment in shares of either class is $2,000, except
that the minimum initial investment for shareholders of any other Flag
Investors fund or class is $500 and the minimum initial investment for
participants in the Fund's Automatic Investing Plan is $250. Each subsequent
investment must be at least $100 per class, except that the minimum
subsequent investment under the Fund's Automatic Investing Plan is $250 for
quarterly investments and $100 for monthly investments. (See "Purchases
through Automatic Investing Plan" below.) There is no minimum investment
requirement for qualified retirement plans (i.e. 401(k) plans or pension and
profit sharing plans). IRA accounts are, however, subject to the $2,000
minimum initial investment requirement. There is no minimum investment
requirement for spousal IRA accounts.
The Fund reserves the right to suspend the sale of shares at any time at
the discretion of Alex. Brown and the Fund's investment advisors. Orders for
purchases of shares are accepted on any day on which the New York Stock
Exchange is open for business ("Business Day"). Purchase orders for shares
will be executed at a per share purchase price equal to the net asset value
next determined after receipt of the purchase order plus any applicable
front-end sales charge (the "Offering Price") on the date such net asset
value is determined (the "Purchase Date"). Purchases made by mail must be
accompanied by payment of the Offering Price. Purchases made through Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent must be in
accordance with such entity's payment procedures. Alex. Brown may, in its
sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing all assets held by the Fund, deducting all liabilities, including
liabilities attributable to that specific class, and dividing the resulting
10
<PAGE>
amount by the number of then outstanding shares of the class. For this
purpose, portfolio securities are given their market value where feasible.
Portfolio securities that are actively traded in the over-the-counter market,
including listed securities for which the primary market is believed by the
Advisor to be over-the-counter, are valued at the quoted bid prices provided
by principal market makers. If a portfolio security is traded on a national
exchange on the valuation date, the last quoted sale price is generally used.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established from time to time and monitored by the Fund's Board of
Directors. Such procedures may include the use of an independent pricing
service which uses prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. Debt obligations with maturities of
60 days or less are valued at amortized cost, which constitutes fair value as
determined by the Fund's Board of Directors. Because of differences between
the classes of shares in distribution/service fees, the net asset value per
share of the classes differs at times.
- --------------------------------------------------------------------------------
OFFERING PRICE
Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price, which for Class A Shares
includes a sales charge which is calculated as a percentage of the Offering
Price, and for Class B Shares is net asset value.
- --------------------------------------------------------------------------------
CLASS A SHARES
The sales charge on Class A Shares, which decreases as the amount of purchase
increases, is shown below:
Sales Charge
as % of Dealer
------------------------- Retention
Offering Net Amount as % of
Amount of Purchase Price Invested Offering Price
- --------------------------------------------------------------------------------
Less than $50,000 .... 4.50% 4.71% 4.00%
$ 50,000 - $99,999 .... 3.50% 3.63% 3.00%
$ 100,000 - $249,999 ... 2.50% 2.56% 2.00%
$ 250,000 - $499,999 ... 2.00% 2.04% 1.50%
$ 500,000 - $999,999 ... 1.50% 1.52% 1.25%
$1,000,000 and over None* None* None*
- --------------------------------------------------------------------------------
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The distributor may make payments to dealers in
the amount of .50% of the Offering Price.
A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of
11
<PAGE>
accumulation. In addition, an investor may obtain reduced sales charges as
set forth above through a right of accumulation of purchases of Class A
Shares and purchases of shares of other Flag Investors funds with the same
sales charge and purchases of Class A shares of Flag Investors Intermediate-
Term Income Fund, Inc. and Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. (the "Intermediate Funds"). The applicable sales charge
will be determined based on the total of (a) the shareholder's current
purchase plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of all Class A Shares and of all Flag Investors
shares described above and any Flag Investors Class D shares held by the
shareholder. To obtain the reduced sales charge through a right of
accumulation, the shareholder must provide Alex. Brown, either directly or
through a Participating Dealer or Shareholder Servicing Agent, as applicable,
with sufficient information to verify that the shareholder has such a right.
The Fund may amend or terminate this right of accumulation at any time as to
subsequent purchases.
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases, which will be aggregated, by a
purchaser, the purchaser's spouse and their children under the age of 21
years purchasing shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of shares under a Letter of Intent will be made at the Offering
Price applicable at the time of such purchase to the full amount indicated on
the Letter of Intent. A Letter of Intent is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial
investment under a Letter of Intent is 5% of the full amount. Shares
purchased with the first 5% of the full amount will be held in escrow (while
remaining registered in the name of the investor) to secure payment of the
higher sales charge applicable to the shares actually purchased if the full
amount indicated is not invested. Such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary. When the full
amount indicated has been purchased, the escrowed shares will be released. An
investor who wishes to enter into a Letter of Intent in conjunction with an
investment in Class A Shares may do so by completing the appropriate section
of the Application Form attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more of Class A Shares. However, a contingent deferred sales
charge may be imposed on such investments in the event of a redemption within
24 months following the purchase, at the rate of .50% on the
12
<PAGE>
lesser of the value of the Class A Shares redeemed or the total cost of such
shares. No contingent deferred sales charge will be imposed on purchases of
$3 million or more of Class A Shares redeemed within 24 months of purchase if
the Participating Dealer and Alex. Brown have entered into an agreement under
which the Participating Dealer agrees to return any payments received on the
sale of such shares. In determining whether a contingent deferred sales
charge is payable, and, if so, the amount of the charge, it is assumed that
shares not subject to such charge are the first redeemed followed by other
shares held for the longest period of time.
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
The Fund may sell Class A Shares at net asset value (without sales charge)
to the following: (i) banks, bank trust departments, registered investment
advisory companies, financial planners and broker-dealers purchasing Class A
Shares on behalf of their fiduciary and advisory clients, provided such
clients have paid an account management fee for these services (investors may
be charged a fee if they effect transactions in Fund Shares through a broker
or agent); (ii) qualified retirement plans; (iii) participants in a Flag
Investors fund payroll savings plan program; (iv) investors who have redeemed
Class A Shares, or shares of any other mutual fund in the Flag Investors
family of funds with the same sales charges, or who have redeemed Class A
shares of the Intermediate Funds which they had held for at least 24 months
prior to redemption, in an amount that is not more than the total redemption
proceeds, provided that the purchase is within 90 days after the redemption;
and (v) current or retired Directors of the Fund and directors and employees
(and their immediate families) of Alex. Brown, ABKB/LaSalle, Participating
Dealers and their respective affiliates.
- --------------------------------------------------------------------------------
CLASS B SHARES
No sales charge will be payable at the time of purchase of Class B Shares.
However, a contingent deferred sales charge will be imposed on certain Class
B Shares redeemed within six years of purchase. The charge is assessed on an
amount equal to the lesser of the then-current market value of the Class B
Shares redeemed or the total cost of such shares. Accordingly, the contingent
deferred sales charge will not be applied to dollar amounts representing an
increase in the net asset values above the initial purchase price of the
shares being redeemed. In addition, no charge is assessed on redemptions of
Class B Shares derived from reinvestment of dividends or capital gains
distributions.
13
<PAGE>
In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in the
lowest possible rate. Therefore, it is assumed that the redemption is first
of any Class B Shares in the shareholder's account that represent reinvested
dividends and distributions and second of Class B Shares held the longest
during the six year period. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
payment for the purchase of Class B Shares until the redemption of such
shares (the "holding period"). For purposes of determining this holding
period, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates
of the contingent deferred sales charge.
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar amount
Payment was Made subject to charge)
- --------------------------------------------------------------------------------
First ................. 4.0%
Second ................ 4.0%
Third ................. 3.0%
Fourth ................ 3.0%
Fifth ................. 2.0%
Sixth ................. 1.0%
Thereafter ............ None*
- --------------------------------------------------------------------------------
* As described more fully below, Class B Shares automatically convert to
Class A Shares six years after the beginning of the calendar month in which
the purchase order is accepted.
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Class B Shares (i) following the
death or initial determination of disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder; or (ii) to the extent
that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who
has attained the age of 70 1/2. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the
name of an individual person, (b) as a joint tenancy with rights of
survivorship, (c) as community property or (d) in the name of a minor child
under the Uniform Gifts or Uniform Transfers to Minors Act. A shareholder, or
his or her representative, must notify the Fund's transfer agent (the
"Transfer Agent") prior to the time of redemption if such circumstances exist
and the shareholder is eligible for this waiver. For information on the
imposition and waiver of the contingent deferred sales charge, contact the
Transfer Agent at (800) 553-8080.
14
<PAGE>
Automatic Conversion to Class A Shares. Six years after the beginning of the
calendar month in which the purchase order for Class B Shares is accepted,
such Class B Shares will automatically convert to Class A Shares and will no
longer be subject to the higher distribution and service fees. Such
conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. The
conversion is not a taxable event to the shareholder.
For purposes of conversion to Class A Shares, shares received as dividends
and other distributions paid on Class B Shares in the shareholder's account
will be considered to be held in a separate sub-account. Each time any Class
B Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares.
Class B Shares may also be purchased through a Systematic Purchase Plan. An
investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
- --------------------------------------------------------------------------------
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their shares of
those funds for an equal dollar amount of Fund shares of the same class that
have the same sales load structure. Except as provided below, shares issued
pursuant to this offer will not be subject to the sales charges described
above or any other charge. Shareholders of Class A shares of the Intermediate
Funds may exchange into Class A Shares upon payment of the difference in
sales charges, as applicable, except the exchange will be made at net asset
value if the shares of such funds have been held for more than 24 months.
Shareholders of Flag Investors Cash Reserve Prime Class A Shares may exchange
into Class A Shares upon payment of the difference in sales charges, as
applicable, or into Class B Shares at net asset value, subject thereafter to
any applicable contingent deferred sales charge.
When a shareholder acquires Fund shares through an exchange from another
fund in the Flag Investors family of funds, the Fund will combine the period
for which the original shares were held prior to the exchange with the
holding period of the shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon
a redemption of any such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
15
<PAGE>
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time) or the close of the New York Stock Exchange, whichever is earlier.
Exchange requests received after 4:00 p.m. (Eastern Time) will be effected on
the next Business Day.
Shareholders of any mutual fund not affiliated with the Fund, who have
paid a sales charge, may exchange shares of such fund for an equal dollar
amount of Class A Shares by submitting to Alex. Brown or a Participating
Dealer the proceeds of the redemption of such shares, together with evidence
of the payment of a sales charge and the source of such proceeds. Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge.
The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below.) The exchange
privilege may be exercised only in those states where the class of shares of
such other funds may legally be sold. Investors should receive and read the
applicable prospectus prior to tendering shares for exchange. The Fund may
modify or terminate these offers of exchange at any time on 60 days' prior
written notice to shareholders and the exchange offers set forth herein are
expressly subject to modification or termination.
- --------------------------------------------------------------------------------
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase either Class A Shares or Class B Shares regularly
by means of an Automatic Investing Plan with a pre-authorized check drawn on
their checking accounts. Under this plan, the shareholder may elect to have a
specified amount invested monthly or quarterly in either Class A Shares or
Class B Shares. The amount specified will be withdrawn from the shareholder's
checking account using the pre-authorized check and will be invested in the
class of shares selected by the shareholder at the applicable Offering Price
determined on the date the amount is available for investment. Participation
in the Automatic Investing Plan may be discontinued either by the Fund or the
shareholder upon 30 days' prior written notice to the other party. A
shareholder who wishes to enroll in the Automatic Investing Plan or who
wishes to obtain additional purchase information may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
- --------------------------------------------------------------------------------
PURCHASES THROUGH DIVIDEND REINVESTMENT PLAN
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Fund shares
16
<PAGE>
of the same class. A shareholder who wishes to enroll in the Dividend
Reinvestment Plan should check the appropriate box on the Application Form or
call (800) 553-8080 for additional information.
Alternately, shareholders may have their distributions invested in shares
of other funds in the Flag Investors family of funds. Shareholders who are
interested in this option should call (800) 553-8080 for additional
information.
Reinvestments of distributions will be effected without a sales charge.
- --------------------------------------------------------------------------------
7. HOW TO REDEEM SHARES
Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Transfer Agent. Shareholders may also redeem shares of either class by
telephone (in amounts up to $50,000). (See "Telephone Transactions" below.) A
redemption order is effected at the net asset value per share (reduced by any
applicable contingent deferred sales charge) next determined after receipt of
the order (or, if stock certificates have been issued for the shares to be
redeemed, after the tender of the stock certificates for redemption).
Redemption orders received after 4:00 p.m. (Eastern Time) or the close of the
New York Stock Exchange, whichever is earlier, will be effected at the net
asset value next determined on the following Business Day. Payment for
redeemed shares will be made by check and will be mailed within seven days
after receipt of a duly authorized telephone redemption request or of a
redemption order fully completed and, as applicable, accompanied by the
documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of shares or dollar
amount to be redeemed, signed by all owners of the shares in the exact
names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;
3) If shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
17
<PAGE>
Dividends payable up to the date of the redemption of shares will be paid
on the next dividend payable date. If all of the shares in a shareholder's
account have been redeemed on a dividend payable date, the dividend will be
remitted by check to the shareholder.
The Fund has the power under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 upon 60 days' notice. Shares
will not be redeemed involuntarily as a result of a decline in account value
due to a decline in net asset value alone.
- --------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Class A Shares or Class B Shares having a value of
$10,000 or more may arrange to have a portion of their shares redeemed
monthly or quarterly under the Fund's Systematic Withdrawal Plan. Such
payments are drawn from income dividends, and to the extent necessary, from
share redemptions (which would be a return of principal and, if reflecting a
gain, would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because share purchases include a sales charge that
will not be recovered at the time of redemption, a shareholder should not
have a withdrawal plan in effect at the same time he is making recurring
purchases of shares. In addition, Class B shares may be subject to a
contingent deferred sales charge upon redemption. (See "How to Invest in the
Fund -- Class B Shares.") A shareholder who wishes to participate in the
Fund's Systematic Withdrawal Plan may do so by completing the appropriate
section of the Application Form attached to this Prospectus.
- --------------------------------------------------------------------------------
8. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem shares of either class in amounts up to
$50,000, by notifying the Transfer Agent by telephone at (800) 553-8080 on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time)
or by regular or express mail at its address listed under "Custodian,
Transfer Agent, Accounting Services." Telephone transaction privileges are
automatic. Shareholders may specifically request that no telephone
redemptions or exchanges be accepted for their accounts. This election may be
made on the Application Form or at any time thereafter by completing and
returning appropriate documentation supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is
18
<PAGE>
effective that day. Telephone orders placed after 4:00 p.m. (Eastern Time)
will be effected at the net asset value (less any applicable contingent
deferred sales charge on redemptions) as determined on the following Business
Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed, neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by regular or express
mail. Shares held in certificate form may not be exchanged or redeemed by
telephone. (See "How to Invest in the Fund--Purchases by Exchange" and "How
to Redeem Shares.")
- --------------------------------------------------------------------------------
9. DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of its
net investment company taxable income (including net short-term capital
gains) in the form of monthly dividends. The Fund also intends to distribute
to shareholders any net capital gains (the excess of net long-term capital
gains over net short-term capital losses) on an annual basis.
Unless the shareholder elects otherwise, all income dividends (consisting
of dividend and interest income and the excess, if any, of net short-term
capital gains over net long-term capital losses) and net capital gains
distributions, if any, will be reinvested in additional Fund shares at net asset
value. However, shareholders may elect to terminate automatic reinvestment by
giving written notice to the Transfer Agent (see "Custodian, Transfer
19
<PAGE>
Agent, Accounting Services"), either directly or through their Participating
Dealer or Shareholder Servicing Agent, at least five days before the next date
on which dividends or distributions will be paid.
- --------------------------------------------------------------------------------
TAXES
The following summary of federal income tax consequences is based on current
tax laws and regulations, which may be changed by legislative, judicial, or
administrative action. The following is only a general summary of certain
federal income tax considerations affecting the Fund and its shareholders. No
attempt is made to present a detailed explanation of the federal, state, or
local tax treatment of the Fund or its shareholders. Accordingly,
shareholders are urged to consult their tax advisers regarding specific
questions as to federal, state, and local taxes.
- --------------------------------------------------------------------------------
TAX TREATMENT OF THE FUND
The Fund is treated as a separate entity for federal income tax purposes. The
Fund intends to qualify for the special tax treatment afforded regulated
investment companies under the Internal Revenue Code of 1986, as amended, so
that the Fund will be relieved of federal income tax on net investment
company taxable income and net capital gains distributed to its shareholders.
In addition, the Fund expects to make sufficient distributions prior to the
end of each calendar year to avoid liability for federal excise tax.
- --------------------------------------------------------------------------------
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
Dividends from the Fund's net investment company taxable income are taxable
to its shareholders as ordinary income (whether received in cash or in
additional shares) to the extent of the Fund's earnings and profits.
Distributions of net capital gains that are designated by the Fund as capital
gains dividends are taxable to shareholders as long-term capital gains,
regardless of how long shareholders have held their shares and regardless of
whether the distributions are received in cash or in additional shares. Only
a portion of the dividends paid by the Fund is expected to qualify for the
dividends received deduction available to corporate shareholders. The Fund
makes annual reports to shareholders describing the federal income tax status
of all distributions.
Dividends declared payable to shareholders of record in December of one year,
but paid in January of the following year, will be deemed for tax purposes to
have been paid by the Fund and received by the shareholders on December 31 of
the year in which the dividends were declared.
20
<PAGE>
The sale, exchange, or redemption of shares is a taxable transaction for the
shareholder.
- --------------------------------------------------------------------------------
10. MANAGEMENT OF THE FUND
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to
the Fund's executive officers and to ICC and ABKB/LaSalle. Four Directors and
all of the officers of the Fund are officers or employees of Alex. Brown, ICC
or ABKB/LaSalle. The other Directors of the Fund have no affiliation with
Alex. Brown, ICC or ABKB/LaSalle.
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*Richard T. Hale Chairman Carl W. Vogt Director
*Truman T. Semans Director Harry Woolf Director
*Charles W. Cole, Jr. Director William K. Morrill, Jr. President
James J. Cunnane Director Keith R. Pauley Executive Vice President
*Robert S. Killebrew, Jr. Director Edward J. Veilleux Vice President
John F. Kroeger Director Gary V. Fearnow Vice President
Louis E. Levy Director Brian C. Nelson Vice President and Secretary
Eugene J. McDonald Director Joseph A. Finelli Treasurer
*Rebecca W. Rimel Director Laurie D. DePrine Assistant Secretary
</TABLE>
- ----------
* Messrs. Hale, Semans, Cole and Killebrew are, and Ms. Rimel may be,
"interested persons" of the Fund within the meaning of Section 2(a)(19)
under the Investment Company Act of 1940, as amended (the "1940 Act").
- --------------------------------------------------------------------------------
11. INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. is the Fund's investment advisor and
ABKB/LaSalle Securities Limited Partnership is the Fund's Sub-Advisor. ICC
is the investment advisor to, and Alex. Brown acts as distributor for, other
mutual funds in the Flag Investors family of funds and Alex. Brown Cash
Reserve Fund, Inc., which funds had approximately $4.6 billion of net assets
as of December 31, 1995. The address of ICC is 135 East Baltimore Street,
Baltimore, Maryland 21202. ABKB/LaSalle is a registered investment advisor
and together with its affiliates had, as of December 31, 1995, approximately
$ 1.3 billion in real estate securities under management, almost all of which
is in domestic real estate securities. ABKB/LaSalle was formed on November 1,
1994 to acquire the real estate securities investment advisory business of
Alex. Brown Kleinwort Benson Realty Advisors Corporation ("ABKB"). ABKB/LaSalle,
together with its predecessors, has provided investment advice to pension funds
and other institutional investors with respect to investments in real estate
21
<PAGE>
securities since 1985, although it had not previously acted as investment
advisor or sub-advisor to a mutual fund. The address of ABKB/LaSalle is
100 East Pratt Street, Baltimore, Maryland 21202.
Pursuant to the terms of the Investment Advisory Agreement, ICC supervises
and manages all of the Fund's operations. Under the Investment Advisory and
Sub-Advisory Agreements, ICC delegates to ABKB/LaSalle certain of its duties,
provided that ICC continues to supervise the performance of ABKB/LaSalle and
report thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, ABKB/LaSalle is responsible for decisions to buy and
sell securities for the Fund, for broker-dealer selection, and for
negotiation of commission rates under standards established and periodically
reviewed by the Board of Directors. The Board has established procedures
under which ABKB/LaSalle may allocate transactions to Alex. Brown, provided
that compensation to Alex. Brown on each transaction is reasonable and fair
compared to the commission, fee or other remuneration received or to be
received by other broker-dealers in connection with comparable transactions
involving similar securities during a comparable period of time. In addition,
consistent with NASD Rules, and subject to seeking the most favorable price
and execution available and such other policies as the Board may determine,
ABKB/LaSalle may consider services in connection with the sale of shares as a
factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
ICC and ABKB/LaSalle currently intend to waive, on a voluntary basis,
their annual fees to the extent necessary so that the Fund's annual expenses
do not exceed 1.25% of the Class A Shares' average daily net assets and 2.00%
of the Class B Shares' average daily net assets. For the period ended
December 31, 1995, ICC waived all advisory fees and reimbursed expenses of
$91,068. For the same period ABKB/LaSalle waived all sub-advisory fees.
ICC is a wholly-owned subsidiary of Alex. Brown, the Fund's distributor.
ABKB/LaSalle, a Maryland limited partnership, is one of several entities
through which LaSalle Partners Limited Partnership ("LaSalle Partners") and
its affiliates conduct real estate investment advisory and related
businesses. ABKB/LaSalle is controlled indirectly by DEL-LPL Limited
Partnership, a Delaware limited partnership, whose general partners are M.G.
Rose and twelve corporations, each of which is owned by one of the following
persons: Jonathon E. Bortz; Kenneth M. Campia; Daniel W. Cummings; Wade W.
Judge; William K. Morrill, Jr.; Marshall Peck; Stuart L. Scott; Robert C.
Spoerri; Walter F. Terry, III; Lynn C. Thurber; Earl E. Webb; and Robert F.
Works.
22
<PAGE>
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
William K. Morrill, Jr., the Fund's President, and Keith R. Pauley, the
Fund's Executive Vice President, have shared primary responsibility for
managing the Fund's assets from its inception.
William K. Morrill, Jr., Managing Director of ABKB/LaSalle, has nearly 16
years of investment experience and has been a portfolio manager with
ABKB/LaSalle or is predecessors since 1986.
Keith R. Pauley, Senior Vice President of ABKB/LaSalle, has over ten years
of investment experience and has been a portfolio manager with ABKB/LaSalle
or its predecessors since 1986.
- --------------------------------------------------------------------------------
12. DISTRIBUTOR
Alex. Brown acts as distributor of the Class A Shares and the Class B
Shares. Alex. Brown is an investment banking firm which offers a broad range
of investment services to individual, institutional, corporate and municipal
clients. It is a wholly-owned subsidiary of Alex. Brown Incorporated, which
has engaged directly and through subsidiaries and affiliates in the
investment business since 1800. Alex. Brown is a member of the New York Stock
Exchange and other leading securities exchanges. Headquartered in Baltimore,
Maryland, Alex. Brown has offices throughout the United States and, through
subsidiaries, maintains offices in London, England, Geneva, Switzerland and
Tokyo, Japan.
The Fund has adopted two separate Distribution Agreements and related
Plans of Distribution, one with respect to the Class A Shares and one with
respect to the Class B Shares (the "Plans"), pursuant to Rule 12b-1 under the
1940 Act. In addition, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which Alex. Brown will allocate a
portion of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. Such financial institutions may
impose separate fees in connection with these services and investors should
review this Prospectus in conjunction with any such institution's fee
schedule. In addition, financial institutions may be required to register as
dealers pursuant to state securities laws. Amounts allocated to
23
<PAGE>
Participating Dealers and Shareholder Servicing Agents may not exceed amounts
payable to Alex. Brown under the Plans with respect to shares held by or on
behalf of customers of such entities.
As compensation for providing disribution services for the Class A Shares
for the period ended December 31, 1995, Alex. Brown received a distribution
fee equal to .25% of the Class A Shares' average daily net assets.
As compensation for providing distribution and shareholder services for
the Class B Shares for the period ended December 31, 1995, Alex. Brown
received a distribution fee equal to .75% of the Class B Shares' average
daily net assets and a shareholder servicing fee equal to .25% of the Class B
Shares' average daily net assets. The distribution fee is used to compensate
Alex. Brown for its services and expenses in distributing the Class B Shares.
The shareholder servicing fee is used to compensate Alex. Brown,
Participating Dealers and Shareholder Servicing Agents for services provided
and expenses incurred in maintaining shareholder accounts, responding to
shareholder inquiries and providing information on their investments.
Payments under the Plans are made as described above regardless of Alex.
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Class A Shares is
less than .25% of the average daily net assets of the Class A Shares or in
connection with the sale of the Class B Shares is less than .75% of the
average daily net assets of the Class B Shares for any period, the unexpended
portion of the distribution fees may be retained as profit by Alex. Brown.
Alex. Brown will from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Participating Dealers.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore,
Maryland 21202.
- --------------------------------------------------------------------------------
13. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), a national banking association,
with offices at Airport Business Park, 200 Stevens Drive, Lester, Pennsylvania
19113, acts as custodian of the Fund's assets. Investment Company Capital Corp.,
135 East Baltimore Street, Baltimore Maryland 21202 (telephone: (800) 553-8080)
24
<PAGE>
is the Fund's transfer and dividend disbursing agent. ICC also provides
accounting services to the Fund. As compensation for such accounting services
for the period ended December 31, 1995, ICC received a fee equal to .20%
(annualized) of the Fund's average daily net assets. (See the Statement of
Additional Information.) ICC also serves as the Fund's investment advisor.
- --------------------------------------------------------------------------------
14. PERFORMANCE INFORMATION
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
relevant indices. Any quotations of yield of the Fund will be determined by
dividing the net investment income earned by the Fund during a 30 day period
by the maximum offering price per Share on the last day of the period and
annualizing the result on a semi-annual basis. All advertisements of
performance will show the average annual total return, net of the Fund's
maximum sales charge imposed on Class A Shares or including the contingent
deferred sales charge imposed on Class B Shares redeemed at the end of the
specified period covered by the total return figure, over one, five and ten
year periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of the Fund. Such total return quotations will be
computed by finding average annual compounded rates of return over such
periods that would equate an assumed initial investment of $1,000 to the
ending redeemable value, net of the maximum sales charge and other fees
according to the required standardized calculation. During its first year of
operation, the Fund may, in lieu of annualizing its total return, use an
aggregate total return calculated in the same manner. The standardized
calculation is required by the SEC to provide consistency and comparability
in investment company advertising and is not equivalent to a yield
calculation.
If the Fund compares its performance to other funds or to relevant
indices, such as the Wilshire Real Estate Index, its performance will be
stated in the same terms in which such comparative data and indices are
stated, which is normally total return rather than yield. For these purposes,
the performance of the Fund, as well as the performance of such investment
companies or indices, may not reflect sales charges, which, if reflected,
would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
Fund may also use total return performance data as reported in national
25
<PAGE>
financial and industry publications that monitor the performance of mutual funds
such as Money Magazine, Forbes, Business Week, Barron's, Investor's Daily,
IBC/Donoghue's Money Fund Report and The Wall Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and
market conditions. Any fees charged by banks with respect to customer
accounts through which Fund shares may be purchased, although not included in
calculations of performance, will reduce performance results.
Although expenses for Class B Shares may be higher than those for Class A
Shares, the performance of Class B Shares may be higher than the performance
of Class A Shares after giving effect to the impact of the sales charges and
distribution/service fees applicable to each class of shares.
- --------------------------------------------------------------------------------
15. GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Fund was incorporated under the laws of the State of Maryland on May
2, 1994 and is authorized to issue 10 million shares of capital stock, par
value of $.001 per share, all of which shares are designated common stock.
Each share has one vote and shall be entitled to dividends and distributions
when and if declared by the Fund. In the event of liquidation or dissolution
of the Fund, each share would be entitled to its pro rata portion of the
Fund's assets after all debts and expenses have been paid. The fiscal year
end of the Fund is December 31.
The Board of Directors of the Fund is authorized to establish additional
"series" of shares of capital stock, each of which would evidence interests
in a separate portfolio of securities, and separate classes of each series of
the Fund. The shares offered by this Prospectus have been designated: Flag
Investors Real Estate Securities Fund Class A Shares and Flag Investors Real
Estate Securities Fund Class B Shares. The Board has no present intention of
establishing any additional series of the Fund. Both classes of the Fund
share a common investment objective, portfolio of investments and advisory
fee, but the classes may have different distribution/service fees or sales
load structures and, accordingly, performance may differ.
26
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
- --------------------------------------------------------------------------------
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants,
Coopers & Lybrand L.L.P.
- --------------------------------------------------------------------------------
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
- --------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Shares should contact the
Transfer Agent at (800) 553-8080, Alex. Brown at (800) 767-FLAG, or any
Participating Dealer or Shareholder Servicing Agent, as appropriate.
27
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors Real Estate
Securities Fund, Inc." and mail with this application to:
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Real Estate Securities Fund, Inc.
For assistance in completing this application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
To open an IRA account, please call 1-800-767-3524 for an IRA information
kit.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate amount of
purchase.)
[ ] Class A Shares (4.5% maximum initial sales charge) in the amount of
$
----------
[ ] Class B Shares (4.0% maximum contingent deferred sales charge) in the
amount of $
--------------
The minimum initial purchase for each class of shares is $2,000, except that
the minimum initial purchase for shareholders of any other Flag Investors
Fund or class is $500 and the minimum initial purchase for participants in
the Fund's Automatic Investing Plan is $250 per class. Each subsequent
purchase requires a $100 minimum per class, except that the minimum
subsequent purchase under the Fund's Automatic Investing Plan is $250 for
quarterly purchases and $100 for monthly purchases. The maximum investment in
Class B Shares is $100,000 per account. The Fund reserves the right not to
accept checks for more than $50,000 that are not certified or bank checks.
_______________________________________________________________________________
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Existing Account No., if any: _______________
INDIVIDUAL OR JOINT TENANT
- -----------------------------------------------------------------------------
First Name Initial Last Name
- -----------------------------------------------------------------------------
Social Security Number
- -----------------------------------------------------------------------------
Joint Tenant Initial Last Name
GIFTS TO MINORS
- -----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)
- -----------------------------------------------------------------------------
Minor's Name (only one)
- -----------------------------------------------------------------------------
Social Security Number of Minor
under the __________________ Uniform Gifts to Minors Act
State of Residence
<PAGE>
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
_______________________________________________________________________________
Name of Corporation, Trust or Partnership
_______________________________________ ______________________________________
Tax ID Number Date of Trust
_______________________________________________________________________________
Name of Trustees (If to be included in the Registration)
_______________________________________________________________________________
For the Benefit of
MAILING ADDRESS
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State Zip
( )
_______________________________________________________________________________
Daytime Phone
_______________________________________________________________________________
LETTER OF INTENT -- CLASS A SHARES ONLY (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares as shown below, in an
aggregate amount at least equal to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
_______________________________________________________________________________
RIGHT OF ACCUMULATION -- CLASS A SHARES ONLY (OPTIONAL)
[ ] I already own shares of the Flag Investors Fund(s) (except Class B
shares) set forth below to be applied for a reduced sales charge. List the
Account numbers of other Flag Investors Funds that you or your immediate
family (spouse and children under 21) already own that qualify for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
_________ ___________ ____________ ____________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
DISTRIBUTION OPTIONS
Please check the appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional shares of the same class of
the Fund at no sales charge.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
_______________________________________________________________________________
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $______ in Class A Shares or $_____ in Class B Shares
for me, on a monthly or quarterly basis, on or about the 20th of each month
or if quarterly, the 20th of January, April, July and October, and to draw a
bank draft in payment of the investment against my checking account. (Bank
drafts may be drawn on commercial banks only.)
Minimum Initial Investment: $250 per class
Subsequent Investments (check one):
[ ] Monthly ($100 minimum per class)
[ ] Quarterly ($250 minimum per class)
_________________________________________________
Bank Name
_________________________________________________
Existing Flag Investors Fund Account No., if any
Please attach a voided check.
_________________________________________________
Depositor's Signature Date
_________________________________________________
Depositor's Signature Date
(if joint acct., both must sign)
_______________________________________________________________________________
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of ______, 19____ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $______ from Class A Shares and/or $______ from Class B Shares
that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000 per class.)
Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July and October)
_______________________________________________________________________________
<PAGE>
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank:___________________________ Bank Account No:________________________
Address:___________________________ Bank Account Name:________________________
________________________________________________________________________________
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated May 1, 1996. Unless the
box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:
-----------------
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
____________________________________ _______________________________________
Signature Date Signature Date
(if joint acct., both must sign)
_______________________________________________________________________________
For Dealer Use Only
Dealer's Name: _______________ Dealer Code: ______________________
Dealer's Address:_______________ Branch Code: ______________________
_______________
Representative: _______________ Rep. No. ______________________
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(Class A and Class B Shares)
135 E. Baltimore Street
Baltimore, Maryland 21202
-----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH
THE PROSPECTUS, WHICH MAY BE OBTAINED FROM ANY
PARTICIPATING DEALER OR SHAREHOLDER SERVICING
AGENT OR BY WRITING ALEX. BROWN & SONS
INCORPORATED, 135 EAST BALTIMORE STREET, BALTIMORE,
MARYLAND 21202, OR BY CALLING (800) 767-FLAG.
Statement of Additional Information Dated: May 1, 1996
Relating to Prospectus Dated: May 1, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History.............................. 1
2. Investment Objective and Policies............................. 1
3. Valuation of Shares and Redemption............................ 7
4. Federal Tax Treatment of Dividends and
Distributions............................................... 8
5. Management of the Fund........................................ 10
6. Investment Advisory and Other Services........................ 14
7. Distribution of Fund Shares................................... 16
8. Brokerage..................................................... 19
9. Capital Stock................................................. 20
10. Reports....................................................... 21
11. Custodian, Transfer Agent, Accounting Services ............... 21
12. Independent Accountants ...................................... 22
13. Performance Information....................................... 22
14. Control Persons and Principal Holders of
Securities.................................................. 24
15. Financial Statements.......................................... 24
16. Appendix..................................................... A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Real Estate Securities Fund, Inc. (the "Fund") is an
open-end management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information concerning the activities
of the company being considered for investment. The Fund currently offers two
classes of shares: Flag Investors Real Estate Securities Fund Class A Shares and
Flag Investors Real Estate Securities Fund Class B Shares. As used herein, the
"Fund" refers to Flag Investors Real Estate Securities Fund, Inc. and specific
references to either class of the Fund's shares will be made using the name of
such class. Important information concerning the Fund is included in the Fund's
current Prospectus which may be obtained without charge from Alex. Brown & Sons
Incorporated ("Alex. Brown"), 135 East Baltimore Street, Baltimore, Maryland
21202 (telephone: (800) 767-FLAG) or from Participating Dealers that offer
shares of the respective classes of the Fund ("Shares") to prospective
investors. Prospectuses may also be obtained from Shareholder Servicing Agents.
Some of the information required to be in this Statement of Additional
Information is also included in the Fund's current Prospectus. To avoid
unnecessary repetition, references are made to related sections of the
Prospectus. In addition, the Prospectus and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the Registration Statement respecting the Fund and its Shares filed
with the SEC. Copies of the Registration Statement as filed, including such
omitted items, may be obtained from the SEC by paying the charges prescribed
under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
May 2, 1994. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), and
its Shares under the Securities Act of 1933. The Fund commenced operations on
January 3, 1995.
Under a license agreement dated August 23, 1994 between the Fund and
Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund the
"Flag Investors" name and logo but retains the rights to the name and logo,
including the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is total return primarily through
investments in equity securities of companies that are principally engaged in
the real estate industry. As described in the Prospectus, the Fund will attempt
to achieve its objective by investing primarily in equity securities of
companies that are principally engaged in the real estate industry. There can be
no assurance that the Fund's investment objective will be achieved.
Real Estate Investment Trusts
Real estate investment trusts ("REITs") pool investors' funds for
investment primarily in income producing commercial real estate or real estate
related loans. A REIT is not taxed on income distributed to shareholders if it
complies with several requirements relating to its organization, ownership,
assets, and income and a requirement that it distribute to its shareholders at
least 95% of its taxable income (other than net capital gains) for each taxable
year.
-1-
<PAGE>
REITs can generally be classified as follows:
- Equity REITs, which invest the majority of their assets directly
in real property and derive their income primarily from rents.
Equity REITs can also realize capital gains by selling properties
that have appreciated in value.
- Mortgage REITs, which invest the majority of their assets in real
estate mortgages and derive their income primarily from interest
payments.
- Hybrid REITs, which combine the characteristics of both equity
REITs and mortgage REITs.
REITs are like closed-end investment companies in that they are essentially
holding companies which rely on professional managers to supervise their
investments. Investors in REITs indirectly through the Fund, will bear not only
a proportionate share of the expenses of the Fund, but also, indirectly, similar
expenses of underlying REITs.
Master Limited Partnerships
The Fund intends to invest in partnership units of real estate
companies organized as master limited partnerships whose ownership interests are
publicly traded. For federal income tax purposes, an entity treated as a
partnership is not itself a taxpaying entity. Instead, each partner in a
partnership is required to take into account in computing his income tax
liability his allocable share of the income, gain, loss, deductions and credits
of the partnership. Master limited partnerships often own several properties or
businesses which are related to real estate development or are themselves
heavily invested in real estate. Generally, a master limited partnership is
operated under the supervision of one or more managing general partners. As in
the case of REITs, a shareholder in the Fund will indirectly bear his
proportionate share of the operating expenses of the underlying master limited
partnerships in addition to the similar expenses of the Fund. The Fund will
invest only in partnership units of master limited partnerships that are traded
on a national securities exchange.
Debt Securities
Up to 35% of the Fund's total assets may be invested in debt securities
(which do not include for purposes of this investment policy convertible debt
securities which the Advisor or Sub-Advisor believes have attractive equity
characteristics). The Fund may invest in debt securities rated BBB or better by
Standard & Poor's Ratings Group ("S&P") or Baa or better by Moody's Investors
Service, Inc. ("Moody's") or, if not rated, of comparable quality as determined
by the Advisor or Sub-Advisor. (See the Appendix to this Statement of Additional
Information for a description of the ratings categories of S&P and Moody's.) In
choosing debt securities for purchase by the Fund, the Advisor will employ the
same analytical and valuation techniques utilized in managing the equity portion
of the Fund's portfolio (see "Investment Advisory and Other Services") and will
invest in debt securities only of companies that satisfy the Advisor's or
Sub-Advisor's investment criteria.
Certain of the debt securities in which the Fund may invest may be zero
coupon or other original issue discount securities which pay no current interest
but are purchased at a deep discount from the amount due at maturity. When held
to maturity, the entire return, which consists of the amortization of discount,
is the difference between the purchase price and the amount due at maturity.
-2-
<PAGE>
The value of the Fund's investments in debt securities will change as
interest rates fluctuate. When interest rates decline, the values of such
securities generally can be expected to increase and when interest rates rise,
the values of such securities can generally be expected to decrease. The lower-
rated and comparable unrated debt securities described above are subject to
greater risks of loss of income and principal than are higher-rated fixed income
securities. The market value of lower-rated securities generally tends to
reflect the market's perception of the creditworthiness of the issuer and
short-term market developments to a greater extent than more highly rated
securities, which reflect primarily fluctuations in general levels of interest
rates.
Risks of Investment in Real Estate Securities
Even though the Fund will not invest in real estate directly, it may be
subject to risks similar to those associated with the direct ownership of real
estate because of its policy of concentrating in the securities of companies in
the real estate industry. These include declines in the value of real estate,
risks related to general and local economic conditions, dependency on management
skill, heavy cash flow dependency, possible lack of availability of long-term
mortgage funds, overbuilding, extended vacancies of properties, decreased
occupancy rates and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values and the appeal of
properties to tenants and changes in interest rates.
The risks of ownership of partnership units of master limited
partnerships include those related to changes in economic conditions or changes
in real estate and specific property values. One added risk of master limited
partnerships is that they do not allow for election of independent directors or
trustees to oversee the policies of the partnership. Rather, they rely on a
general partner to exercise fiduciary responsibilities.
In addition to these risks, equity REITs may be affected by changes in
the value of the underlying property owned by the trusts, while mortgage REITs
may be affected by the quality of any credit extended. Further, equity and
mortgage REITs are dependent upon management skills and generally are not
diversified. Equity and mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, equity and
mortgage REITs could possibly fail to qualify for tax free pass-through of
income under the Internal Revenue Code of 1986, as amended (the "Code") or to
maintain their exemptions from registration under the Investment Company Act.
The above factors may also adversely affect a borrower's or a lessee's ability
to meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.
Money Market Securities
From time to time the Fund may purchase high quality short-term debt
securities, commonly known as money market securities. These securities include
direct obligations of the U.S. Government which consist of bills, notes and
bonds issued by the U.S. Treasury. Obligations issued by agencies of the U.S.
Government, while not direct obligations of the U.S. Government, are either
backed by the full faith and credit of the U.S. or are guaranteed by the U.S.
Treasury or supported by the issuing agencies' right to borrow from the U.S.
Treasury.
The obligations of U.S. commercial banks include certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
negotiable interest-bearing instruments with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market, prior
to maturity. Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Time deposits earn a specified rate of
-3-
<PAGE>
interest over a definite period of time; however time deposits cannot be traded
in the secondary market. Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods and furnish dollar
exchange. Maturities are generally six months or less.
The commercial paper which may be purchased includes variable amount
master demand notes which may or may not be backed by bank letters of credit.
These notes permit the investment of fluctuating amounts at varying market rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
borrower. Such notes provide that the interest rate on the amount outstanding
varies on a daily, weekly or monthly basis depending upon a stated short-term
interest rate index. Both the lender and the borrower have the right to reduce
the amount of outstanding indebtedness at any time. There is no secondary market
for the notes. It is not generally contemplated that such instruments will be
traded. Variable or floating rate instruments bear interest at a rate which
varies with changes in market rates. The holder of an instrument with a demand
feature may tender the instrument back to the issuer at par prior to maturity. A
variable amount master demand note is issued pursuant to a written agreement
between the issuer and the holder, its amount may be increased by the holder or
decreased by the holder or issuer, it is payable on demand, and the rate of
interest varies based upon an agreed formula. The quality of the underlying
credit must, in the opinion of the Advisor or Sub-Advisor, be equivalent to the
ratings applicable to permitted investments for the Fund. The Advisor or
Sub-Advisor will monitor on an ongoing basis the earning power, cash flow, and
liquidity ratios of the issuers of such instruments and will similarly monitor
the ability of an issuer of a demand instrument to pay principal and interest on
demand.
Futures Contracts and Options on Futures Contracts
The Fund may buy or sell financial futures contracts or purchase
options on such futures as a hedge against anticipated interest rate changes. A
futures contract sale creates an obligation by the Fund, as seller, to deliver
the specified type of financial instrument called for in the contract at a
specified future time for a specified price or, in "cash settlement" futures
contracts, to pay to (or receive from) the buyer in cash the difference between
the price in the futures contract and the market price of the instrument on the
specified date, if the market price is higher (or lower, as the case may be).
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right for the premium paid
to assume a position in a futures contract (a long position if the option is a
call and a short position if the option is a put).
The Fund's use of futures and options on futures will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission ("CFTC") with which
the Fund must comply in order not to be deemed a commodity pool operator within
the meaning and intent of the Commodity Exchange Act and the regulations
promulgated thereunder.
Typically, an investment in a futures contract requires the Fund to
deposit with the applicable exchange or other specified financial intermediary
as security for its obligations an amount of cash or other specified debt
securities which initially is 1% to 5% of the face amount of the contract and
which thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. A purchase of an option involves payment of a premium for the option
without any further obligation on the part of the Fund.
Regulations of the CFTC applicable to the Fund currently require that
all of the Fund's futures and options on futures transactions are (1) for bona
fide hedging purposes, or (2) for other purposes to the extent that the
aggregate initial margin deposits and premiums do not exceed 5% of the
liquidation value of the Fund's net assets (after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into).
-4-
<PAGE>
Margins and premiums on bona fide hedging positions are excluded from this 5%
limit. The Advisor reserves the right to comply with such different standard as
may be established by CFTC rules and regulations with respect to the purchase or
sale of futures contracts or options thereon.
The variable degree of correlation between price movements of futures
contracts and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value of
the Fund's position. In addition, futures and futures option markets may not be
liquid in all circumstances. As a result, in volatile markets, the Fund may not
be able to close out a transaction without incurring losses substantially
greater than the initial deposit. Although the contemplated use of these
contracts should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in the value of such position. The Fund will
establish a segregated account to cover its positions in options and futures
transactions. These segregated accounts will be maintained with the Fund's
custodian and will contain liquid assets such as cash, U.S. Government
securities, or other high grade debt obligations. The ability of the Fund to
hedge successfully will depend on the Advisor's ability to forecast pertinent
market movements, which cannot be assured. Finally, the daily deposit
requirements in futures contracts create an ongoing greater potential financial
risk than do options purchased by the Fund, where the exposure is limited to the
cost of the initial premium. Losses due to hedging transactions will reduce net
asset value. Income earned by the Fund from its hedging activities generally
will be treated as capital gains.
Other Investment Practices
In addition, the Fund may enter into repurchase agreements and make
purchases of when-issued securities as described below.
Repurchase Agreements. The Fund may enter into repurchase agreements
with financial institutions, such as banks and broker-dealers, deemed to be
creditworthy by the Fund's Board of Directors under criteria established with
the guidance of the Fund's Advisor or Sub-Advisor. A repurchase agreement is a
short-term investment in which the purchaser (i.e., the Fund) acquires ownership
of a debt security and the seller agrees to repurchase the obligation at a
future time and set price, usually not more than seven days from the date of
purchase, thereby determining the yield during the purchaser's holding period.
The value of underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. The
Fund makes payment for such securities only upon physical delivery or evidence
of book entry transfer to the account of a custodian or bank acting as agent.
The underlying securities, which in the case of the Fund must be issued by the
U.S. Treasury, may have maturity dates exceeding one year. The Fund does not
bear the risk of a decline in value of the underlying securities unless the
seller defaults under its repurchase obligation. In the event of a bankruptcy or
other default of a seller of a repurchase agreement, the Fund could experience
both delays in liquidating the underlying securities and loss including (a)
possible decline in the value of the underlying security while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of income and lack of
access to income during this period and (c) expenses of enforcing its rights.
When-Issued Securities. This practice involves the purchase of debt
obligations on a when-issued basis, in which case delivery and payment normally
take place within 45 days after the date of commitment to purchase. The Fund
will make commitments to purchase obligations on a when-issued basis only with
the intention of actually acquiring the securities, but may sell them before the
settlement date. The when-issued securities are subject to market fluctuation,
and no interest accrues to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
-5-
<PAGE>
each fixed at the time the purchaser enters into the commitment. Purchasing
obligations on a when-issued basis is a form of leveraging and can involve a
risk that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself. In that case
there could be an unrealized loss at the time of delivery.
Segregated accounts will be established with the Fund's custodian and
will maintain liquid assets in an amount at least equal in value to the Fund's
commitments to purchase when-issued securities. If the value of these assets
declines, the Fund will place additional liquid assets in the account on a daily
basis so that the value of the assets in the account is equal to the amount of
such commitments.
Investment Restrictions
The Fund's investment program is subject to a number of restrictions
which reflect self-imposed standards as well as federal and state regulatory
limitations. The restrictions recited below are in addition to those described
in the Fund's prospectus, and are matters of fundamental policy and may not be
changed without the affirmative vote of a majority of the outstanding Shares.
Accordingly, the Fund will not:
1. Invest in real estate, real estate limited partnership interests or
mortgages on real estate, provided that the Fund may invest in marketable
securities of companies that invest in real estate, real estate investment
trusts and exchange-traded master limited partnerships and may purchase
securities secured or otherwise supported by interests in real estate.
2. Purchase or sell commodities or commodities contracts, provided that
the Fund may invest in financial futures and options on such futures.
3. Act as an underwriter of securities within the meaning of the U.S.
federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities.
4. Issue senior securities, provided that the Fund may invest in
financial futures and options on such futures.
5. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies.
6. Effect short sales of securities.
7. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions).
8. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs or oil, gas or mineral leases.
The following are investment restrictions that may be changed by a vote
of the majority of the Board of Directors. The Fund will not:
1. Purchase any securities of unseasoned issuers which have been in
operation directly or through predecessors for less than three years.
-6-
<PAGE>
2. Invest in shares of any other investment company registered under
the Investment Company Act, other than in connection with a merger,
consolidation, reorganization or acquisition of assets.
3. Purchase or retain the securities of any issuer if to the knowledge
of the Fund any officer or Director of the Fund or its investment advisor owns
beneficially more than .5% of the outstanding securities of such issuer and
together they own beneficially more than 5% of the securities of such issuer.
4. Invest in companies for the purpose of exercising management or
control.
5. Purchase warrants if as a result more than 2% of the value of the
Fund's total assets would be invested in warrants which are not listed on a
recognized stock exchange, or more than 5% of the Fund's total assets would be
invested in warrants regardless of whether listed on such exchange.
6. Invest more than 10% of its net assets in illiquid securities
(defined as securities that cannot be sold in the ordinary course of business
within seven days at approximately the value at which the Fund is carrying the
securities), including securities that the Fund is restricted from selling to
the public without registration under the Securities Act (excluding restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
that have been determined to be liquid by the Fund's Board of Directors based
upon the trading markets for such securities). In addition, to comply with
certain state requirements, the Fund will not invest more than 15% of its net
assets in restricted securities including restricted securities eligible for
resale pursuant to Rule 144A under the Securities Act.
7. Invest in puts or calls or any combination thereof, except that the
Fund may buy or sell financial futures contracts or purchase options on such
futures in accordance with its investment objectives and policies.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The Fund's net asset value per Share is determined once daily as of
4:00 p.m. (Eastern Time) each day on which the New York Stock Exchange is open
for business ("Business Day"). The New York Stock Exchange is open for business
on all weekdays except for the following holidays: New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
Net asset value per share of a class is calculated by valuing all
assets held by the Fund, deducting liabilities attributable to all shares and
any liabilities attributable to the specific class, and dividing the resulting
amount by the number of then outstanding shares of the class. For this purpose,
portfolio securities are given their market value where feasible. Portfolio
securities that are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed by the Advisor to be
over-the-counter, are valued at the quoted bid prices provided by principal
market makers. If a portfolio security is traded primarily on a national
exchange on the valuation date, the last quoted sale price is generally used.
Securities or other assets for which market quotations are not readily available
are valued at their fair market value as determined in good faith under
procedures established from time to time and monitored by the Fund's Board of
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<PAGE>
Directors. Such procedures may include (i) the use of an independent pricing
service which uses prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type, (ii) indications as to values
from dealers, and (iii) general market conditions. Debt obligations with
maturities of 60 days or less are valued at amortized cost, which constitutes
fair value as determined by the Fund's Board of Directors.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Shares by check as
described in the Prospectus. However, if the Board of Directors determines that
it would be in the best interests of the remaining shareholders to make payment
of the redemption price in whole or in part by a distribution in kind of
securities from the portfolio of the Fund in lieu of cash, in conformity with
applicable rules of the SEC, the Fund will make such distributions in kind. If
Shares are redeemed in kind, the redeeming Shareholder will incur brokerage
costs in later converting the assets into cash. The method of valuing portfolio
securities is described under "Valuation of Shares" and such valuation will be
made as of the same time the redemption price is determined. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act pursuant
to which the Fund is obligated to redeem Shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the Fund or its
shareholders, and the discussion here and in the Fund's Prospectus is not
intended as a substitute for careful tax planning.
The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
The Fund expects to qualify as a regulated investment company ("RIC")
under Subchapter M of the Code. However, to qualify as a RIC for any taxable
year, the Fund must (1) derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock, securities or foreign currencies and other
income (including, but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement") and (2) derive less than 30%
of its gross income each taxable year (exclusive of certain gains from
designated hedging transactions that are offset by unrealized losses on
offsetting positions) from gains on the sale or other disposition of any of the
following investments if such investments are held for less than three months
(the "Short-Short Gain Test"): (a) stock or securities (as defined in Section
2(a)(36) of the Investment Company Act); (b) options, futures or forward
contracts (other than options, futures, or forward contracts on foreign
currencies), and (c) foreign currencies (or options, futures, or forward
contracts on foreign currencies) but only if such currencies (or options,
-8-
<PAGE>
futures, or forward contracts on foreign currencies) are not directly related to
the RIC's principal business of investing in stock or securities (or options and
futures with respect to stocks or securities). The Short-Short Gain Test will
not prevent the Fund from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding period is
disregarded.
In addition, at the close of each quarter of the Fund's taxable year,
(1) at least 50% of the value of its assets must consist of cash and cash items,
U.S. government securities, securities of other RICs, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value of its
total assets in securities of such issuer and as to which the Fund does not hold
more than 10% of the outstanding voting securities of such issuer), and (2) no
more than 25% of the value of its total assets may be invested in the securities
of any one issuer (other than U.S. government securities and securities of other
RICs), or in two or more issuers which the Fund controls and which are engaged
in the same or similar trades or businesses or related trades or businesses (the
"Asset Diversification Test"). Generally, the Fund will not lose its status as a
RIC if it fails to meet the Asset Diversification Test solely as a result of a
fluctuation in value of portfolio assets not attributable to a purchase.
Under Subchapter M of the Code, the Fund is exempt from federal income
tax on its taxable net investment income and net capital gains which it
distributes to shareholders, provided generally that it distributes at least 90%
of its investment company taxable income (net investment income and the excess
of net short-term capital gains over net long-term capital loss) for the year
(the "Distribution Requirement") and complies with the other requirements of the
Code described above. The Distribution Requirement for any year may be waived if
a RIC establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for federal excise tax
(discussed below).
If capital gain distributions have been made with respect to Shares
that are sold at a loss after being held for six months or less, then the loss
is treated as a long-term capital loss to the extent of the capital gain
distributions. Any gain or loss recognized on a sale or redemption of Shares of
the Fund by a shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the Shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss.
If for any taxable year the Fund does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions generally
will be taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. However, in the case of corporate
shareholders, such distributions generally will be eligible for the 70%
dividends received deduction for "qualifying dividends."
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of distributions payable to any shareholder who (1)
has provided the Fund either an incorrect tax identification number or no number
at all, (2) who is subject to backup withholding by the Internal Revenue Service
for failure to properly report payments of interest or dividends, or (3) who has
failed to certify to the Fund that such shareholder is not subject to backup
withholding.
The Code imposes a nondeductible 4% excise tax on RIC that do not
distribute in each calendar year an amount equal to 98% of their ordinary income
for the calendar year plus 98% of their capital gains net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a RIC will include in the amount distributed any amount taxed to the
RIC as investment company taxable income of capital gains for any taxable year
ending in such calendar year. The Fund intends to make sufficient distributions
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of its ordinary income and capital gains net income prior to the end of each
calendar year to avoid liability for excise tax. However, shareholders should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments in order to make sufficient distributions to avoid excise
tax liability, and, in addition, that the liquidation of such investments in
such circumstances may affect the ability of the Fund to satisfy the Short-Short
Gain Test.
The Fund's investments in partnership units of master limited
partnerships, which are taxable as partnerships, will generally not produce
income of a type required for qualification as a RIC as discussed above. Holders
of partnership units of such master limited partnerships are required to take
into account their allocable share of each item of the partnership's income and
loss in computing their individual tax liabilities. Further, each such item of
income generally retains the same tax attributes in the hands of the unitholder
as it has in the hands of the partnership. Accordingly, items of income derived
from such master limited partnership units generally will not qualify as
"interest" or "dividends" and if the aggregate of such income and any other
nonqualifying income of the Fund exceeds 10% of the Fund's gross income, the
Fund would not be eligible for the special tax treatment afforded RICs. As a
result, the Fund intends to limit its investments in partnership units of master
limited partnerships.
Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from the rules for federal income taxation
described above. Shareholders are urged to consult their tax advisors as to the
consequences of these and other state and local tax rules affecting an
investment in the Fund and also as to the application of the rules set forth
above to a shareholder's particular circumstances.
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their respective
dates of birth and their principal occupations during the last five years are
set forth below. Unless otherwise indicated, the address of each Director and
executive officer is 135 East Baltimore Street, Baltimore, Maryland 21202.
*RICHARD T. HALE, Chairman (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Chartered Financial
Analyst.
*TRUMAN T. SEMANS, Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Chartered Financial
Analyst.
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<PAGE>
*CHARLES W. COLE, JR., Director (11/11/35)
Vice Chairman, Alex. Brown Capital Advisory & Trust Company (registered
investment advisor); Director, Provident Bankshares Corporation and
Provident Bank of Maryland; Formerly, President, Chief Executive
Officer, Chief Administrative Officer, and Director, First Maryland
Bancorp, The First National Bank of Maryland and First Omni Bank.
Formerly, Director, York Bank and Trust Company.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (merchant banking), 1993-Present; Formerly, Senior
Vice President and Chief Financial Officer, General Dynamics Corporation
(defense)(1989-1993) and Director, The Arch Fund (registered investment
company).
*ROBERT S. KILLEBREW, JR., Director (4/9/39)
Managing Director, Alex. Brown & Sons Incorporated; Certified Financial
Analyst and Investment Advisor; Formerly, Senior Portfolio Manager,
Brown Asset Management, a division of Alex. Brown & Sons Incorporated
(registered investment advisor), 1974-1995.
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds; Formerly, Consultant, Wendell & Stockel Associates, Inc.
(consulting firm) and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (banking and finance); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and health care).
*REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, PA 19103-7017; President and Chief Executive
Officer, The Pew Charitable Trusts; Director and Executive Vice
President, The Glenmede Trust Company; Formerly, Executive Director, The
Pew Charitable Trusts.
CARL W. VOGT, Director (4/20/36)
Fulbright and Jaworski L.L.P., 801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P.
(law); Formerly, Chairman, National Transportation Safety Board;
Director, National Railroad Passenger Corporation (Amtrak) and Member,
Aviation System Capacity Advisory Committee (Federal Aviation
Administration).
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HARRY WOOLF, Director (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, ATL and Spacelabs Medical Corp. (medical equipment) and Family
Health International (non-profit research and education); Trustee, Reed
College (education); Director, Research America (non-profit medical
research); Formerly, Trustee, Rockefeller Foundation; and Director,
Merrill Lynch Cluster C Funds (registered investment companies).
WILLIAM K. MORRILL, JR., President (6/2/37)
Managing Director, ABKB/LaSalle Securities Limited Partnership, 100 East
Pratt Street, Baltimore, Maryland 21202. Portfolio Manager with
ABKB/LaSalle or its predecessors since 1985.
KEITH R. PAULEY, Executive Vice President (9/27/63)
Senior Vice-President, ABKB/LaSalle Securities Limited Partnership, 100
East Pratt Street, Baltimore, Maryland 21202. Portfolio Manager with
ABKB/LaSalle or its predecessors since 1986.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; President, Investment
Company Capital Corp. (registered investment advisor); and Vice
President, Armata Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated and Manager, Special
Products Department, Alex. Brown & Sons Incorporated.
BRIAN C. NELSON, Vice President and Secretary (7/31/59)
Vice President, Alex. Brown & Sons Incorporated, Investment Company
Capital Corp. (registered investment advisor) and Armata Financial Corp.
(registered broker-dealer).
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated, September 1995-Present.
Formerly, Vice President and Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice President, Delaware
Management Company, Inc., 1980-August 1995.
LAURIE D. DePRINE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present; Formerly, Student 1989-1991.
- ----------
* Messrs. Hale, Semans, Cole and Killebrew are, and Ms. Rimel may be,
Directors who are "interested persons", as defined in the Investment
Company Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered, advised or
distributed by Alex. Brown or its affiliates.
There are currently 12 funds in the Flag Investors/ISI Funds and Alex.
Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Hale serves
as President and Director of one fund and as a Director of each of the other
funds in the Fund Complex. Mr. Semans serves as a Director of eight funds in the
Fund Complex. Mr. Cole serves as a Director of four funds in the Fund Complex.
Messrs. Cunnane, Kroeger, Levy, McDonald and Woolf serve as Directors of each
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fund in the Fund Complex. Ms. Rimel serves as a Director of six funds in the
Fund Complex. Mr. Vogt serves as a Director of five funds in the Fund Complex.
Mr. Fearnow serves as Vice President of 10 funds in the Fund Complex. Mr.
Veilleux serves as Executive Vice President of one fund and as Vice President of
11 funds in the Fund Complex. Mr. Nelson serves as Vice President and Secretary,
Mr. Finelli serves as Treasurer and Ms. DePrine serves as Assistant Secretary,
respectively, of each of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, Alex. Brown in the ordinary course of business. All
such transactions were made on substantially the same terms as those prevailing
at the time for comparable transactions with unrelated persons. Additional
transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of Alex. Brown may be considered to have received remuneration indirectly. As
compensation for his or her services as director, each Director who is not an
"interested person" of the Fund (as defined in the Investment Company Act) (a
"Non-Interested Director") and Ms. Rimel, receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection with
his or her attendance at Board and committee meetings) from all Flag
Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc. for which he or she
serves. In addition, the Chairman of the Fund Complex's Audit Committee receives
an aggregate annual fee from the Fund Complex. Payment of such fees and expenses
is allocated among all such funds described above in direct proportion to their
relative net assets.
For the fiscal year ended December 31, 1995, Directors' fees
attributable to the assets of the Fund totalled approximately $1,142. The
following table shows aggregate compensation paid to each of the Fund's
Directors by the Fund and the Fund Complex, respectively, in the fiscal year
ended December 31, 1995.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------------
Total Compensation From the Fund
Aggregate Compensation From the and Fund Complex Paid to
Name of Person, Fund for the Fiscal Year Ended Directors for the Fiscal Year Ended
Position December 31, 1995 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Richard T. Hale, Chairman $0 $0
*Truman T. Semans, Director $0 $0
*Charles W. Cole, Jr., Director $0 $0
James J. Cunnane, Director $56.48(1) $39,000 for service on 13
Boards in the Fund Complex(2)
N. Bruce Hannay, Director** $56.48(1) $39,000 for service on 13
Boards in the Fund Complex(2)
*Robert S. Killebrew, Jr., $0 $0
Director
John F. Kroeger, Director $64.91(1) $44,425 for service on 13
Boards in the Fund Complex(2)
Louis E. Levy, Director $56.48(1) $39,000 for service on 13
Boards in the Fund Complex(2)
Eugene J. McDonald $56.48(1) $39,000 for service on 13
Director Boards in the Fund Complex(2)
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*Rebecca W. Rimel, Director $48.93(1) $19,500 for service on 5
Boards in the Fund Complex(3)
Carl W. Vogt, Director N/A(4) N/A(4)
Harry Woolf $56.48(1) $39,000 for service on 13
Director Boards in the Fund Complex(2)
</TABLE>
- ----------
* A Director who is or, in the case of Ms. Rimel, may be, an "interested
person" as defined in the Investment Company Act.
** Retired, effective January 31, 1996.
1 Of amounts received by Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald and
Woolf, no amount was deferred pursuant to the deferred compensation plan.
2 One of these funds ceased operations on May 17, 1995.
3 Ms. Rimel was elected to a sixth Board on April 10, 1996.
4 Elected to the Board on January 30, 1996.
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which he or she serves. The Retirement Plan is
unfunded and unvested. Messrs. Kroeger and Woolf have qualified but have not yet
received benefits. The Fund has one Participant, a Director who retired January
31, 1996, who has qualified for the Retirement Plan and who will be paid a
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Such fee
is allocated to each fund in the Fund Complex based upon the relative net assets
of such fund to the Fund Complex.
Beginning in December, 1994, any Director who receives fees from the
Fund is permitted to defer a minimum of 50%, or up to all, of his or her annual
compensation pursuant to a Deferred Compensation Plan. Mssrs. Cunnane, Hannay,
Kroeger, Levy, McDonald, Vogt and Woolf and Ms. Rimel have each executed a
Deferred Compensation Agreement. Currently, the deferring Directors may select
various Flag and Alex. Brown Funds in which all or part of their deferral
account shall be deemed to be invested. Distributions from the deferring
Directors' deferral accounts will be paid in cash, in generally equal quarterly
installments over a period of five years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics pursuant
to Rule 17j-1 under the Investment Company Act. The Code of Ethics significantly
restricts the personal investing activities of all employees of ICC and the
directors and officers of Alex. Brown. As described below, the Code of Ethics
imposes additional, more onerous, restrictions on the Fund's investment
personnel, including the portfolio managers and employees who execute or help
execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of ICC, any director or
officer of Alex. Brown, and all Directors, preclear personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases which are part of an automatic dividend reinvestment plan). The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and preclearance of the
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acquisition of securities in private placements. Furthermore, the Code of Ethics
provides for trading "blackout periods" that prohibit trading by investment
personnel and certain other employees within periods of trading by the Fund in
the same security.
6. INVESTMENT ADVISORY AND OTHER SERVICES
The shareholders of the Fund have approved an Investment Advisory
Agreement between the Fund and Investment Company Corp. ("ICC") and a
Sub-Advisory Agreement among the Fund, ICC and ABKB/LaSalle Securities Limited
Partnership. ("ABKB LaSalle"), both of which contracts are described in greater
detail below. ICC, the investment advisor, is a wholly owned subsidiary of Alex.
Brown & Sons Incorporated ("Alex. Brown"), the Fund's distributor. ICC is also
the investment advisor to Flag Investors Value Builder Fund, Inc., Alex. Brown
Cash Reserve Fund, Inc., Flag Investors International Fund, Inc., Flag Investors
Emerging Growth Fund, Inc., Flag Investors Intermediate-Term Income Fund, Inc.,
Flag Investors Telephone Income Fund, Inc., Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc. and Flag Investors Equity Partners Fund, Inc. which
are also distributed by Alex. Brown. ABKB/LaSalle is a registered investment
advisor and together with its affiliates had, as of December 31, 1995
approximately $1.3 billion in real estate securities under management, almost
all of which is in domestic real estate securities. ABKB/LaSalle, a Maryland
limited partnership, was formed on November 1, 1994 to acquire the real estate
securities investment advisory business of Alex. Brown Kleinwort Benson Realty
Advisors Corporation. (See "Investment Advisor and Sub-Advisor" in the
Prospectus.) The address of ABKB/LaSalle is 100 East Pratt Street, Baltimore,
Maryland 21202.
Under the Investment Advisory Agreement, ICC has agreed to obtain and
evaluate economic, statistical and financial information and to formulate and
implement investment policies for the Fund. ICC has delegated this latter
responsibility to ABKB/LaSalle. Any investment program undertaken by ICC or
ABKB/LaSalle will at all times be subject to policies and control of the Fund's
Board of Directors. ICC will provide the Fund with office space for managing its
affairs, with the services of required executive personnel and with certain
clerical and bookkeeping services and facilities. These services are provided by
ICC without reimbursement by the Fund for any costs. Neither ICC nor
ABKB/LaSalle shall be liable to the Fund or its shareholders for any act or
omission by ICC or ABKB/LaSalle or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. The services of ICC and ABKB/LaSalle
to the Fund are not exclusive and ICC and ABKB/LaSalle are free to render
similar services to others.
As compensation for its services, ICC is entitled to receive a fee from
the Fund, calculated daily and paid monthly, at the annual rate of .65% of the
first $100 million of the Fund's average daily net assets, .55% of the next $100
million of the Fund's average daily net assets, .50% of the next $100 million of
the Fund's average daily net assets, and .45% of the Fund's average daily net
assets exceeding $300 million. As compensation for its services, ABKB/LaSalle is
entitled to receive a fee from ICC, payable from its advisory fee, calculated
daily and paid monthly, at the annual rate of .40% of the first $100 million of
the Fund's average daily net assets, .35% of the next $100 million of the Fund's
average daily net assets, .30% of the next $100 million of the Fund's average
daily net assets, and .25% of the Fund's average daily net assets over $300
million.
ICC has agreed to reduce its aggregate fees on a monthly basis for any
fiscal year to the extent required so that the amount of the ordinary expenses
of the Fund (excluding brokerage commissions, interest, taxes and extraordinary
expenses such as legal claims, liabilities, litigation costs and indemnification
related thereto) paid or incurred by the Fund for such fiscal year does not
exceed the expense limitations applicable to the Fund imposed by the securities
laws or regulations of the states in which the Fund's Shares are registered or
qualified for sale as such limitations may be raised or lowered from time to
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time. Currently, the most restrictive of such expense limitations requires ICC
to reduce its fees to the extent required so that ordinary expenses of the Fund
(excluding brokerage commissions, interest, taxes, and extraordinary expenses
such as legal claims, liabilities, litigation costs and indemnification related
thereto) do not exceed 2.5% of the first $30 million of the Fund's average daily
net assets, 2.0% of the next $70 million of the Fund's average daily net assets
and 1.5% of the Fund's average daily net assets in excess of $100 million. In
addition, if required to do so by any applicable state securities laws or
regulations, ICC will reimburse the Fund to the extent required to prevent the
expense limitations of any state law or regulation from being exceeded.
ABKB/LaSalle has agreed to reduce its aggregate fees for any fiscal year in an
amount proportionate to the amount by which ICC's fees may be reduced as
described above.
Each of the Investment Advisory Agreement and the Sub-Advisory Agreement
has an initial term of two years and will continue in effect from year to year
thereafter if such continuance is specifically approved at least annually by the
Fund's Board of Directors, including a majority of the Non-Interested Directors
who have no direct or indirect financial interest in such agreements, by votes
cast in person at a meeting called for such purpose, and by a vote of a majority
of the outstanding Shares. The Investment Advisory Agreement and the
Sub-Advisory Agreement were most recently approved by the Board of Directors in
the foregoing manner on September 25, 1995. The Fund or ICC may terminate the
Investment Advisory Agreement on sixty days' written notice without penalty. The
Investment Advisory Agreement will terminate automatically in the event of
assignment. The Sub-Advisory Agreement has similar termination provisions. For
investment advisory services for the period from January 3, 1995 (commencement
of operations) through December 31, 1995, ICC waived all fees due it ($38,795)
and reimbursed expenses of $91,068. Absent such fee waivers and reimbursements,
the Fund's Total Operating Expenses would have been 3.25% of the Class A Shares'
average daily net assets and 4.05% of the Class B Shares' average daily net
assets. During the same period, ABKB/LaSalle waived all sub-advisory fees.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
The Distribution Agreements provide that Alex. Brown has the exclusive
right to distribute the related class of Flag Investors Real Estate Securities
Fund Shares either directly or through other broker-dealers. The Distribution
Agreements further provide that Alex. Brown will: (a) solicit and receive orders
for the purchase of Shares; (b) accept or reject such orders on behalf of the
Fund in accordance with the Fund's currently effective prospectus and transmit
such orders as are accepted to the Fund's transfer agent as promptly as
possible; (c) receive requests for redemptions and transmit such redemption
requests to the Fund's transfer agent as promptly as possible; and (d) respond
to inquiries from shareholders concerning the status of their accounts and the
operations of the Fund. Alex. Brown has not undertaken to sell any specific
number of Shares. The Distribution Agreements further provide that, in
connection with the distribution of Shares, Alex. Brown will be responsible for
all of the promotional expenses. The services provided by Alex. Brown to the
Fund are not exclusive, and Alex. Brown is free to provide similar services to
others. Alex. Brown shall not be liable to the Fund or its shareholders for any
act or omission by Alex. Brown or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
Alex. Brown and certain broker-dealers ("Participating Dealers") have
entered into Sub-Distribution Agreements under which such broker-dealers have
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agreed to process investor purchase and redemption orders and respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund.
As compensation for providing distribution services for the Class A
Shares as described above, Alex. Brown receives an annual fee, calculated and
paid monthly, equal to .25% of the Class A Shares' average daily net assets.
Alex. Brown expects to allocate a substantial portion of its annual fee to its
investment representatives and to Participating Dealers. As compensation for
providing distribution services for the Class A Shares for the period from
January 3, 1995 (commencement of operations) through December 31, 1995, Alex.
Brown received from the Fund distribution fees in the amount of $9,662 and from
such fees paid $8,529 to its investment representatives and $1,133 to
Participating Dealers as compensation.
As compensation for providing distribution services for the Class B
Shares as described above, Alex. Brown receives an annual fee equal to .75% of
the Class B Shares' average daily net assets. Alex. Brown expects to retain the
entire distribution fee as reimbursement for front-end payments to its
investment representatives and to Participating Dealers. As compensation for
providing distribution services for the Class B Shares for the period from
January 3, 1995 (commencement of operations) through December 31, 1995, Alex.
Brown received from the Fund distribution fees in the amount of $21,264 and from
such fees paid $418 to Participating Dealers as compensation. In addition, with
respect to the Class B Shares, Alex. Brown receives a shareholder servicing fee
at any annual rate of .25% of the average daily net assets of the Class B
Shares. (See the Prospectus.) For the period from January 3, 1995 (commencement
of operations) through December 31, 1995, such shareholder servicing fees
totalled $5,316.
In the fiscal period ended December 31, 1995, Alex. Brown incurred
expenses of $ 0 for advertising and $1,136 for printing and mailing prospectuses
to prospective investors in Class A and Class B Shares.
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or indirectly,
only pursuant to a plan adopted by the investment company's board of directors
and approved by its shareholders, the Fund has adopted a Plan of Distribution
for each of its classes of Shares (the "Plans"). Under the Plans, the Fund pays
a fee to Alex. Brown for distribution and other shareholder servicing assistance
as set forth in the Distribution Agreements, and Alex. Brown is authorized to
make payments out of its fee to its investment representatives and to
participating broker-dealers. Each Distribution Agreement has an initial term of
two years and the Distribution Agreement and the Distribution Plan encompassed
therein will remain in effect from year to year as specifically approved at
least annually by the Fund's Board of Directors and by the affirmative vote of a
majority of the Non-Interested Directors by votes cast in person at a meeting
called for such purpose. The Distribution Agreements, including the Plans and
forms of Sub-Distribution Agreements, were most recently approved by the Fund's
Board of Directors, including a majority of the Non-Interested Directors, on
September 25, 1995.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreements without the approval of the shareholders of the
Fund. The Plans may be terminated at any time and the Distribution Agreements
may be terminated at any time upon sixty days' notice, in either case without
penalty, by the vote of a majority of the Fund's Non-Interested Directors or by
a vote of a majority of the outstanding class of Shares (as defined under
"Capital Stock"). Any Sub-Distribution Agreement may be terminated in the same
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manner at any time. The Distribution Agreements and any Sub-Distribution
Agreements shall automatically terminate in the event of assignment.
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
the payments made under the Plans to Alex. Brown pursuant to the Distribution
Agreements and to broker-dealers pursuant to Sub-Distribution Agreements. Such
reports will be made by the persons authorized to make such payments. In
addition, during the continuance of the Plans, the selection and nomination of
the Fund's Non-Interested Directors will be committed to the discretion of the
Non-Interested Directors then in office.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which Alex. Brown will allocate a portion of its
distribution fee as compensation for such financial institutions' ongoing
shareholder services. Although banking laws and regulations prohibit banks from
distributing shares of open-end investment companies such as the Fund, according
to interpretations by various bank regulatory authorities, financial
institutions are not prohibited from acting in other capacities for investment
companies, such as the shareholder servicing capacities described above. Should
future legislative, judicial or administrative action prohibit or restrict the
activities of the Shareholder Servicing Agents in connection with the
Shareholder Servicing Agreements, the Fund may be required to alter materially
or discontinue its arrangements with the Shareholder Servicing Agents. Such
financial institutions may impose separate fees in connection with these
services and investors should review the Prospectus and this Statement of
Additional Information in conjunction with any such institution's fee schedule.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
the Plans. The Plans do not provide for any charges to the Fund for excess
amounts expended by Alex. Brown and, if either Plan is terminated in accordance
with its terms, the obligation of the Fund to make payments to Alex. Brown
pursuant to the Plan will cease and the Fund will not be required to make any
payments past the date the related Distribution Agreement terminates.
In the period ended December 31, 1995, Alex. Brown received sales
commissions on the Class A Shares of $137,648 and from such amount retained
$124,915. During the same period, Alex. Brown received contingent deferred sales
loads on the Class B Shares of $116,236 and from such amount retained $105,661.
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all continuing
expenses of the Fund, including, without limitation: investment advisory and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all costs
and expenses in connection with the registration and maintenance of registration
of the Fund and its Shares with the SEC and various states and other
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jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the
Non-Interested Directors, and of independent certified public accountants, in
connection with any matter relating to the Fund; a portion of membership dues of
industry associations; interest payable on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and Directors) of the Fund
which inure to its benefit; extraordinary expenses (including, but not limited
to, legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly assumed by Alex. Brown, ICC or ABKB/LaSalle.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore,
Maryland 21202.
8. BROKERAGE
ICC and ABKB/LaSalle are responsible for decisions to buy and sell
securities for the Fund, for the broker-dealer selection and for negotiation of
commission rates. Purchases and sales of securities on a securities exchange are
effected through broker-dealers who charge a commission for their services. ICC
and ABKB/LaSalle may direct purchase and sale orders to any broker-dealer,
including, to the extent and in the manner permitted by applicable law, Alex.
Brown.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown acts as a principal; that is, an
order will not be placed with Alex. Brown if execution of the trade involves
Alex. Brown serving as a principal with respect to any part of the Fund's order,
nor will the Fund buy or sell over-the-counter securities with Alex. Brown
acting as market maker.
If Alex. Brown is participating in an underwriting or selling group, the
Fund may not buy portfolio securities from the group except in accordance with
rules of the SEC. The Fund believes that the limitation will not affect its
ability to carry out its present investment objective.
ICC's and ABKB/LaSalle's primary consideration in effecting securities
transactions is to obtain best price and execution of orders on an overall
basis. As described below, however, ICC and ABKB/LaSalle may, in their
discretion, effect agency transactions with broker-dealers that furnish
statistical, research or other information or services which are deemed by ICC
or ABKB/LaSalle to be beneficial to the Fund's investment program. Certain
research services furnished by broker-dealers may be useful to ICC and
ABKB/LaSalle with clients other than the Fund. Similarly, any research services
received by ICC or ABKB/LaSalle through placement of portfolio transactions of
other clients may be of value to ICC and ABKB/LaSalle in fulfilling their
obligations to the Fund. No specific value can be determined for research and
statistical services furnished without cost to ICC or ABKB/LaSalle by a
broker-dealer. ICC and ABKB/LaSalle are of the opinion that because the material
must be analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ICC's and ABKB/LaSalle's
research and analysis. Therefore, it may tend to benefit the Fund by improving
ICC's and ABKB/LaSalle's investment advice. ICC's and ABKB/LaSalle's policy is
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to pay a broker-dealer higher commissions for particular transactions than might
be charged if a different broker-dealer had been chosen when, in ICC's or
ABKB/LaSalle's opinion, this policy furthers the overall objective of obtaining
best price and execution. Subject to periodic review by the Fund's Board of
Directors, ICC and ABKB/LaSalle are also authorized to pay broker-dealers other
than Alex. Brown higher commissions on brokerage transactions for the Fund in
order to secure research and investment services described above. The allocation
of orders among broker-dealers and the commission rates paid by the Fund will be
reviewed periodically by the Board of Directors. The foregoing policy under
which the Fund may pay higher commissions to certain broker-dealers in the case
of agency transactions, does not apply to transactions effected on a principal
basis.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown. At the time of such authorization certain policies and
procedures incorporating the standards of Rule 17e-1 under the Investment
Company Act which requires that the commissions paid Alex. Brown must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
Rule 17e-1 also contains requirements for the review of such transactions by the
Board of Directors and requires ICC and ABKB/LaSalle to furnish reports and to
maintain records in connection with such reviews. The Distribution Agreement
between Alex. Brown and the Fund does not provide for any reduction in the
distribution fee to be received by Alex. Brown from the Fund as a result of
profits resulting from brokerage commissions on transactions of the Fund
effected through Alex. Brown.
During the period ended December 31, 1995, Alex. Brown directed
$11,298,553 of transactions to broker-dealers and paid $25,703 to broker-dealers
in related commissions because of research services provided. In the same
period, the Fund paid Alex. Brown brokerage commissions in the aggregate amount
of $1,988, which represented 7.73% of the Fund's aggregate brokerage commissions
and which were paid on transactions that represented 8.96% of the aggregate
dollar amount of transactions that incurred commissions paid by the Fund. The
Fund is required to identify any securities of its "regular brokers or dealers"
(as such term is defined in the Investment Company Act) which the Fund has
acquired during its most recent fiscal year. As of December 31, 1995, the Fund
held a 5.70% repurchase agreement issued by Goldman Sachs & Co. valued at
$347,000. Goldman Sachs & Co. is a "regular broker or dealer" of the Fund.
ICC and ABKB/LaSalle each manage other investment accounts. It is
possible that, at times, identical securities will be acceptable for the Fund
and one or more of such other accounts; however, the position of each account in
the securities of the same issuer may vary and the length of time that each
account may choose to hold its investment in such securities may likewise vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Fund or one or more of these accounts is considered
at or about the same time, transactions in such securities will be allocated
among the accounts in a manner deemed equitable by ICC or ABKB/LaSalle. ICC and
ABKB/LaSalle may combine such transactions, in accordance with applicable laws
and regulations, in order to obtain the best net price and most favorable
execution. Such simultaneous transactions, however, could adversely affect the
ability of the Fund to obtain or dispose of the full amount of a security which
it seeks to purchase or sell.
9. CAPITAL STOCK
The Fund is authorized to issue 10 million Shares of common stock, par
value $.001 per share. The Board of Directors may increase or decrease the
number of authorized shares without shareholder approval.
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The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time. The
Fund currently has one Series and the Board has designated two classes of
Shares. In the event separate series are established, all Shares of the Fund,
regardless of series or class, would have equal rights with respect to voting,
except that with respect to any matter affecting the rights of the holders of a
particular series or class, the holders of each series or class would vote
separately. In general, each such series would be managed separately and
shareholders of each series would have an undivided interest in the net assets
of that series. For tax purposes, the series would be treated as separate
entities. Generally, each class of Shares issued by a particular series would be
identical to every other class and expenses of the Fund (other than 12b-1 and
service fees) are prorated between all classes of a series based upon the
relative net assets of each class. Any matters affecting any class exclusively
would be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding Shares voting together
for election of Directors may elect all the members of the Board of Directors of
the Fund. In such event, the remaining holders cannot elect any members of the
Board of Directors of the Fund. There are no preemptive, conversion or exchange
rights applicable to any of the Shares. The issued and outstanding Shares are
fully paid and non-assessable. In the event of liquidation or dissolution of
the Fund, each Share is entitled to its portion of the Fund's assets (or the
assets allocated to a separate series of shares if there is more than one
series) after all debts and expenses have been paid.
As used in this Statement of Additional Information the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors.
11. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), with offices at Airport
Business Park, 200 Stevens Drive, Lester, Pennsylvania, 19113, has been retained
to act as custodian of the Fund's investments. PNC Bank receives such
compensation from the Fund for its services as Custodian as may be agreed to
from time to time by PNC Bank and the Fund.
Investment Company Capital Corp. ("ICC"), 135 East Baltimore Street,
Baltimore, Maryland 21202, serves as the Fund's transfer and dividend disbursing
agent and provides certain accounting services under a Master Services Agreement
between the Fund and ICC. As compensation for providing transfer and dividend
disbursing services, ICC receives from the Fund up to $10.62 per account per
year plus reimbursement for out-of-pocket expenses incurred in connection
therewith. For the period ended December 31, 1995, such fees totalled $19,350.
As compensation for providing accounting services, ICC receives an annual fee,
calculated and paid monthly as shown below.
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Average Net Assets Accounting Services Fee
------------------ -----------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,001 - $ 20,000,000 .100%
$ 20,000,001 - $ 30,000,000 .080%
$ 30,000,001 - $ 40,000,000 .060%
$ 40,000,001 - $ 50,000,000 .050%
$ 50,000,001 - $ 60,000,000 .040%
$ 60,000,001 - $ 70,000,000 .030%
$ 70,000,001 - $ 99,999,999 .020%
$100,000,001 - $ 500,000,000 .015%
$500,000,001 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund reimburses ICC for the following out-of-pocket
expenses incurred in connection with ICC's provision of accounting services
under the Master Services Agreement: express delivery services, independent
pricing and storage.
As compensation for providing accounting services to the Fund for the
period ended December 31, 1995, ICC received fees of $12,360.
ICC also serves as the Fund's investment advisor. See "Investment
Advisory and Other Services."
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers &
Lybrand L.L.P. Coopers & Lybrand L.L.P. has offices at 2400 Eleven Penn Center,
Philadelphia, Pennsylvania 19103.
13. PERFORMANCE INFORMATION
The Fund may compare its performance to other funds or to relevant
indices, such as the Wilshire Real Estate Index, the NAREIT Equity Index, the
S&P 500, the Russell 2000, the S&P Utilities Index and the Lehman Brothers Fixed
Income Index.
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices or averages in advertisements or in certain reports to
shareholders, performance will generally be stated both in terms of total return
and in terms of yield. However, the Fund may also from time to time state the
performance of the Fund solely in terms of total return.
Total Return Calculations
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P(1 + T) = ERV
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Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5, or 10 year
periods (or fractional portion thereof) of a hypothetical
$1,000payment made at the beginning of the 1, 5 or 10 year
periods.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's registration statement. In calculating the ending
redeemable value, the maximum sales load (for the Class A Shares, 4.5% and for
the Class B Shares, 4.0% for the one year period, 2.0% for the five year period
and no sales charge thereafter) is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value as described in the Prospectus on the reinvestment dates
during the period. "T" in the formula above is calculated by finding the average
annual compounded rate of return over the period that would equate an assumed
initial payment of $1,000 to the ending redeemable value. Any sales loads that
might in the future be made applicable at the time to reinvestments would be
included as would any recurring account charges that might be imposed by the
Fund.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA/Weisenberger or Morningstar
Inc., the Fund calculates its aggregate and average annual total return for the
specified periods of time by assuming the investment of $10,000 in Shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000
invested in Shares is net of all sales charges (as distinguished from the
computation required by the SEC where the $1,000 payment is reduced by sales
charges before being invested in Shares). The Fund will, however, disclose the
maximum sales charges and will also disclose that the performance data do not
reflect sales charges and that inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules, and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Calculated according to SEC rules, for the period from the effectiveness
of the Fund's registration statement on January 3, 1995 through the fiscal
period ended December 31, 1995, the ending redeemable value of a hypothetical
$1,000 payment for the Class A Shares was $1,129, resulting in an aggregate
total return for such shares equal to 12.87%.
Calculated according to SEC rules, for the period from the effectiveness
of the Fund's registration statement on January 3, 1995 through the fiscal
-23-
<PAGE>
period ended December 31, 1995, the ending redeemable value of a hypothetical
$1,000 payment for the Class B Shares was $1,134, resulting in an aggregate
total return for such shares equal to 13.40%.
Calculated according to the alternative computation, which assumes no
sales charges and reinvestment of all distributions, for the period from the
effectiveness of the Fund's registration statement on January 3, 1995 through
the fiscal period ended December 31, 1995, the ending redeemable value of a
hypothetical $10,000 investment in Class A Shares or Class B Shares was $11,819
resulting in an aggregate total return for such shares equal to 18.19%.
Yield Calculations
The yield of the Fund is calculated by dividing the net investment
income per Share earned by the Fund during a 30-day (or one month) period by the
maximum offering price per share on the last day of the period and annualizing
the result on a semiannual basis by adding one to the quotient, raising the sum
to the power of six, subtracting one from the result and then doubling the
difference. The Fund's yield calculations for the Class A Shares assume a
maximum front-end sales charge of 4.50%. The Fund's net investment income per
Share earned during the period is based on the average daily number of Shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements.
Calculated in the manner described above, the Fund's yield for the 30
day period ended December 31, 1995 was 5.64% for the Class A Shares and 5.13%
for the Class B Shares.
Except as noted below, for the purpose of determining net investment
income earned during the period, interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation based
on the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, based on the purchase price (plus actual
accrued interest), dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date.
Undeclared earned income will be subtracted from the net asset value per
share. Undeclared earned income is net investment income which, at the end of
the base period, has not been declared as a dividend, but is reasonably expected
to be and is declared as a dividend shortly thereafter.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. For the period ended
December 31, 1995, the Fund's portfolio turnover rate was 28%.
-24-
<PAGE>
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 2, 1996, the following shareholders owned of record or
beneficially 5% or more of the Fund's total outstanding Shares of either class.
Class A Shares
T. Rowe Price, tr. 15.32%
Alex. Brown & Sons Inc. Plan 100460
ATTN: Asset Recon
P.O. Box 17215
Baltimore, MD 21203-7215
Alex. Brown & Sons Incorporated 5.43%*
FBO 201-60812-14
P.O. Box 1346
Baltimore, MD 21203-1346
Alex. Brown & Sons Incorporated 68.71%*
135 East Baltimore Street
Baltimore, MD 21202
Class B Shares
Alex. Brown & Sons Incorporated 86.31%*
135 East Baltimore Street
Baltimore, MD 21202
- ----------
* As of such date, Alex. Brown owned beneficially less than 1% of such
shares.
As of April 2, 1996, Directors and officers as a group owned less than
1% of the Fund's total outstanding Shares.
15. FINANCIAL STATEMENTS
See next page.
-25-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Statement of Net Assets December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Market Percent
No. of Market Value of Net Unrealized
Shares Security Cost Price (Note A) Assets Gain/(Loss)
Common Stock: 95.6%
Real Estate Investment Trusts: 94.5%
Apartments: 31.0%
<S> <C> <C> <C> <C> <C>
18,200 Avalon Properties Inc. $ 355,762 $21.50 $391,300 3.9% $ 35,538
11,900 Bay Apartment Communities 236,718 24.25 288,575 2.8 51,857
11,100 Equity Residential Property Trust 309,273 30.63 339,938 3.3 30,665
16,200 Evans Withycomb Residential 319,599 21.50 348,300 3.4 28,701
14,800 Merry Land & Investment Co. 306,749 23.63 349,650 3.4 42,901
14,100 Oasis Residential Inc. 313,184 22.75 320,775 3.2 7,591
10,100 Post Properties Inc. 306,666 31.88 321,937 3.2 15,271
15,300 Security Capital Pacific Trust 270,859 19.75 302,175 3.0 31,316
14,600 Southwest Property Trust 178,624 13.50 197,100 1.9 18,476
19,700 United Dominion Realty Trust 271,724 15.00 295,500 2.9 23,776
2,869,158 3,155,250 31.0 286,092
Diversified: 0.4%
1,700 Colonial Properties Trust 40,710 25.50 43,350 0.4 2,640
Factory Outlets: 3.0%
10,300 Chelsea GCA Realty Inc. 276,551 30.00 309,000 3.0 32,449
Health Care: 7.6%
10,600 Health Care Properties
Investment Inc. 325,024 35.13 372,325 3.7 47,301
9,400 Nationwide Health Properties Inc. 350,027 42.00 394,800 3.9 44,773
675,051 767,125 7.6 92,074
Hotels: 5.2%
8,900 Felcor Suite Hotels 246,907 27.75 246,975 2.4 68
7,400 Patriot American Hospitality 181,381 25.75 190,550 1.9 9,169
3,000 Starwood Lodging Trust 82,600 29.75 89,250 0.9 6,650
510,888 526,775 5.2 15,887
Mobile Homes: 5.3%
13,000 Manufactured Home Communities 224,090 17.50 227,500 2.2 3,410
4,000 ROC Communities Inc. 85,603 24.00 96,000 1.0 10,397
8,100 Sun Communities Inc. 189,821 26.38 213,637 2.1 23,816
499,514 537,137 5.3 37,623
</TABLE>
-26-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Statement of Net Assets (continued) December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Market Percent
No. of Market Value of Net Unrealized
Shares Security Cost Price (Note A) Assets Gain/(Loss)
<S> <C> <C> <C> <C> <C>
Real Estate Investment Trusts (continued)
Office/Industrial/Self-storage: 19.7%
3,300 Cali Realty Corporation $ 64,245 $21.88 $ 72,187 0.7% $ 7,942
9,200 Duke Realty Investments Inc. 258,183 32.38 288,650 2.8 30,467
10,300 Highwood Properties Inc. 231,968 28.25 290,975 2.8 59,007
13,700 Security Capital Industries 223,585 17.50 239,750 2.4 16,165
8,200 Shurgard Storage Centers--
Class A 194,423 27.00 221,400 2.2 26,977
12,600 Spieker Properties 266,992 25.13 316,575 3.1 49,583
10,200 Storage USA Inc. 292,530 32.63 332,775 3.3 40,245
9,700 Weeks Corp. 218,377 25.13 243,713 2.4 25,336
1,750,303 2,006,025 19.7 255,722
Regional Malls: 9.3%
11,300 DeBartolo Realty Corp. 158,622 13.00 146,900 1.4 (11,722)
6,400 JP Realty Inc. 129,198 21.88 140,000 1.4 10,802
11,500 Simon Property Group Inc. 278,664 24.38 280,313 2.8 1,649
24,600 Taubman Centers Inc. 236,545 10.00 246,000 2.4 9,455
6,400 Urban Shopping Centers Inc. 132,492 21.38 136,800 1.3 4,308
935,521 950,013 9.3 14,492
Retail: 13.0%
9,100 Developers Diversified
Realty Corp. 261,921 30.00 273,000 2.7 11,079
10,300 Federal Realty Investment Trust 218,820 22.75 234,325 2.3 15,505
6,450 Kimco Realty Corp. 166,125 27.25 175,763 1.7 9,638
5,600 Regency Realty Corp. 94,405 17.25 96,600 0.9 2,195
7,500 Vornado Realty Trust 264,925 37.50 281,250 2.8 16,325
7,000 Weingarten Realty Investment 248,255 38.00 266,000 2.6 17,745
1,254,451 1,326,938 13.0 72,487
Real Estate Operating Companies: 1.1%
Hotels: 1.1%
600 Bristol Hotel Company 12,300 24.38 14,625 0.1 2,325
7,600 Host Marriott Corp. 94,454 13.25 100,700 1.0 6,246
106,754 115,325 1.1 8,571
Total Common Stocks 8,918,901 9,736,938 95.6 818,037
</TABLE>
-27-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Statement of Net Assets (concluded) December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Market Percent
Par Market Value of Net
(000) Security Cost Price (Note A) Assets
<S> <C> <C> <C> <C>
REPURCHASE AGREEMENT: 3.4%
$347 Goldman Sachs & Co., 5.70%
Dated 12/29/95, to be
repurchased on 1/2/96,
collateralized by U.S.
Treasury Notes with
market value of $354,780. $ 347,000 100 $ 347,000 3.4%
Total Investment in Securities 9,265,901* 10,083,938 99.0
Other Assets in Excess of Liabilities, Net 103,739 1.0
Net Assets $10,187,677 100.0%
Net Asset Value Per:
Class A Share
($7,171,372 / 640,093 shares outstanding) $11.20(1)
Class B Share
($3,016,305 / 269,768 shares outstanding) $11.18(2)
Maximum Offering Price Per:
Class A Share
($11.20 / .955) $11.73
Class B Share $11.18
</TABLE>
* Also aggregate cost for federal tax purposes.
1 Redemption value is $11.20.
2 Redemption value is $10.73 after 4.00% maximum contingent deferred sales
charge.
See accompanying Notes to Financial Statements.
-28-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Statement of Operations For the Period January 3, 1995*
(unaudited) through December 31, 1995
Investment income (note a):
Dividends $ 429,814
Interest 12,833
Total income 442,647
EXPENSES:
Investment advisory fee (note b) 38,795
Distribution fees (Note B) 30,926
Legal 30,020
Audit 23,766
Transfer agent fees (Note B) 19,350
Registration fees 17,683
Organizational expense (Note A) 17,683
Custodian fees 16,500
Accounting fee (Note B) 12,360
Printing and postage 9,032
Miscellaneous 1,834
Directors' fees 1,142
Total expenses 219,091
Less: Fees waived and expenses reimbursed (Note B) (129,863)
Net expenses 89,228
Net investment income 353,419
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions 47,282
Change in unrealized appreciation of investments 818,037
Net realized and unrealized gain on investments 865,319
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,218,738
*Commencement of operations.
See accompanying Notes to Financial Statements.
-29-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Statement of Changes in Net Assets
(unaudited)
For the Period
January 3, 1995*
through
December 31, 1995
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income $ 353,419
Net realized gain from security transactions 47,282
Change in unrealized appreciation of investments 818,037
Net increase in net assets resulting
from operations 1,218,738
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares (216,537)
Class B Shares (107,851)
Short-term capital gains:
Class A Shares (27,959)
Class B Shares (11,617)
Total distributions (363,964)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 9,712,132
Value of shares issued in reinvestment of dividends 246,856
Cost of shares repurchased (726,085)
Increase in net assets derived from
capital share transactions 9,232,903
Total increase in net assets 10,087,677
NET ASSETS:
Beginning of period 100,000**
End of period $10,187,677
* Commencement of operations.
** On July 28, 1994, the Fund sold 10,000 shares to a subsidiary of Alex.
Brown & Sons Incorporated for $100,000.
See accompanying Notes to Financial Statements.
-30-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Financial Highlights
(For a share outstanding throughout the period)*
For the Period January 3, 1995**
through December 31, 1995
Class A Class B
Per Share Operating Performance:
Net asset value at beginning of period $10.00 $10.00
Income from Investment Operations:
Net investment income 0.56 0.50
Net realized and unrealized gain
on investments 1.21 1.20
Total from Investment Operations 1.77 1.70
Less Distributions:
Dividends from net investment income (0.52) (0.47)
Distributions from short-term capital gains (0.05) (0.05)
Total distributions (0.57) (0.52)
Net asset value at end of period $11.20 $11.18
Total Return (Aggregate) 18.19% 17.40%
Ratios to Average Net Assets:
Expenses(2) 1.19%(1) 1.90%(1)
Net investment income(3) 5.95%(1) 5.25%(1)
Supplemental Data:
Net assets at end of period (000) $7,171 $3,016
Portfolio turnover rate 28% 28%
**Computed based upon average shares outstanding.
**Commencement of operations.
1 Annualized.
2 Without the waiver of advisory fees (Note B), the ratio of expenses to average
net assets would have been 3.25% (annualized) for Class A Shares and 4.05%
(annualized) for Class B Shares.
3 Without the waiver of advisory fees (Note B), the ratio of net investment
income to average net assets would have been 3.89% (annualized) for Class A
Shares and 3.09% (annualized) for Class B Shares.
See accompanying Notes to Financial Statements.
-31-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Notes to Financial Statements
A. Significant Accounting Policies - Flag Investors Real Estate Securities Fund,
Inc. (the "Fund") was organized as a Maryland Corporation on May 2,
1994 and commenced operations January 3, 1995. The Fund is registered under
the Investment Company Act of 1940 as a non-diversified, open-end management
investment company designed to seek total return primarily through
investments in equity securities of companies that are principally engaged in
the real estate industry.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Fund.
Security Valuation - Portfolio securities are valued on the basis of their
last sale price. In the event that there are no sales or the security is not
listed, it is valued at its latest bid quotation. Short-term obligations with
maturities of 60 days or less are valued at amortized cost.
Repurchase Agreements - The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller, under a repurchase agreement, will be
required on a daily basis to maintain the value of the securities subject to
the agreement at no less than the repurchase price. The agreement is
conditional upon the collateral being deposited under the Federal Reserve
book-entry system.
Federal Income Tax - No provision is made for federal income taxes as it is
the Fund's intention to continue to qualify as a regulated investment company
and to make requisite distributions to the shareholders that will be
sufficient to relieve it from all or substantially all federal income and
excise taxes. The Fund's policy is to distribute to shareholders
substantially all of its taxable net investment income and net realized
capital gains.
Other - Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
Costs incurred by the Fund in connection with its organization, registration
and the initial public offering of shares have been deferred and are being
amortized on the straight-line method over a five-year period beginning on
the date on which the Fund commenced its investment activities.
A portion of the dividend income recorded by the Fund is from Real Estate
Investment Trusts ("REITs"). For tax purposes, a portion of these dividends
consists of capital gains and return of capital. For financial reporting
purposes, these dividends are recorded as dividend income, and the investment
in the REIT is reported at market value. For the period ended December 31,
1995, no return of capital portion of such distribution has been determined
due to the lack of notification from the REITs held by the Fund.
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees -
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex.
Brown & Sons Incorporated ("Alex. Brown"), serves as the Fund's
investment advisor and ABKB/LaSalle Securities Limited Partnership is the
Fund's sub-advisor. As compensation for its advisory services, ICC receives
from the Fund an annual fee, calculated daily and paid monthly, at the annual
rate of 0.65% of the first $100 million of the Fund's average daily net
assets; 0.55% of the next $100 million of the Fund's average daily net
assets; 0.50% of the next $100 million of the Funds average daily net assets;
and 0.45% of the Fund's average daily net assets exceeding $300 million.
-32-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Notes to Financial Statements (concluded)
ICC has agreed to reduce its aggregate fees attributable to the Fund or make
payments to the Fund, if necessary, to the extent required to satisfy any
expense limitations imposed by any securities laws or regulations thereunder
of any state in which the shares of the Fund are qualified for sale. ICC has
voluntarily agreed to waive its fees to the extent required to maintain
expenses at no more than 1.25% of the Fund's average daily net assets for
Class A Shares and 2.00% for Class B Shares. For the period ended December
31, 1995, ICC waived fees of $38,795 and reimbursed expenses of $91,068.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, from the Fund's average daily
net assets. ICC received $12,360 for accounting services for the period ended
December 31, 1995.
As compensation for its transfer agent services, ICC receives from the Fund a
per account fee, calculated daily and paid monthly. ICC received $19,350 for
transfer agent services for the period ended December 31, 1995.
As compensation for providing distribution services, Alex. Brown receives
from the Fund an annual fee, calculated daily and paid monthly, at an annual
rate equal to 0.25% of the average daily net assets for Class A Shares and
1.00% (includes 0.25% shareholder servicing fee) of the average daily net
assets for Class B Shares. For the period ended December 31, 1995,
distribution fees aggregated $30,926, of which $9,662 was attributable to the
Class A Shares and $21,264 was attributable to the Class B Shares.
C. Capital Share Transactions - The Fund is authorized to issue up to 10 million
shares of common stock (7 million Class A, 2 million Class B and 1 million
undesignated), par value $.001 per share. Transactions in shares of the Fund
were as follows:
For the Period
January 3, 1995*
to December 31, 1995
Class A Class B
Shares sold 655,079 290,349
Shares issued to
shareholders on
reinvestment of
dividends 16,704 6,473
Shares redeemed (41,690) (27,054)
Net increase in shares
outstanding 630,093 269,768
Proceeds from sale
of shares $6,763,257 $2,948,875
Value of reinvested
dividends 178,010 68,846
Cost of shares
redeemed (439,765) (286,320)
Net increase from
capital share
transactions $6,501,502 $2,731,401
*Commencement of operations.
D. Investment Transactions - Purchases and sales of investment securities, other
than short-term obligations, aggregated $10,766,776 and $1,895,157,
respectively, for the period ended December 31, 1995.
At December 31, 1995, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $829,759
and aggregate gross unrealized depreciation for all securities in which there
is an excess of tax cost over value was $11,722.
E. Net Assets - At December 31, 1995, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $ 6,601,502
Flag Investors Class B Shares 2,731,401
Undistributed net investment
income 29,031
Accumulated net realized
gains from security
transactions 7,706
Unrealized appreciation
of investments 818,037
$10,187,677
-33-
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Real Estate Securities Fund, Inc.:
We have audited the accompanying statement of net assets of Flag Investors Real
Estate Securities Fund, Inc. as of December 31, 1995 and the related statements
of operations and changes in net assets and financial highlights for the period
January 3, 1995 (commencement of operations) through December 31, 1995. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards required that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of December 31, 1995,
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Flag
Investors Real Estate Securities Fund, Inc. as of December 31, 1995 and the
results of its operations and the changes in its net assets and its financial
highlights for the period January 3, 1995 (commencement of operations) through
December 31, 1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Philadelphia, Pennsylvania
February 2, 1996
-34-
<PAGE>
Appendix
The following descriptions or ratings have been published by Standard &
Poor's Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's").
- --------------------------------------------------------------------------------
Description of Commercial Paper Ratings
S&P - Commercial paper rated A by S&P is regarded as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1, 2 and 3 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1 reflect a "very strong" degree of safety regarding timely payment. Those
rated A-2 reflect a safety regarding timely payment but not as high as A-1.
Moody's - Commercial paper issues rated Prime-1 by Moody's are judged by
Moody's to be of the highest quality on the basis of relative repayment
capacity.
- -------------------------------------------------------------------------------
Description of Corporate Bond Ratings
S&P - Services rated AAA by S&P have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong. Securities
rated AA have a very strong capacity to pay interest and repay principal and
differ from the highest rated issues only in small degree. Securities rated A
have strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than securities in higher rated categories. Securities rated
BBB are regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for securities in this
category than for securities in higher rated categories.
Moody's - Bonds which are rated Aaa by Moody's are judged to be the best
quality. They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues. Bonds
which are rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than in Aaa securities. Bonds which are
rated A possess many favorable investment attributes and are to be considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate but elements may be present which suggest a
susceptibility to impairment some time in the future. Bonds which are rated Baa
are considered as medium-grade obligations (i.e., they are neither highly
protected nor poorly secured). Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
A-1
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Parts A and B of the Registration Statement:
- Statement of Net Assets at December 31, 1995
- Statement of Changes in Net Assets for the period January 3,
1995 (commencement of operations) through December 31,
1995
- Statement of Operations for the period January 3, 1995
(commencement of operations) through December 31, 1995
- Financial Highlights for the period January 3, 1995
(commencement of operations) through December 31, 1995
- Notes to Financial Statements
- Report of Independent Accountants
(b) Exhibits
(1)(a) Registrant's Articles of Incorporation, filed herewith.
(1)(b) Articles Supplementary to Registrant's Articles of
Incorporation, filed herewith.
(2) By-Laws.(2)
(3) Not Applicable.
(4)(a) Specimen Security for Flag Investors Class A Shares.(1)
(4)(b) Specimen Security for Flag Investors Class B Shares.(1)
(5)(a) Investment Advisory Agreement between the Registrant and
Investment Company Capital Corp., filed herewith.
(5)(b) Investment Sub-Advisory Agreement among the Registrant,
Investment Company Capital Corp. and ABKB/LaSalle
Securities Limited Partnership, filed herewith.
(6)(a) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated, filed herewith.
(6)(b) Form of Sub-Distribution Agreement between Alex. Brown &
Sons Incorporated and Participating Dealers, filed
herewith.
(6)(c) Form of Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents, filed herewith.
(6)(d) Distribution Agreement between Registrant and Alex. Brown
& Sons Incorporated with respect to the Flag
Investors Class B Shares, filed herewith.
(7) Not Applicable.
(8)(a) Custodian Agreement between Registrant and PNC
Bank, National Association, filed herewith.
(8)(b) Master Services Agreement between Registrant and Alex.
Brown & Sons Incorporated, filed herewith.
C-1
<PAGE>
(9) Not Applicable.
(10) Opinion of Counsel, filed herewith.
(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement, filed herewith.
(14) Not Applicable.
(15)(a) Distribution Plan, filed herewith.
(15)(b) Distribution Plan with respect to Flag Investors
Class B Shares, filed herewith.
(16) Schedule of Computation of Performance Quotations.(2)
(18) Rule 18f-3 Plan, filed herewith.
(24) Powers of Attorney, filed herewith
(27) Financial Data Schedule for the period ended December 31,
1995, filed herewith.
- ----------
1 Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission on October 28, 1994.
2 Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR on July 25, 1995.
Item 25. Persons Controlled by or under Common Control with Registrant.
Furnish a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant and as to each such person
indicate (1) if a company, the state or other sovereign power under the laws of
which it is organized, and (2) the percentage of voting securities owned or
other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities.
State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders of each
class of securities of the Registrant.
The following information is given as of April 2, 1996.
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Flag Investors Real Estate Securities Fund Class A Shares 400
Flag Investors Real Estate Securities Fund Class B Shares 193
</TABLE>
C-2
<PAGE>
Item 27. Indemnification.
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation
Law, no director or officer of the Corporation shall have any liability to
the Corporation or its shareholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.
Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses to
its officers to the same extent as to its directors and to such further
extent as is consistent with law. The Board of Directors of the
Corporation may make further provision for indemnification of directors,
officers, employees and agents in the By-Laws of the Corporation or by
resolution or agreement to the fullest extent permitted by the Maryland
General Corporation Law.
Section 3. No provision of this Article VIII shall be effective to protect
or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII based on any
event, omission or proceeding prior to such amendment.
Sections 1, 2, 3, 4 and 5 of Article XIII of Registrant's By-Laws,
included as Exhibit 2 to this Registration Statement and incorporated herein by
reference, provide as follows:
Section 1. Indemnification. The Corporation shall indemnify its Directors
to the fullest extent that indemnification of Directors is permitted by
the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its Directors and to such further extent as
is consistent with law. The Corporation shall indemnify its Directors and
officers who while serving as Directors or officers also serve at the
request of the Corporation as a Director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to the fullest
extent consistent with law. This Article XIII shall not protect any such
person against any liability to the Corporation or any shareholder thereof
to which such person would otherwise be subject by reason of willful
C-3
<PAGE>
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article XIII
shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to
which he is a party in the manner and to the full extent permissible under
the Maryland General Corporation Law, the Securities Act of 1933 (the
"1933 Act") and the 1940 Act, as such statutes are now or hereafter in
force.
Section 3. Procedure. On the request of any current or former Director or
officer requesting indemnification or an advance under this Article XIII,
the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, the 1933 Act
and the 1940 Act, as such statutes are now or hereafter in force, whether
the standards required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article XIII
shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification
may be entitled under any insurance or other agreement, vote of
shareholders or disinterested Directors or otherwise, both as to action by
a Director or officer of the Corporation in his official capacity and as
to action by such person in another capacity while holding such office or
position, and shall continue as to a person who has ceased to be a
Director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation
Law in this Article XIII are to such law as from time to time amended.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1940 Act and
is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed by
the final adjudication of such issue. In the absence of a determination by a
court of competent jurisdiction, the determinations that indemnification against
such liabilities is proper, and advances can be made, are made by a majority of
a quorum of the disinterested, non-party directors of the Fund, or an
independent legal counsel in a written opinion, based on review of readily
available facts.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
C-4
<PAGE>
During the last two fiscal years, no director or officer of Investment
Company Capital Corporation, the Registrant's investment advisor, has engaged in
any other business, profession, vocation or employment of a substantial nature
other than that of the business of investment management and, through
affiliates, investment banking.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment sub-advisor of the Registrant, and
each director, officer or partner of any such investment sub-advisor, is or has
been, at any time during the past two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee.
The list required by this Item 28 of officers and directors of
ABKB/LaSalle Securities Limited Partnership ("ABKB/LaSalle"), together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during the past two
years, is incorporated by reference to Schedules A and D of Form ADV, filed by
ABKB/LaSalle pursuant to the Investment Advisers Act of 1940 (SEC File No.
801-34188).
Item 29. Principal Underwriters.
Furnish the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor or investment
advisor:
a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc.,
Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., the Flag Investors Total Return U.S. Treasury
Fund shares of Total Return U.S. Treasury Fund, Inc., the Flag
Investors Managed Municipal Fund Shares of Managed Municipal Fund,
Inc., Flag Investors Value Builder Fund, Inc., Flag Investors
Intermediate-Term Income Fund, Inc., Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc. and Flag Investors Equity
Partners Fund, Inc., all registered open-end management investment
companies.
Furnish information with respect to each director, officer or partner of
each principal underwriter named in answer to Item 21 of Part B (Underwriters):
(b) Position and
Offices with Position and
Name and Principal Principal Officers with
Business Address* Underwriter Registrant
- ----------------- ----------- ----------
Alvin B. Krongard Chairman, None
Chief
Executive
Officer,
Director
Mayo A. Shattuck III President, Director None
C-5
<PAGE>
Beverly L. Wright Chief Financial None
Officer and
Treasurer
Robert F. Price Secretary and None
General Counsel
- ----------
* 135 East Baltimore Street
Baltimore, Maryland 21202
(c) Not Applicable.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
Investment Company Capital Corporation, 135 E. Baltimore
Street, Baltimore, Maryland 21202, and ABKB/LaSalle Securities
Limited Partnership, 100 East Pratt Street, Baltimore, Maryland
21202, maintain physical possession of each such account, book or
other document of the Fund, except for those accounts, books and
documents pursuant to Rule 31a-1(b)(1) maintained by the
Registrant's custodian, PNC Bank, Airport Business Park, 200
Stevens Drive, Lester, Pennsylvania 19113.
Item 31. Management Services.
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
Not Applicable.
Item 32. Undertakings.
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's Annual Report to Shareholders
will be furnished upon request, without charge by
contacting the Registrant at (800) 767-3524.
C-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 4 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 26th day of April, 1996.
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
By: /s/ William K. Morrill, Jr.
---------------------------------
William K. Morrill, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities on the date(s) indicated:
*
- ------------------------------- Director April 26, 1996
Richard T. Hale ------------------
Date
*
- ------------------------------- Director April 26, 1996
Truman T. Semans ------------------
Date
/s/ Charles W. Cole, Jr.
- ------------------------------- Director April 26, 1996
Charles W. Cole, Jr. ------------------
Date
*
- ------------------------------- Director April 26, 1996
James J. Cunnane ------------------
Date
/s/ Robert S. Killebrew, Jr.
- ------------------------------- Director April 26, 1996
Robert S. Killebrew, Jr. ------------------
Date
*
- ------------------------------- Director April 26, 1996
John F. Kroeger ------------------
Date
*
- ------------------------------- Director April 26, 1996
Louis E. Levy ------------------
Date
*
- ------------------------------- Director April 26, 1996
Eugene J. McDonald ------------------
Date
*
- ------------------------------- Director April 26, 1996
Rebecca W. Rimel ------------------
Date
/s/ Carl W. Vogt
- ------------------------------- Director April 26, 1996
Carl W. Vogt ------------------
Date
*
- ------------------------------- Director April 26, 1996
Harry Woolf ------------------
Date
/s/ William K. Morrill, Jr.
- ------------------------------- President April 26, 1996
William K. Morrill, Jr. ------------------
Date
/s/ Joseph A. Finelli
- ------------------------------- Chief Financial April 26, 1996
Joseph A. Finelli and Accounting ------------------
Officer Date
* By: /s/ Brian C. Nelson
----------------------
Brian C. Nelson
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Edgar
Exhibit Exhibit Page
Number Number Document Number
- ------ ------ -------- ------
<S> <C> <C> <C>
EX-99.B (1)(a) Registrant's Articles of Incorporation, filed
herewith.
EX-99.B (1)(b) Registrant's Articles Supplementary, filed herewith.
(2) By-Laws.(2)
(3) Not Applicable.
(4)(a) Specimen Security for Flag Investors Class A
Shares.(1)
(4)(b) Specimen Security for Flag Investors Class B
Shares.(1)
EX-99.B (5)(a) Investment Advisory Agreement between the
Registrant and Investment Company Capital Corp,
filed herewith.
EX-99.B (5)(b) Investment Sub-Advisory Agreement among the
Registrant, Investment Company Capital Corp. and
ABKB/LaSalle Securities Limited Partnership, filed
herewith.
EX-99.B (6)(a) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated, filed herewith.
EX-99.B (6)(b) Form of Sub-Distribution Agreement between Alex.
Brown & Sons Incorporated and Participating
Dealers, filed herewith.
EX-99.B (6)(c) Form of Shareholder Servicing Agreement
between Registrant and Shareholder Servicing
Agents, filed herewith.
EX-99.B (6)(d) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to
the Flag Investors Class B Shares, filed herewith.
(7) Not Applicable.
EX-99.B (8)(a) Custodian Agreement
between Registrant and PNC
Bank, National Association,
filed herewith.
EX-99.B (8)(b) Master Services Agreement between Registrant
and Alex. Brown & Sons Incorporated, filed
herewith.
(9) Not Applicable.
EX-99.B (10) Opinion of Counsel, filed herewith.
Ex-99.B (11) Consent of Independent Accountants, filed
herewith.
(12) Not Applicable.
EX-99.B (13) Subscription Agreement, filed herewith.
(14) Not Applicable.
EX-99.B (15)(a) Distribution Plan, filed herewith.
EX-99.B (15)(b) Distribution Plan with respect to Flag Investors
Class B Shares, filed herewith.
<PAGE>
(16) Schedule of Computation of Performance
Quotations.(2)
EX-99.B (18) Rule 18f-3 Plan, filed herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
Ex-27 -- Financial Data Schedule for the period ended
December 31, 1995, filed
herewith.
</TABLE>
1 Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission on October 28, 1994.
2 Incorporated by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR on July 25, 1995.
<PAGE>
EX-99.B(1)(a)
ARTICLES OF INCORPORATION
OF
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
ARTICLE I
THE UNDERSIGNED, Edward J. Veilleux, whose post
office address is 135 East Baltimore Street, Baltimore,
Maryland 21202, being at least eighteen years of age, does
hereby act as an incorporator, under and by virtue of the
General Laws of the State of Maryland authorizing the
formation of corporations and with the intention of forming a
corporation.
ARTICLE II
The name of the Corporation is Flag Investors Real
Estate Securities Fund, Inc.
ARTICLE III
The purpose for which the Corporation is formed is
to act as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act").
ARTICLE IV
The Corporation is expressly empowered as follows:
(1) To hold, invest and reinvest its assets in
securities and other investments including assets in cash.
(2) To issue and sell shares of its capital stock
in such amounts and on such terms and conditions and for such
purposes and for such amount or kind of consideration as may
now or hereafter be permitted by law.
<PAGE>
(3) To redeem, purchase or otherwise acquire,
hold, dispose of, resell, transfer, reissue or cancel (all
without the vote or consent of the shareholders of the
Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by law and by the
Charter of the Corporation.
(4) To enter into a written contract or contracts
with any person or persons providing for a delegation of the
management of all or part of this Corporation's securities
portfolio(s) and also for the delegation of the performance
of various administrative or corporate functions, subject to
the direction of the Board of Directors of the Corporation.
Any such contract or contracts may be made with any person
even though such person may be an officer, other employee,
director or shareholder of this Corporation or a corporation,
partnership, trust or association in which any such officer,
other employee, director or shareholder may be interested.
(5) To enter into a written contract or contracts
appointing one or more underwriters, distributors or agents
for the sale of the shares of the Corporation on such terms
and conditions as the Board of Directors of the Corporation
may deem reasonable and proper, and to allow such person or
persons a commission on the sale of such shares. Any such
contract or contracts may be made with any person even though
such person may be an officer, other employee, director or
shareholder of this Corporation or a corporation,
partnership, trust or association in which any such officer,
other employee, director or shareholder may be interested.
(6) To enter into a written contract or contracts
employing such custodian or custodians for the safekeeping of
the property of the Corporation and of its shares, such
dividend disbursing agent or agents, and such transfer agent
or agents and registrar or registrars for its shares, and
such agent or agents for accounting and other administrative
services on such terms and conditions as the Board of
Directors of the Corporation may deem reasonable and proper
for the conduct of the affairs of the Corporation, and to pay
the fees and disbursements of such custodians, dividend
disbursing agents, transfer agents, registrars and accounting
and administrative services agents out of the income and/or
any other property of the Corporation. Notwithstanding any
other provisions of the Charter or the By-Laws of the
Corporation, the Board of Directors of the Corporation may
cause any or all of the property of the Corporation to be
transferred to, or to be acquired and held in the name of, a
custodian so appointed or any nominee or nominees of this
Corporation or nominee or nominees of such custodian
satisfactory to the Board of Directors of the Corporation.
-2-
<PAGE>
(7) To employ the same person, partnership
(general or limited), association, trust or corporation in
any multiple capacity under Sections (4), (5) and (6) of this
Article, who may receive compensation from the Corporation in
as many capacities in which such person, partnership (general
or limited), association, trust or corporation shall serve
the Corporation.
(8) To do any and all such further acts or things
and to exercise any and all such further powers or rights as
may be necessary, incidental, relative, conducive,
appropriate or desirable for the accomplishment, carrying out
or attainment of the purposes stated in Article III hereof.
The Corporation shall be authorized to exercise and
enjoy all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State
of Maryland now or hereafter in force, and the enumeration of
the foregoing shall not be deemed to exclude any powers,
rights or privileges so granted or conferred.
ARTICLE V
The post office address of the principal office of
the Corporation in the State of Maryland is c/o Alex. Brown &
Sons Incorporated, 135 East Baltimore Street, Baltimore,
Maryland 21202. The name of the resident agent of the
Corporation in this State is Edward J. Veilleux, a citizen of
this State, who resides there, and the post office address of
the resident agent is 135 East Baltimore Street, Baltimore,
Maryland 21202.
ARTICLE VI
Section 1. The total number of shares of capital
stock which the Corporation shall have the authority to issue
is ten million shares, of the par value of 1 mil ($.001) per
share and of the aggregate par value of ten thousand dollars
($10,000), all of which shares are designated Common Stock.
Unless otherwise prohibited by law, so long as the Corporation
is registered as an open-end investment company under the 1940
Act, the Board of Directors of the Corporation shall have the
power and authority, without the approval of the holders of
any outstanding shares, to increase or decrease the number of
shares of capital stock, or the number of shares of capital
stock of any class or series, that the Corporation has
authority to issue.
-3-
<PAGE>
Section 2. Any fractional share shall carry
proportionately all the rights of a whole share, excepting any
right to receive a certificate evidencing such fractional
share, but including, without limitation, the right to vote
and the right to receive dividends.
Section 3. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions
of the Charter and the By-Laws of the Corporation. All shares
issued pursuant to the Charter of the Corporation for which
the price or consideration fixed thereon shall have been paid
shall be deemed to be fully paid and non-assessable.
Section 4. The Board of Directors of the Corporation
shall have authority to classify and reclassify any authorized
but unissued shares of capital stock from time to time by
setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of the capital stock;
provided that the Board of Directors of the Corporation shall
not classify or reclassify any of such shares into any class
or series of stock which is prior to any class or series of
capital stock then outstanding with respect to rights upon the
liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the general assets of, the
Corporation, except that there may be variations so fixed and
determined among different series and classes as to investment
objectives, purchase price, right of redemption, special
rights as to dividends, and in liquidation, with respect to
assets belonging to a particular series or class, voting
powers and conversion rights. Subject to the provisions of
Section 7 of this Article VI and applicable law, the power of
the Board of Directors of the Corporation to classify or
reclassify any of the shares of capital stock shall include,
without limitation, authority to classify or reclassify any
such stock into a class or classes of capital stock and to
divide and classify shares of any class into one or more
series of such class, by determining, fixing or altering one
or more of the following:
(A) The distinctive designation of such class
or series and the number of shares to constitute such
class or series; provided that, unless otherwise
prohibited by the terms of such class or series, the
number of shares of any class or series may be decreased
by the Board of Directors of the Corporation in
connection with any classification or reclassification
of unissued shares and the number of shares of such
class or series may be increased by the Board of
Directors of the Corporation in connection with any such
-4-
<PAGE>
classification or reclassification, and any shares of
any class or series which have been redeemed, purchased
or otherwise acquired by the Corporation shall remain
part of the authorized capital stock and be subject to
classification and reclassification as provided herein.
(B) Whether or not and, if so, the rates,
amounts and times at which, and the conditions under
which, dividends shall be payable on shares of such
class or series.
(C) Whether or not shares of such class or
series shall have voting rights in addition to any
general voting rights provided by law and the Charter of
the Corporation and, if so, the terms of such additional
voting rights.
(D) The rights of the holders of shares of
such class or series upon the liquidation, dissolution
or winding up of the affairs, or upon any distribution
of the assets, of the Corporation.
(E) Any other rights, restrictions, including
restrictions on transferability, and qualifications of
shares of such class or series, not inconsistent with
law and the Charter of the Corporation.
Section 5. The Board of Directors of the Corporation
shall have authority to issue from time to time shares of
capital stock, whether now or hereafter authorized, for such
consideration as the Board of Directors of the Corporation may
deem advisable, subject to such limitations as may be set
forth in the Charter or the By-Laws of the Corporation or in
the Maryland General Corporation Law.
Section 6. No holder of stock of the Corporation
shall, as such holder, have any preemptive right to purchase
or subscribe for any shares of the capital stock of the
Corporation or any other security of the Corporation which it
may issue or sell (whether out of the number of shares
authorized by the Charter of the Corporation, or out of any
shares of the capital stock of the Corporation acquired by it
after the issue thereof, or otherwise) other than such right,
if any, as the Board of Directors of the Corporation, in its
discretion, may determine.
Section 7. Shares of Common Stock of the Corporation
shall have the following preferences, conversion and other
rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of
redemption:
-5-
<PAGE>
(A) Assets Belonging to a Class. All
consideration received by the Corporation for the issue
or sale of stock of any class of Common Stock, together
with all assets in which such consideration is invested
and reinvested, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale,
exchange or liquidation thereof, and any funds or
payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably
belong to the class of shares of Common Stock with
respect to which such assets, payments or funds were
received by the Corporation for all purposes, subject
only to the rights of creditors, and shall be so handled
upon the books of account of the Corporation. Such
consideration, assets, income, earnings, profits and
proceeds thereof, including any proceeds derived from
the sale, exchange or liquidation thereof, and any
assets derived from any reinvestment of such proceeds in
whatever form, are herein referred to as "assets
belonging to" such class. Any assets, income, earnings,
profits, and proceeds thereof, funds or payments which
are not readily attributable to any particular class
shall be allocable among any one or more of the classes
in such manner and on such basis as the Board of
Directors of the Corporation, in its sole discretion,
shall deem fair and equitable.
(B) Liabilities Belonging to a Class. The
assets belonging to any class of Common Stock shall be
charged with the liabilities in respect of such class,
and shall also be charged with such class's share of the
general liabilities of the Corporation determined as
hereinafter provided. The determination of the Board of
Directors of the Corporation shall be conclusive as to
the amount of such liabilities, including the amount of
accrued expenses and reserves; as to any allocation of
the same to a given class; and as to whether the same
are allocable to one or more classes. The liabilities
so allocated to a class are herein referred to as
"liabilities belonging to" such class. Any liabilities
which are not readily attributable to any particular
class shall be allocable among any one or more of the
classes in such manner and on such basis as the Board of
Directors of the Corporation, in its sole discretion,
shall deem fair and equitable.
(C) Dividends and Distributions. Shares of
each class of Common Stock shall be entitled to such
dividends and distributions, in stock or in cash or
both, as may be declared from time to time by the Board
of Directors of the Corporation, acting in its sole
discretion, with respect to such class, provided,
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<PAGE>
however, that dividends and distributions on shares of a
class of Common Stock shall be paid only out of the
lawfully available "assets belonging to such class" as
such phrase is defined in Section 7(A) of this Article
VI.
(D) Liquidating Dividends and Distributions.
In the event of the liquidation or dissolution of the
Corporation, shareholders of each class of Common Stock
shall be entitled to receive, as a class, out of the
assets of the Corporation available for distribution to
shareholders, but other than general assets not
belonging to any particular class of stock, the assets
belonging to such class; and the assets so distributable
to the shareholders of any class of Common Stock shall
be distributed among such shareholders in proportion to
the number of shares of such class held by them and
recorded on the books of the Corporation. In the event
that there are any general assets not belonging to any
particular class of stock and available for
distribution, such distribution shall be made to the
holders of stock of all classes of Common Stock in
proportion to the asset value of the respective classes
of Common Stock determined as hereinafter provided.
(E) Voting. Each shareholder of each class
of Common Stock shall be entitled to one vote for each
share of Common Stock, irrespective of the class, then
standing in his name on the books of the Corporation,
and on any matter submitted to a vote of shareholders,
all shares of Common Stock then issued and outstanding
and entitled to vote shall be voted in the aggregate and
not by class except that: (i) when expressly required
by law, shares of Common Stock shall be voted by
individual class and (ii) only shares of Common Stock of
the respective class or classes affected by a matter
shall be entitled to vote on such matter. At all
meetings of the shareholders, the holders of one-third
of the shares of stock of the Corporation entitled to
vote at the meeting, present in person or by proxy,
shall constitute a quorum for the transaction of any
business, except as otherwise provided by statute or by
the Charter of the Corporation. In the absence of a
quorum, no business may be transacted, except that the
holders of a majority of the shares of stock present in
person or by proxy and entitled to vote may adjourn the
meeting from time to time, without notice other than
announcement at the meeting, except as otherwise
required by the By-Laws of the Corporation, until the
holders of the requisite amount of shares of stock shall
be so present. At any such adjourned meeting at which a
quorum may be present, any business may be transacted
-7-
<PAGE>
which might have been transacted at the meeting as
originally called. The absence from any meeting, in
person or by proxy, of holders of the number of shares
of stock of the Corporation in excess of a majority
thereof which may be required by the laws of the State
of Maryland, the 1940 Act, or any other applicable
statute, the Charter or the By-Laws of the Corporation,
for action upon any given matter shall not prevent
action at such meeting upon any other matter or matters
which may properly come before the meeting, if there
shall be present at the meeting, in person or by proxy,
holders of the number of shares of stock of the
Corporation required for action in respect of such other
matter or matters.
(F) Redemption. To the extent the
Corporation has funds or other property legally
available therefor, each holder of shares of Common
Stock of the Corporation shall be entitled to require
the Corporation to redeem all or any part of the shares
of Common Stock of the Corporation standing in the name
of such holder on the books of the Corporation, and all
shares of Common Stock issued by the Corporation shall
be subject to redemption by the Corporation, at the
redemption price of such shares as in effect from time
to time as may be determined by the Board of Directors
of the Corporation in accordance with the provisions
hereof, subject to the right of the Board of Directors
of the Corporation to suspend the right of redemption of
shares of Common Stock of the Corporation or postpone
the date of payment of such redemption price in
accordance with provisions of applicable law. Without
limiting the generality of the foregoing, the
Corporation shall, to the extent permitted by applicable
law, have the right at any time to redeem the shares
owned by any holder of Common Stock of the Corporation
(i) if such redemption is, in the opinion of the Board
of Directors of the Corporation, desirable in order to
prevent the Corporation from being deemed a "personal
holding company" within the meaning of the Internal
Revenue Code, as now or hereafter in force, (ii) if the
value of such shares in the account maintained by the
Corporation or its transfer agent for any class of
Common Stock is less than Five Hundred Dollars ($500.00)
provided, however, that each shareholder shall be
notified that the value of his account is less than Five
Hundred Dollars ($500.00) and allowed sixty (60) days to
make additional purchases of shares before such
redemption is processed by the Corporation or (iii) if
the net income with respect to any particular class of
Common Stock should be negative or it should otherwise
be appropriate to carry out the Corporation's
-8-
<PAGE>
responsibilities under the 1940 Act, in each case
subject to such further terms and conditions as the
Board of Directors of the Corporation may from time to
time adopt. The redemption price of shares of Common
Stock of the Corporation shall, except as otherwise
provided in this Section 7(F), be the net asset value
thereof as determined by the Board of Directors of the
Corporation from time to time in accordance with the
provisions of applicable law, less such redemption fee
or other charge, if any, as may be fixed by resolution
of the Board of Directors of the Corporation. Payment
of the redemption price shall be made in cash by the
Corporation at such time and in such manner as may be
determined from time to time by the Board of Directors
of the Corporation unless, in the opinion of the Board
of Directors of the Corporation, which shall be
conclusive, conditions exist which make payment wholly
in cash unwise or undesirable; in such event the
Corporation may make payment wholly or partly by
securities or other property included in the assets
belonging or allocable to the class of the shares
redemption of which is being sought, the value of which
shall be determined as provided herein.
(G) Conversion or Exchange. Each holder of
any class of Common Stock of the Corporation, who either
surrenders his share certificate in good delivery form
to the Corporation or, if the shares in question are not
represented by certificates, delivers to the Corporation
a written request in good order signed by the
shareholder, shall, subject to such procedures as may be
established by the Board of Directors of the
Corporation, be entitled to convert or exchange the
shares in question on the basis hereinafter set forth,
into shares of stock of any other class of the
Corporation. The Corporation shall determine the net
asset value, as provided herein, of the shares to be
converted and may deduct therefrom a conversion or
exchange cost, in an amount determined within the
discretion of the Board of Directors of the Corporation.
Within five (5) business days after such surrender and
payment of any conversion or exchange cost, the
Corporation shall issue to the shareholder such number
of shares of stock of the class desired as, taken at the
net asset value thereof determined as provided herein in
the same manner and at the same time as that of the
shares surrendered, shall equal the net asset value of
the shares surrendered, less any conversion or exchange
cost as aforesaid. Any amount representing a fraction
of a share may be paid in cash at the option of the
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<PAGE>
Corporation. Any conversion or exchange cost may be
paid and/or assigned by the Corporation to the
underwriter and/or to any other entity, as it may elect.
(H) Restrictions on Transferability. If, in
the opinion of the Board of Directors of the
Corporation, concentration in the ownership of shares of
Common Stock might cause the Corporation to be deemed a
personal holding company within the meaning of the
Internal Revenue Code, as now or hereafter in force, the
Corporation may at any time and from time to time refuse
to give effect on the books of the Corporation to any
transfer or transfers of any share or shares of Common
Stock in an effort to prevent such personal holding
company status.
ARTICLE VII
The number of directors of the Corporation shall be
seven (7), which number may be increased or decreased
pursuant to the By-Laws of the Corporation but shall never be
less than three (3) except for any period during which shares
of the Corporation are held by less than three shareholders.
The name of the director who shall act until the directors
are elected by the Corporation's shareholders or until his
successor is duly elected and qualify is:
Edward J. Veilleux
ARTICLE VIII
Section 1. To the fullest extent that limitations
on the liability of directors and officers are permitted by
the Maryland General Corporation Law, no director or officer
of the Corporation shall have any liability to the
Corporation or its shareholders for damages. This limitation
on liability applies to events occurring at the time a person
serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any
proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and
advance expenses to its currently acting and its former
directors to the fullest extent that indemnification of
directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify and advance expenses to
its officers to the same extent as to its directors and to
such further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for
-10-
<PAGE>
indemnification of directors, officers, employees and agents
in the By-Laws of the Corporation or by resolution or
agreement to the fullest extent permitted by the Maryland
General Corporation Law.
Section 3. No provision of this Article VIII shall
be effective to protect or purport to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 4. References to the Maryland General
Corporation Law in this Article VIII are to such law as from
time to time amended. No further amendment to the Charter of
the Corporation shall decrease, but may expand, any right of
any person under this Article VIII based on any event,
omission or proceeding prior to such amendment.
ARTICLE IX
Any determination made in good faith, so far as
accounting matters are involved, in accordance with accepted
accounting practices by or pursuant to the direction of the
Board of Directors of the Corporation, as to the amount of
assets, obligations or liabilities of the Corporation, as to
the amount of net income of the Corporation from dividends
and interest for any period or amounts at any time legally
available for the payment of dividends, as to the amount of
any reserves or charges set up and the propriety thereof, as
to the time of or purpose for creating reserves or as to the
use, alteration or cancellation of any reserves or charges
(whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been
paid or discharged or shall be then or thereafter required to
be paid or discharged), as to the value of any security owned
by the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or
disposition of securities or shares of capital stock of the
Corporation, and any reasonable determination made in good
faith by the Board of Directors of the Corporation as to
whether any transaction constitutes a purchase of securities
on "margin", a sale of securities "short", or an underwriting
of the sale of, or a participation in any underwriting or
selling group in connection with the public distribution of,
any securities, shall be final and conclusive, and shall be
binding upon the Corporation and all holders of its capital
stock, past, present and future, and shares of the capital
stock of the Corporation are issued and sold on the condition
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<PAGE>
and understanding, evidenced by the purchase of shares of
capital stock or acceptance of share certificates, that any
and all such determinations shall be binding as aforesaid.
No provision of the Charter of the Corporation shall be
effective (i) to require a waiver of compliance with any
provision of the Securities Act of 1933, as amended, or the
1940 Act, or of any valid rule, regulation or order of the
Securities and Exchange Commission thereunder or (ii) to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its
security holders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
his office.
ARTICLE X
The duration of this Corporation shall be
perpetual.
ARTICLE XI
Section 1. The Corporation reserves the right from
time to time to make any amendments to its Charter which may
now or hereafter be authorized by law, including any
amendments changing the terms or contract rights, as
expressly set forth in its Charter, of any of its outstanding
stock by classification, reclassification or otherwise, but
no such amendment which changes such terms or contract rights
of any of its outstanding stock shall be valid unless such
amendment shall have been authorized by not less than a
majority of the aggregate number of the votes entitled to be
cast thereon by a vote at a meeting or by the unanimous
written consent of the Directors of the Corporation as
provided in the Corporation's By-Laws.
Section 2. Notwithstanding any provision of the
General Laws of the State of Maryland requiring any action to
be taken or authorized by the affirmative vote of a greater
proportion than the majority of the total number of shares of
any class of stock of the Corporation, such action shall be
effective and valid if taken or authorized by the affirmative
vote of the holders of a majority of the total number of
shares outstanding of that class of stock entitled to vote
thereon, except as otherwise provided in the Charter of the
Corporation.
Section 3. So long as permitted by Maryland law,
the books of the Corporation may be kept outside of the State
of Maryland at such place or places as may be designated from
time to time by the Board of Directors of the Corporation or
in the By-Laws of the Corporation.
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<PAGE>
Section 4. In furtherance, and not in limitation,
of the powers conferred by the laws of the State of Maryland,
the Board of Directors of the Corporation is expressly
authorized:
(A) To make, alter or repeal the By-Laws of
the Corporation, except where such power is reserved by
the By-Laws of the Corporation to the shareholders, and
except as otherwise required by the 1940 Act.
(B) From time to time to determine whether
and to what extent and at what times and places and
under what conditions and regulations the books and
accounts of the Corporation, or any of them other than
the stock ledger, shall be open to the inspection of the
shareholders, and no shareholder shall have any right to
inspect any account or book or document of the
Corporation, except as conferred by law or authorized by
resolution of the Board of Directors or of the
shareholders of the Corporation.
(C) Without the assent or vote of the
shareholders, to authorize the issuance from time to
time of shares of the stock of any class of the
Corporation, whether now or hereafter authorized, for
such consideration as the Board of Directors of the
Corporation may deem advisable.
(D) Without the assent or vote of the
shareholders, to authorize and issue obligations of the
Corporation, secured and unsecured, as the Board of
Directors may determine, and to authorize and cause to
be executed mortgages and liens upon the property of the
Corporation, real and personal.
(E) Notwithstanding anything in the Charter
of the Corporation to the contrary, to establish in its
absolute discretion the basis or method for determining
the value of the assets belonging to any class, and the
net asset value of each share of any class of the
Corporation for purposes of sales, redemptions,
repurchases of shares or otherwise.
(F) To determine in accordance with generally
accepted accounting principles and practices what
constitutes net profits, earnings, surplus or net assets
in excess of capital, and to determine what accounting
periods shall be used by the Corporation for any
purpose, whether annual or any other period, including
daily; (i) to set apart out of any funds of the
Corporation such reserves for such purposes as it shall
determine and to abolish the same; (ii) to declare and
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<PAGE>
pay any dividends and distributions in cash, securities
or other property from surplus or any funds legally
available therefor, at such intervals (which may be as
frequently as daily) or on such other periodic basis, as
it shall determine; (iii) to declare such dividends or
distributions by means of a formula or other method of
determination, at meetings held less frequently than the
frequency of the effectiveness of such declarations;
(iv) to establish payment dates for dividends or any
other distributions on any basis, including dates
occurring less frequently than the effectiveness of
declarations thereof; and (v) to provide for the payment
of declared dividends on a date earlier or later than
the specified payment date in the case of shareholders
of the Corporation redeeming their entire ownership of
shares of any class of the Corporation.
(G) In addition to the powers and authorities
granted herein and by statute expressly conferred upon
it, the Board of Directors of the Corporation is
authorized to exercise all such powers and do all such
acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of
Maryland law, the Charter and the By-Laws of the
Corporation.
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<PAGE>
IN WITNESS WHEREOF, the undersigned incorporator of
Flag Investors Real Estate Securities Fund, Inc. has signed
these articles of incorporation on this 29th day of April,
1994.
/s/ Edward J. Veilleux
----------------------
Edward J. Veilleux
Incorporator
WITNESS:
/s/ Brian C. Nelson
---------------------
Name: Brian C. Nelson
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<PAGE>
THE UNDERSIGNED incorporator of Flag Investors Real
Estate Securities Fund, Inc. who executed the foregoing
Articles of Incorporation of which this Certificate is made a
part, hereby acknowledges the same to be his act and further
acknowledges that, to the best of his knowledge, the matters
and facts set forth therein are true in all material respects
under the penalties of perjury.
/s/ Edward J. Veilleux
----------------------
Edward J. Veilleux
Incorporator
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<PAGE>
EX-99.B(1)(b)
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC. (the
"Corporation") having its principal office in the City of
Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in
accordance with Section 2-105(c) of the Maryland General
Corporation Law has adopted a resolution classifying and
designating the Corporation's previously unclassified ten million
(10,000,000) shares of Common Stock, par value $.001 per share,
having an aggregate value of $10,000.00, as follows: seven
million (7,000,000) shares are designated "Flag Investors Real
Estate Securities Fund Class A Shares" (the "Class A Shares"),
two million (2,000,000) shares are designated "Flag Investors
Real Estate Securities Fund Class B Shares" (the "Class B
Shares") and one million (1,000,000) shares remain undesignated.
SECOND: Immediately before the designation and
classification of the Class A Shares and Class B Shares pursuant
to these Articles Supplementary, the Corporation was authorized
to issue ten million (10,000,000) shares of Common Stock, par
value $.001 per share, having an aggregate par value of
<PAGE>
$10,000.00, of which ten million (10,000,000) shares were
designated common Stock in the Corporation's Articles of
Incorporation, but which, out of authorized but unissued shares,
had been designated "Flag Investors Real Estate Securities Fund
Shares" and renamed "Flag Investors Real Estate Securities Fund
Class A Shares" by the Corporation's Board of Directors as
authorized in the Corporation's Articles of Incorporation.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940, as
amended.
IN WITNESS WHEREOF, Flag Investors Real Estate
Securities Fund, Inc. has caused these Articles Supplementary to
be executed by one of its Vice Presidents and its corporate seal
to be affixed and attested by its Secretary on this 5th day of
December 1994.
[CORPORATE SEAL]
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
By: /s/ Edward J. Veilleux
-----------------------------
Vice President
/s/ Brian C. Nelson
Attest:-------------------------
Secretary
<PAGE>
The undersigned, Vice President of FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC., who executed on behalf of said
corporation the foregoing Articles Supplementary to the Articles
of Incorporation of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation
to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval
thereof are true in all material respects, under the penalties of
perjury.
/s/ Edward J. Veilleux
-------------------------------------------------
Edward J. Veilleux
<PAGE>
EX-99.B(5)(a)
INVESTMENT ADVISORY AGREEMENT
-----------------------------
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 23rd day
of August, 1994 by and between FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC., a Maryland corporation (the "Fund"), and INVESTMENT
COMPANY CAPITAL CORP., a Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under
the Investment Advisors Act of 1940, as amended, and engages in the business
of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an agreement
under which the Advisor will provide investment advisory and administrative
services for the Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints the
Advisor to act as the Fund's investment advisor. The Advisor shall manage the
Fund's affairs and shall supervise all aspects of the Fund's operations
(except as otherwise set forth herein), including the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board
of Directors. The Advisor shall give the Fund the benefit of its best
judgment, efforts and facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on May 2, 1994
and all amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein called the
"Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the Investment Company Act of 1940 on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission (the "SEC") on May 5,
1994;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-78648) and
under the 1940 Act as filed with the SEC on May 5, 1994 relating to the shares
of the Fund, and all amendments thereto; and
<PAGE>
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are herein
called "Prospectus").
The Fund will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. In carrying out its obligations
under Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's operations,
except for distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective
and policies of the Fund;
(c) provide the Fund with such executive, administrative and
clerical services as are deemed advisable by the Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate office
space and all necessary office equipment and services, including telephone
service, utilities, stationery, supplies and similar items for the Fund's
principal office;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign
or otherwise, whether affecting the economy generally or the Fund, and whether
concerning the individual issuers whose securities are included in the Fund's
portfolio or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Fund's
portfolio;
(f) determine which issuers and securities shall be represented
in the Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;
(g) take all actions necessary to carry into effect the Fund's
purchase and sale programs;
(h) supervise the operations of the Fund's custodian,
sub-advisor, transfer and dividend disbursing agent;
(i) provide the Fund with such administrative and clerical
services for the maintenance of certain shareholder records, as are deemed
advisable by the Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filing with the SEC and state Blue
Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage commission rates,
the Advisor's primary consideration in effecting securities transactions will
be to obtain the best price and execution on an overall basis. In performing
this function the Advisor shall comply with applicable policies established by
the Board of Directors and shall provide the Board of Directors with such
reports as the Board of Directors may require in order to monitor the Fund's
portfolio transaction activities. In certain instances the Advisor may make
purchases of underwritten issues at prices which include underwriting fees. In
<PAGE>
selecting a broker-dealer to execute each particular transaction, the Advisor
will take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size
of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on
a continuing basis. Accordingly, the price to the Fund in any transaction may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Advisor shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
its having caused the Fund to pay a broker-dealer that provides brokerage and
research services to the Advisor an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Advisor determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by
such broker-dealer, viewed in terms of either that particular transaction or
the Advisor's overall responsibilities with respect to the Fund. The Advisor
is further authorized to allocate the orders placed by it on behalf of the
Fund to such broker-dealers other than Alex. Brown & Sons Incorporated ("Alex.
Brown") who also provide research or statistical material or other services to
the Fund or the Advisor. Such allocation shall be in such amounts and
proportions as the Advisor shall determine and the Advisor will report on said
allocation regularly to the Board of Directors of the Fund, indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the
Directors may determine, the Advisor may consider services in connection with
the sale of shares of the Fund as a factor in the selection of broker-dealers
to execute portfolio transactions for the Fund.
Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on an agency basis. The commissions paid
to Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act,
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
If the purchase or sale of securities consistent with the investment policies
of the Fund or one or more other account of the Advisor is considered at or
about the same time, transactions in such securities will be allocated among
the accounts in a manner deemed equitable by the Advisor. Alex. Brown and the
Advisor may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable
execution.
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with the rules of the SEC.
5. Control by Board of Directors. Any management or supervisory
activities undertaken by the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Advisor on behalf of the Fund pursuant
thereto, shall at all times be subject to any applicable directives of the
Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
<PAGE>
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Advisor as follows:
(a) The Advisor shall furnish, at its expense and without cost
to the Fund, the services of one or more officers of the Fund, to the extent
that such officers may be required by the Fund for the proper conduct of its
affairs.
(b) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan of distribution, the charges and
expenses of any registrar, any custodian or depository appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, and
any transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions, chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to
Federal, State or other governmental agencies; the costs and the expenses of
the engraving or printing of certificates representing shares of the Fund; all
costs and expenses in connection with registration and maintenance of
registration of the Fund and its shares with the SEC and various states and
other jurisdictions (including filing fees, legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
of proxy statements and reports to shareholders; fees and travel expenses of
Directors or Director members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of Fund shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not
"interested persons" (as defined in the 1940 Act) of the Fund and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and
costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors including
a majority of the Fund's Directors who are not "interested persons" (as
defined in the 1940 Act) of the Fund, and of the shareholders of the Fund, the
Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor shall continue to supervise the performance of any such
sub-advisor and shall report regularly thereon to the Fund's Board of
Directors, but shall not be responsible for the sub-advisor's performance
under the sub-advisory agreement.
<PAGE>
(b) The Advisor may, but shall not be under any duty to,
perform services on behalf of the Fund which are not required by this
Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and the Advisor's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
Fund's independent accountants. Payment or assumption by the Advisor of any
Fund expense that the Advisor is not required to pay or assume under this
Agreement shall not relieve the Advisor of any of its obligations to the Fund
nor obligate the Advisor to pay or assume any similar Fund expense on any
subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by the Advisor, the Fund shall pay to the Advisor monthly compensation
at an annual rate of .65% of the first $100 million of the Fund's average
daily net assets, .55% of the Fund's average daily net assets exceeding $100
million but not exceeding $200 million, .50% of the Fund's average daily net
assets exceeding $200 million but not exceeding $300 million and .45% of the
Fund's average daily net assets exceeding $300 million.
Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for the part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Subject to the provisions of Section 10 hereof, payment of the
Advisor's compensation for the preceding month shall be made as promptly as
possible after completion of the computations contemplated by Section 10
hereof.
10. Expense Limitation. In the event the operating expenses of the
Fund, including all investment advisory and administrative fees, for any
fiscal year ending on a date on which this Agreement is in effect, exceed the
expense limitations applicable to the Fund imposed by the securities laws or
regulations thereunder of any state in which the Fund's shares are qualified
for sale, as such limitations may be raised or lowered from time to time, the
Advisor shall reduce its investment advisory fee to the extent of its share of
such excess expenses and, if required pursuant to any such laws or
regulations, will reimburse the Fund for its share of annual operating
expenses in excess of any expense limitation that may be applicable; provided,
however, there shall be excluded from such expenses the amounts of any
interest, taxes, brokerage commissions and extraordinary expenses (including,
but not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto) paid or payable by the Fund. Such reduction,
if any, shall be computed and accrued daily, shall be settled on a monthly
basis and shall be based upon the expense limitation applicable to the Fund.
11. Non-Exclusivity. The services of the Advisor to the Fund are not
to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under
this Agreement are not impaired thereby. It is understood and agreed that
officers or directors of the Advisor may serve as officers or Directors of the
Fund, and that officers or Directors of the Fund may serve as officers or
directors of the Advisor to the extent permitted by law; and that the officers
and directors of the Advisor are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers, trustees or directors of any other firm, trust
or corporation, including other investment companies.
12. Term and Renewal. This Agreement shall become effective as of
the date hereof and shall continue in force and effect, subject to Section 13
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect from
year to year, provided that such continuance is specifically approved at least
annually:
<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by the vote of
a majority of the outstanding voting securities (as defined in the 1940 Act)
of the Fund; and
(b) by the affirmative vote of a majority of the Directors who
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act) of a party to this Agreement (other than as Directors of the Fund)
by votes cast in person at a meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated, without the
payment of any penalty, by the Fund upon vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or by the Advisor, upon sixty (60) days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act).
14. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Advisor shall not be liable for any act or omission which does not constitute
willful misfeasance, bad faith or gross negligence on the part of the Advisor
or its officers, directors or employees, or reckless disregard by the Advisor
of its duties under the Agreement.
15. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Fund and of the Advisor for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
16. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers as of the day and year
first above written.
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
Attest: /s/ Mary Connell By: /s/ Brian C. Nelson
---------------------------- -------------------------------
INVESTMENT COMPANY CAPITAL CORP.
Attest: /s/ Mary Connell By: /s/ Edward J. Veilleux
---------------------------- -------------------------------
<PAGE>
EX-99.B(5)(b)
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 30th day of December, 1994 by and
among FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland corporation
(the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), and ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund, which is
an open-end, diversified management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the Sub-Advisor for
purposes of rendering advisory services to the Fund and the Advisor in
connection with the Advisor's responsibilities to the Fund on the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the
Fund's Board of Directors and the Advisor, and the Sub-Advisor hereby accepts
such appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the Sub-Advisor
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the State
Department of Assessments and Taxation of the State of Maryland on May 2, 1994
and all amendments thereto (such Articles of Incorporation, as presently in
effect as they shall from time to time be amended are herein called the
"Articles of Incorporation");
(b) The Fund's Bylaws and all amendments thereto (such Bylaws,
as presently in effect as they shall from time to time be amended, are herein
called the "Bylaws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the Investment Company Act of 1940 on Form N-8A under the 1940
Act as filed with the Securities and Exchange Commission (the "SEC") on May 5,
1994;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-78648) and
under the 1940 Act as filed with the SEC on May 5, 1994 relating to the shares
of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect and all amendments and supplements thereto are herein
called "Prospectus").
<PAGE>
The Fund will furnish the Sub-Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Sub-Advisor. In carrying out its obligations under
Section 1 hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive, administrative and
clerical services as are deemed advisable by the Fund's Board of Directors;
(b) determine which issuers and securities shall be represented
in the Fund's portfolio and regularly report thereon to the Fund's Board of
Directors;
(c) formulate and implement continuing programs for the
purchases and sales of the securities of such issuers and regularly report
thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which appear to
the Fund necessary to carry into effect such purchase and sale programs as
aforesaid, including the placing of orders for the purchase and sale of
securities of the Fund; and
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign
or otherwise, whether affecting the economy generally or the Fund, and whether
concerning the individual issuers whose securities are included in the Fund's
portfolio or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Fund's
portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide
the Board of Directors with such reports as the Board of Directors may require
in order to monitor the Fund's portfolio transaction activities. In selecting
a broker-dealer to execute each particular transaction, the Sub-Advisor will
take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size
of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on
a continuing basis. Accordingly, the price to the Fund in any transaction may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Sub-Advisor shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker-dealer that provides brokerage
and research services to the Sub-Advisor an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction, if
the Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by
it on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such
allocations have been made and the basis therefor.
-2-
<PAGE>
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the
Directors may determine, the Sub-Advisor may consider services in connection
with the sale of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar
securities during a comparable period of time." If the purchase or sale of
securities consistent with the investment policies of the Fund or one or more
other accounts of the Sub-Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a
manner deemed equitable by the Sub-Advisor. Alex. Brown and the Sub-Advisor
may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable
execution.
The Fund will not deal with the Sub-Advisor or Alex. Brown in any
transaction in which the Sub-Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the Bylaws; and
(e) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall furnish, at its expense and without
cost to the Fund, the services of the President and certain Vice Presidents of
the Fund, to the extent that such officers may be required by the Fund for the
proper conduct of its affairs.
-3-
<PAGE>
(b) The Sub-Advisor shall maintain, at its expense and without
cost to the Fund, a trading function in order to carry out its obligations
under Section 3 hereof to place orders for the purchase and sale of portfolio
securities for the Fund.
(c) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to the
Advisor under the Investment Advisory Agreement between the Fund and the
Advisor; payments to the Fund's distributor under the Fund's plan of
distribution; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent
or agents appointed by the Fund; brokers' commission chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and fees
payable by the Fund to Federal, state or other governmental agencies; the
costs and expenses of engraving or printing of certificates representing
shares of the Fund; all costs and expenses in connection with the registration
and maintenance of registration of the Fund and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting, and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's shareholders;
all expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; fees and
travel expenses of Directors or Director members of any advisory board or
committee; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares or in cash; charges and expenses
of any outside service used for pricing of the Fund's shares; charges and
expenses of legal counsel, including counsel to the Directors of the Fund who
are not "interested persons" (as defined in the 1940 Act) of the Fund and of
independent certified public accountants, in connection with any matter
relating to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal claims
and liabilities and litigation costs and any indemnification related thereto);
and all other charges and costs of the Fund's operation unless otherwise
explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by the
Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: .40% of the first $100 million
of the Fund's average daily net assets, .35% of the Fund's average daily net
assets in excess of $100 million but not exceeding $200 million, .30% of the
Fund's average daily net assets in excess of $200 million but not exceeding
$300 million, and .25% of the Fund's average daily net assets in excess of
$300 million. Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Subject to the provisions of Section 10 hereof, payment of the
Sub-Advisor's compensation for the preceding month shall be made as promptly
as possible after completion of the computations contemplated in Section 10
hereof.
9. Additional Responsibilities. The Sub-Advisor may, but shall not
be under any duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to examination by the Fund's independent certified public accountants. Payment
-4-
<PAGE>
or assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is
not required to pay or assume under this Agreement shall not relieve the
Sub-Advisor of any of its obligations to the Fund nor obligate the Sub-Advisor
to pay or assume any similar Fund expenses on any subsequent occasions.
10. Expense Limitation. If, for any fiscal year of the Fund, the
amount of the fee which the Advisor would otherwise receive from the Fund
pursuant to the Investment Advisory Agreement between the Fund and the Advisor
is reduced pursuant to the expense limitation provisions of the Investment
Advisory Agreement, the fee which the Sub-Advisor would otherwise receive from
the Advisor pursuant to Section 8 of this Agreement shall also be reduced
proportionately, and, if such amount should exceed such monthly fee, the
Sub-Advisor agrees to repay the Advisor such amount of its fee previously
received with respect to such fiscal year as may be required to make up the
deficiency no later than the last day of the following month. In no event will
the Sub-Advisor be required to reimburse the Advisor for any amount in excess
of the fee it receives pursuant to this Agreement during the fiscal year of
the Fund in which the reimbursement is required.
11. Term. This Agreement shall become effective at 12:01 a.m. on the
date hereof and shall remain in force and effect, subject to Section 13
hereof, for two years from the date hereof.
12. Renewal. Following the expiration of its initial two-year term,
this Agreement shall continue in force and effect from year to year, provided
that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of
a majority of the outstanding voting securities of the Fund (as defined in
Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the Directors who
are not parties to this Agreement or "interested persons" of a party to this
Agreement (other than as Directors of the Fund) by votes cast in person at a
meeting specifically called for such purpose.
13. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors
or by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written
notice to the Advisor and the Sub-Advisor. This Agreement may be terminated at
any time, without the payment of any penalty, by the Sub-Advisor on sixty (60)
days' written notice to the Fund and the Advisor. The notice provided for
herein may be waived by any person to whom such notice is required. This
Agreement shall automatically terminate in the event of its assignment (as
defined in Section 2(a)(4) of the 1940 Act).
14. Non-Exclusivity. The services of the Sub-Advisor to the Advisor
and the Fund are not to be deemed to be exclusive, and the Sub-Advisor shall
be free to render investment advisory or other services to others (including
other investment companies) and to engage in other activities, so long as its
services under this Agreement are not impaired thereby. It is understood and
agreed that officers or Directors of the Sub-Advisor may serve as officers or
Directors of the Fund, and that officers or Directors of the Fund may serve as
officers or Directors of the Sub-Advisor to the extent permitted by law; and
that the officers and Directors of the Sub-Advisor are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm, trust or corporation, including other investment companies.
15. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence
and to act in good faith and to use its best efforts within reasonable limits
to ensure the accuracy of all services performed under this Agreement, but the
Sub-Advisor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of
the Sub-Advisor or its officers, directors or employees, or reckless
disregard by the Sub-Advisor of its duties under this Agreement.
-5-
<PAGE>
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor for this purpose shall be 100 East Pratt Street, Baltimore,
Maryland 21202, and the address of the Advisor and the Fund shall be 135 East
Baltimore Street, Baltimore, Maryland 21202.
17. Questions and Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States Courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the day and year
first above written.
Attest: FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
/s/ M. Connell By: /s/ Brian C. Nelson
---------------------------- -------------------------------
Attest: INVESTMENT COMPANY CAPITAL CORP.
/s/ Brian C. Nelson By: /s/ Edward J. Veilleux
- --------------------------- ---------------------------------
Attest: ABKB/LASALLE SECURITIES LIMITED
PARTNERSHIP
/s/ Brian C. Nelson By: /s/ W. K. Morrill, Jr.
- --------------------------- ---------------------------------
-6-
<PAGE>
EX-99.B(6)(a)
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 23rd day of August, 1994, by and
between FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland
corporation (the "Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland
corporation ("Alex. Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the shares of Common Stock of the Fund (the "Shares") and Alex.
Brown wishes to become the distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 5 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged,
the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund
may from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution
of such additional series and classes unless the parties shall otherwise agree
in writing. Alex. Brown accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on May 2, 1994 and all amendments thereto (the
"Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), (File No. 33-78648) and
under the 1940 Act as filed with the SEC on May 5, 1994 relating to the Shares
of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus and all
amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary
to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex.
Brown does not undertake to sell all or any specific portion of the Shares.
The Fund shall not sell any of the Shares except through Alex. Brown and
securities dealers who have valid Sub-Distribution Agreements with Alex.
Brown. Notwithstanding the provisions of the foregoing sentence, the Fund may
issue its Shares at their net asset value to any shareholder of the Fund
purchasing such Shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of
the Fund. The Board of Directors may agree, on behalf of the Fund, to
amendments to this Agreement, provided that the Fund must obtain prior
approval of the shareholders of the Fund to any amendment which would result
in a material increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
-2-
<PAGE>
(c) the provisions of the Articles of Incorporation of the Fund
and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Shares, the expenses
of advertising in connection with such public offering and all legal expenses
in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor and sub-advisor; the charges and expenses of any
registrar, custodian or depositary appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any stock transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and corporate fees payable by the Fund to
Federal, State or other governmental agencies; the cost and expense of
engraving or printing of stock certificates representing Shares; all costs and
expenses in connection with maintenance of registration of the Fund and the
Shares with the SEC and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel) except as provided in
subparagraph (a) above, the expenses of printing, including typesetting, and
distributing prospectuses of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or members of any advisory
board or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Shares; charges
and expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and
costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be
under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
-3-
<PAGE>
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .25% of the average daily net assets of the Fund. Except as
hereinafter set forth, continuing compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be
paid monthly. If this Agreement becomes effective subsequent to the first day
of a month or shall terminate before the last day of a month compensation for
that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculations of the fees as set forth above.
Payment of Alex. Brown's compensation for the preceding month shall be made as
promptly as possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives
for opening accounts, processing investor letters of transmittals and
applications and withdrawal and redemption orders, responding to inquiries
from Fund shareholders concerning the status of their accounts and the
operations of the Fund, and communicating with the Fund and its transfer agent
on behalf of the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the
agreement attached hereto as Exhibit "A". For processing Fund shareholders'
redemption orders, responding to the inquiries from Fund shareholders
concerning the status of their accounts and the operations of the Fund and
communicating with the Fund, its transfer agent and Alex. Brown, Alex. Brown
may pay each such Participating Dealer an amount not to exceed that portion of
the compensation paid to Alex. Brown hereunder that is attributable to
accounts of Fund shareholders who are customers of such Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not
to be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage
in other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or
from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for
an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of
a majority of the outstanding voting securities (as defined in the 1940 Act),
and
-4-
<PAGE>
(b) by the affirmative vote of a majority of the Directors who
are not "interested persons" of the Fund (as defined in the 1940 Act) and do
not have a financial interest in the operation of this Agreement, by votes
cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time, on
sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The
notice provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
15. Liability. In the performance of its duties hereunder, Alex.
Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of Alex. Brown or reckless disregard by Alex.
Brown of its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of
both Alex. Brown and the Fund for this purpose shall be 135 East Baltimore
Street, Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers as of the day and year
first above written.
[SEAL] FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
Attest: /s/ Mary Connell By /s/ Edward J. Veilleux
------------------- ---------------------------------------
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Mary Connell By /s/ Richard T. Hale
------------------- ---------------------------------------
-5-
<PAGE>
EX-99.B(6)(b)
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland corporation,
serves as distributor (the "Distributor") of the Flag Investors Funds
(collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares
("Shares") to the public in accordance with the terms and conditions contained
in the Prospectus of each Fund. The term "Prospectus" used herein refers to
the prospectus on file with the Securities and Exchange Commission which is
part of the registration statement of each Fund under the Securities Act of
1933 (the "Securities Act"). In connection with the foregoing you may serve as
a participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each
Fund, in each case subject to the terms and conditions set forth in the
Prospectus of each Fund. You are to review each Share purchase or redemption
order submitted through you or with your assistance for completeness and
accuracy. You further agree to undertake from time to time certain shareholder
servicing activities for customers of yours who have purchased Shares and who
use your facilities to communicate with the Funds or to effect redemptions or
additional purchases of Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will look solely
to the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable
to you by your customer pursuant to a Prospectus, the Distributor will pay you
no less often than annually a shareholder processing and service fee (as we
may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
<PAGE>
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of
the Funds. We agree to furnish to you as many copies of each Prospectus,
annual and interim reports and proxy solicitation materials as you may
reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered
under, or are not exempt from, the applicable registration or licensing
requirements of such jurisdiction. You agree that in performing the services
under this Agreement, you at all times will comply with the Rules of Fair
Practice of the NASD, including, without limitation, the provisions of Section
26 of such Rules. You agree that you will not combine customer orders to reach
breakpoints in commissions for any purposes whatsoever unless authorized by
the then current Prospectus in respect of Shares of a particular class or by
us in writing. You also agree that you will place orders immediately upon
their receipt and will not withhold any order so as to profit therefrom. In
determining the amount payable to you hereunder, we reserve the right to
exclude any sales which we reasonably determine are not made in accordance
with the terms of the Prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as
to the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states. You agree that you will offer
Shares to your customers only in those states where such Shares have been
registered, qualified, or an exemption is available. We assume no
responsibility or obligation as to your right to sell Shares in any
jurisdiction. We will file with the Department of State in New York a State
Notice and a Further State Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to take
such action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any
Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder.
In carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of
1934, as amended, or the rules and regulations promulgated by the Securities
and Exchange Commission thereunder.
<PAGE>
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members
of the Board of Directors or Trustees of such Fund who are not "interested
persons" (as defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications to us should be sent to the above
address. Any notice to you shall be duly given if mailed or telegraphed to you
at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
--------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name:
---------------------------
By:
----------------------------------
Address:-----------------------------
Date:
--------------------------------
<PAGE>
EX-99.B(6)(c)
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SHAREHOLDER SERVICING AGREEMENT
_________________, 19__
Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1. (a) You agree to provide the following services to Customers
who may from time to time beneficially own Shares: (i) aggregating and
processing purchase and redemption requests for Shares from Customers and
placing net purchase and redemption orders with our distributor; (ii) processing
dividend payments from us on behalf of Customers; (iii) providing information
periodically to Customers showing their positions in Shares; (iv) arranging for
bank wires; (v) responding to Customer inquiries relating to the services
performed by you; (vi) providing subaccounting with respect to Shares
beneficially owned by Customers; (vii) as required by law, forwarding
shareholder communications from us (such as proxies, shareholder reports, annual
and semi-annual financial statements and dividend, distribution and tax notices)
to Customers; and (viii) providing such other similar services as we may
reasonably request to the extent you are permitted to do so under applicable
statutes, rules or regulations. You will provide to Customers a schedule of any
fees that you may charge directly to them for such services. You hereby
represent that such fees are not unreasonable or excessive. Shares purchased by
you on behalf of Customers will be registered with our transfer agent in your
name or in the name of your nominee. The Customer will be the beneficial owner
of Shares purchased and held by you in accordance with the Customer's
instructions ("Customers' Shares") and the Customer may exercise all rights of a
shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
<PAGE>
Section 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for us in
any matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all of your responsibilities under this Agreement. By your
written acceptance of this Agreement, you agree to and do release, indemnify and
hold us harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions or inactions of or by you or
your officers, employees, agents or assignees regarding your responsibilities
hereunder or the purchase, redemption, transfer or registration of Shares by or
on behalf of Customers. You and your employees will, upon request, be available
during normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will cause our distributor pay to you, and you will accept as
full payment therefor, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customers'
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws
of the State of Maryland.
Section 10. All notices and other communications to either you or us
will be duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
Flag Investors Family of Funds
135 East Baltimore Street
Baltimore, Maryland 21202
Attention: Edward J. Veilleux
-2-
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us, at the address set forth in Section 10 above.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
Date: ______________ By:
Authorized Officer
Confirmed and Accepted:
Firm Name: _______________________________
By: _______________________________
Address: _______________________________
__________________________________________
Date: _______________________________
-3-
<PAGE>
EX-99.B(6)(d)
New Class B Shares
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 30th day of December, 1994, by and
between FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland
corporation (the "Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland
corporation ("Alex. Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors
Class B Shares (the "Shares") and Alex. Brown wishes to become the distributor
of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged,
the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund
may from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution
of such additional series and classes unless the parties shall otherwise agree
in writing. Alex. Brown accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on March 2, 1994 and all amendments thereto
(the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-78648) and
under the 1940 Act as filed with the SEC on May 5, 1994 relating to the Shares
of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary
to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex.
Brown does not undertake to sell all or any specific portion of the Shares.
The Fund shall not sell any of the Shares except through Alex. Brown and
securities dealers who have valid Sub-Distribution Agreements with Alex.
Brown. Notwithstanding the provisions of the foregoing sentence, the Fund may
issue its Shares at their net asset value to any shareholder of the Fund
purchasing such Shares with dividends or other cash distributions received
from the Fund pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of
the Fund. The Board of Directors may agree, on behalf of the Fund, to
amendments to this Agreement, provided that the Fund must obtain prior
approval of the shareholders of the Fund to any amendment which would result
in a material increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund
under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
<PAGE>
(c) the provisions of the Articles of Incorporation of the Fund
and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost
to the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Shares, the expenses
of advertising in connection with such public offering and all legal expenses
in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and corporate fees payable by the Fund to Federal, State or
other governmental agencies; the cost and expense of engraving or printing of
stock certificates representing Shares; all costs and expenses in connection
with maintenance of registration of the Fund and the Shares with the SEC and
various states and other jurisdictions (including filing fees and legal fees
and disbursements of counsel) except as provided in subparagraph (a) above,
the expenses of printing, including typesetting, and distributing prospectuses
of the Fund and supplements thereto to the Fund's shareholders; all expenses
of shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of Directors who are not "interested persons" of the Fund (as defined
in the 1940 Act) or members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in Shares or in cash; charges and expenses of any outside
service used for pricing of the Shares; charges and expenses of legal counsel,
including counsel to the Directors who are not "interested persons" of the
Fund (as defined in the 1940 Act), and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be
under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
<PAGE>
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .75% of the average daily net assets of the shares of the Fund.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee (as
such term is defined in the NASD Rules of Fair Practice) equal to .25% of the
average daily net assets of the Shares of the Fund. Such fee shall be
calculated and accrued daily and the amounts of the daily accruals shall be
paid monthly in the manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives
for opening accounts, processing investor letters of transmittals and
applications and withdrawal and redemption orders, responding to inquiries
from Fund shareholders concerning the status of their accounts and the
operations of the Fund, and communicating with the Fund and its transfer agent
on behalf of the Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the
agreement attached hereto as Exhibit "A". For processing Fund shareholders'
redemption orders, responding to the inquiries from Fund shareholders
concerning the status of their accounts and the operations of the Fund and
communicating with the Fund, its transfer agent and Alex. Brown, Alex. Brown
may pay each such Participating Dealer an amount not to exceed that portion of
the compensation paid to Alex. Brown hereunder that is attributable to
accounts of Fund shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund are not
to be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage
in other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or
from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
14. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for
an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of
a majority of the outstanding voting securities (as defined in the 1940 Act),
and
<PAGE>
(b) by the affirmative vote of a majority of the Directors who
are not "interested persons" of the Fund (as defined in the 1940 Act) and do
not have a financial interest in the operation of this Agreement, by votes
cast in person at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time, on
sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The
notice provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
16. Liability. In the performance of its duties hereunder, Alex.
Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of Alex. Brown or reckless disregard by Alex.
Brown of its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of
both Alex. Brown and the Fund for this purpose shall be 135 East Baltimore
Street, Baltimore, Maryland 21202.
18. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by
reference to such term or provision of the 1940 Act and to interpretations
thereof, if any, by the United States courts or in the absence of any
controlling decision of any such court, by rules, regulations or orders of the
SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers as of the day and year
first above written.
[SEAL] FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
Attest /s/ Brian C. Nelson By /s/ Edward J. Veilleux
--------------------- --------------------------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest /s/ Brian C. Nelson By /s/ Richard T. Hale
--------------------- --------------------------------------------
Title:
<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
<PAGE>
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
<PAGE>
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
__________________________________________
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
EX-99.B(8)(a)
CUSTODIAN SERVICES AGREEMENT TERMS AND CONDITIONS
This Agreement is made as of July 27, 1994 by and between FLAG INVESTORS
REAL ESTATE SECURITIES FUND, INC. (the "Fund"), a Maryland corporation, and
PNC BANK, NATIONAL ASSOCIATION ("PNC Bank"), a national banking association.
The Fund is registered as an open-end investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), as amended. The
Fund wishes to retain PNC Bank to provide custodian services, and PNC Bank
wishes to furnish custodian services, either directly or though an affiliate
or affiliates, as more fully described herein.
In consideration of the premises and mutual covenants herein contained,
the parties agree as follows:
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall mean any
officer of the Fund and any other person, who is duly authorized by the Fund's
Governing Board, to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix as such appendix may be amended in writing by the Fund's
Governing Board from time to time.
(b) "Book-Entry System". The term "Book-Entry System" means Federal
Reserve Treasury book-entry system for United States and federal agency
securities, its successor or successors, and its nominee or nominees and any
book-entry system maintained by an exchange registered with the SEC under the
1934 Act.
<PAGE>
(c) "CFTC". The term "CFTC" shall mean the Commodities Futures Trading
Commission.
(d) "Governing Board". The term "Governing Board" shall mean the Fund's
Board of Directors if the Fund is a corporation or the Fund's Board of
Trustees if the Fund is a trust, or, where duly authorized, a competent
committee thereof.
(e) "Oral Instructions". The term "Oral Instructions" shall mean oral
instructions received by PNC Bank from an Authorized Person or from a person
reasonably believed by PNC Bank to be an Authorized Person.
(f) "Property". The term "Property" shall mean:
(i) any and all securities and other investment items which the
Fund may from time to time deposit, or cause to be deposited,
with PNC Bank or which PNC Bank may from time to time hold for
the Fund;
(ii) All income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or on
behalf of the Fund.
(g) "PNC Bank". The term "PNC Bank" shall mean PNC Bank, National
Association or a subsidiary or affiliate of PNC Bank.
(h) "SEC". The term "SEC" shall mean the Securities and Exchange
Commission.
2
<PAGE>
(i) "Securities and Commodities Laws". The term shall mean the "1933
Act", which shall mean the Securities Act of 1933, as amended, the "1934 Act",
which shall mean the Securities Exchange Act of 1934, as amended, the "1940
Act", which shall mean the Investment Company Act of 1940, as amended, and the
"CEA" which shall mean the Commodities Exchange Act, as amended.
(j) "Shares". The term "Shares" shall mean the shares of stock of any
series or class of the Fund, or, where appropriate, units of beneficial
interest in a trust where the Fund is organized as a Trust.
(k) "Written Instructions". The term "Written Instructions" shall mean
written instructions signed by two Authorized Persons and received by PNC
Bank. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC Bank to provide custodian
services, and PNC Bank accepts such appointment and agrees to furnish such
services.
3. Delivery of Documents. The Fund has provided or, where applicable, will
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PNC Bank or its
affiliates to provide services;
(b) a copy of the Fund's most recent effective registration statement;
(c) a copy of the Fund's advisory agreement or agreements;
(d) a copy of the Fund's distribution agreement or agreements;
3
<PAGE>
(e) a copy of the Fund's administration agreements if PNC Bank is not
providing the Fund with such services;
(f) copies of any shareholder servicing agreements made in respect of
the Fund; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. Compliance with Government Rules and Regulations.
PNC Bank undertakes to comply with all applicable requirements of the
Securities and Commodities Laws and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to all duties to be
performed by PNC Bank hereunder. Except as specifically set forth herein, PNC
Bank assumes no responsibility for such compliance by the Fund.
5. Instructions. Unless otherwise provided in this Agreement, PNC Bank shall
act only upon Oral and Written Instructions. PNC Bank shall be entitled to
rely upon any Oral and Written Instructions it receives from an Authorized
Person (or from a person reasonably believed by PNC Bank to be an Authorized
Person) pursuant to this Agreement. PNC Bank may assume that any Oral or
Written Instructions received hereunder are not in any way inconsistent with
the provisions of organizational documents of the Fund or of any vote,
resolution or proceeding of the Fund's Governing Board or of the Fund's
shareholders.
The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions so that PNC Bank receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received.
The fact that such confirming Written Instructions are not received by PNC
4
<PAGE>
Bank shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions.
The Fund further agrees that PNC Bank shall incur no liability to the
Fund in acting upon Oral or Written Instructions provided such instructions
reasonably appear to have been received from an Authorized Person.
6. Right to Receive Advice.
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it
should or should not take, PNC Bank may request directions or advice,
including Oral or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any questions
of law pertaining to any action it should or should not take, PNC Bank may
request advice at its own cost from such counsel of its own choosing (who may
be counsel for the Fund, the Fund's advisor or PNC Bank, at the option of PNC
Bank).
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral or Written Instructions PNC Bank receives from the Fund, and
the advice it receives from counsel, PNC Bank shall be entitled to rely upon
and follow the advice of counsel.
(d) Protection of PNC Bank. PNC Bank shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel and which PNC Bank
believes, in good faith, to be consistent with those directions, advice
or Oral or Written Instructions.
5
<PAGE>
Nothing in this paragraph shall be construed so as to impose an obligation
upon PNC Bank (i) to seek such directions, advice or Oral or Written
Instructions, or (ii) to act in accordance with such directions, advice or
Oral or Written Instructions unless, under the terms of other provisions of
this Agreement, the same is a condition of PNC Bank's properly taking or not
taking such action.
7. Records. The books and records pertaining to the Fund, which are in the
possession of PNC Bank, shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during PNC Bank's normal business hours. Upon the reasonable request of
the Fund, copies of any such books and records shall be provided by PNC Bank
to the Fund or to an authorized representative of the Fund, at the Fund's
expense.
8. Confidentiality. PNC Bank agrees to keep confidential all records of the
Fund and information relative to the Fund and its shareholders (past, present
and potential), unless the release of such records or information is otherwise
consented to, in writing, by the Fund. The Fund further agrees that, should
PNC Bank be required to provide such information or records to duly
constituted authorities (who may institute civil or criminal contempt
proceedings for failure to comply), PNC Bank shall not be required to seek the
Fund's consent prior to disclosing such information; provided that PNC Bank
gives the Fund prior written notice of the provision of such information and
records.
6
<PAGE>
9. Cooperation with Accountants. PNC Bank shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. Disaster Recovery. PNC Bank shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provision
for emergency use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of equipment failures, PNC
Bank shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions but shall have no liability with respect
thereto.
11. Compensation. As compensation for custody services rendered by PNC Bank
during the term of this Agreement, the Fund will pay to PNC Bank a fee or
fees as may be agreed to in writing from time to time by the Fund and PNC
Bank.
12. Indemnification. The Fund agrees to indemnify and hold harmless PNC Bank
and its nominees from all taxes, charges, expenses, assessment, claims and
liabilities (including, without limitation, liabilities arising under the
7
<PAGE>
Securities and Commodities Laws and any state and foreign securities and blue
sky laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action which PNC Bank takes or does not take (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral or
Written Instructions. Neither PNC Bank, nor any of its nominees, shall be
indemnified against any liability to the Fund or to its shareholders (or any
expenses incident to such liability) arising out of PNC Bank's or its
nominees, own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties and obligations under this Agreement or PNC Bank's own
grossly negligent failure to perform its duties under this Agreement.
13. Responsibility of PNC Bank. PNC Bank shall be under no duty to take any
action on behalf of the Fund except as specifically set forth herein or as
may be specifically agreed to by PNC Bank, in writing. PNC Bank shall be
obligated to exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within reasonable
limits, in performing services provided for under this Agreement. PNC Bank
shall be responsible for its own or its nominees' own willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement or PNC Bank's own negligent failure to
perform its duties under this Agreement.
8
<PAGE>
Without limiting the generality of the foregoing or of any other
provision of this Agreement, PNC Bank, in connection with its duties under
this Agreement, shall not be under any duty or obligation to inquire into and
shall not be liable for (a) the validity or invalidity or authority or lack
thereof of any Oral or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which PNC Bank
reasonably believes to be genuine; or (b) delays or errors or loss of data
occurring by reason of circumstances beyond PNC Bank's control, including acts
of civil or military authority, national emergencies, fire, flood or
catastrophe, acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
Notwithstanding anything in this Agreement to the contrary, PNC Bank
shall have no liability to the Fund for any consequential, special or indirect
losses or damages which the Fund may incur or suffer by or as a consequence of
PNC Bank's performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank.
14. Description of Services.
(a) Delivery of the Property. The Fund will deliver or arrange for
delivery to PNC Bank, all the property it owns, including cash received as a
result of the distribution of its Shares, during the period that is set forth
in this Agreement. PNC Bank will not be responsible for such property until
actual receipt.
9
<PAGE>
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
Instructions, shall open and maintain separate account(s) in the Fund's name
using all cash received from or for the account of the Fund, subject to the
terms of this Agreement. In addition, upon Written Instructions, PNC Bank
shall open separate custodial accounts for each separate series, portfolio or
class of the Fund and shall hold in such account(s) all cash received from or
for the accounts of the Fund specifically designated to each separate series,
portfolio or class.
PNC Bank shall make cash payments from or for the account of the Fund
only for:
(i) purchases of securities in the name of the Fund or PNC Bank
or PNC Bank's nominee as provided in sub-paragraph (j) and
for which PNC Bank has received a copy of the broker's or
dealer's confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to PNC
Bank;
(iii) payment of, subject to Written Instructions, interest, taxes,
administration, accounting, distribution, advisory,
management fees or similar expenses which are to be borne by
the Fund;
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an
amount equal to the amount of dividends and distributions
stated in the Written Instructions to be distributed in cash
by the transfer agent to shareholders, or, in lieu of paying
the Fund's transfer agent, PNC Bank may arrange for the
direct payment of cash dividends and distributions to
shareholders in accordance with procedures mutually agreed
upon from time to time by and among the Fund, PNC Bank and
the Fund's transfer agent;
(v) payments, upon receipt Written Instructions, in connection
with the conversion, exchange or surrender of securities
owned or subscribed to by the Fund and held by or delivered
to PNC Bank;
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(vi) payments of the amounts of dividends received with respect to
securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-paragraph c of this Paragraph 14; and
(viii) payments, upon Written Instructions made for other proper
Fund purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts
or other orders for the payment of money received as custodian for the account
of the Fund.
(c) Receipt of Securities.
(i) PNC Bank shall hold all securities received by it for the
account of the Fund in a separate account that physically
segregates such securities from those of any other persons,
firms or corporations. All such securities shall be held or
disposed of only upon Written Instructions of the Fund
pursuant to the terms of this Agreement. PNC Bank shall have
no power or authority to assign, hypothecate, pledge or
otherwise dispose of any such securities or investment,
except upon the express terms of this Agreement and upon
Written Instructions, accompanied by a certified resolution
of the Fund's Governing Board, authorizing the transaction.
In no case may any member of the Fund's Governing Board, or
any officer, employee or agent of the Fund withdraw any
securities.
At PNC Bank's own expense and for its own convenience, PNC
Bank may enter into subcustodian agreements with other United
States banks or trust companies to perform duties described
in this sub-paragraph c. Such bank or trust company shall
have an aggregate capital, surplus and undivided profits,
according to its last published report, of at least one
million dollars ($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty million dollars
($20,000,000) if such bank or trust company is not a
subsidiary or affiliate of PNC Bank. In addition, such bank
or trust company must be qualified to act as custodian and
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<PAGE>
agree to comply with the relevant provisions of the 1940 Act
and other applicable rules and regulations. Any such
arrangement will not be entered into without prior written
notice to the Fund.
PNC Bank shall remain responsible for the performance of all
of its duties as described in this Agreement and shall hold
the Fund harmless from its own acts or omissions, under the
standards of care provided for herein, or the acts and
omissions of any sub-custodian chosen by PNC Bank under the
terms of this sub-paragraph (c).
(d) Transactions Requiring Instructions. Upon receipt of Oral or Written
Instructions and not otherwise, PNC Bank, directly or through the use of the
Book-Entry System, shall:
(i) deliver any securities held for the Fund against the receipt
of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the
authority of the Fund as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to PNC
Bank;
(iv) deliver any securities held for the Fund against receipt of
other securities or cash issued or paid in connection with
the liquidation, reorganization, refinancing, tender offer,
merger, consolidation or recapitalization of any corporation,
or the exercise of any conversion privilege;
(v) deliver any security held for the Fund to any protective
committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or
12
<PAGE>
other instruments or documents as may be issued to it to
evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Fund and
take such other steps as shall be stated in said Oral or
Written Instructions to be for the purpose of effectuating a
duly authorized plan of liquidation, reorganization, merger,
consolidation or recapitalization of the Fund;
(vii) release securities belonging to the Fund to any bank or trust
company for the purpose of a pledge or hypothecation to
secure any loan incurred by the Fund; provided, however, that
securities shall be released only upon payment to PNC Bank of
the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made
subject to proper prior authorization, further securities may
be released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing
the loan;
(viii) release and deliver securities owned by the Fund in
connection with any repurchase agreement entered into on
behalf of the Fund, but only on receipt of payment therefor;
and pay out moneys of the Fund in connection with such
repurchase agreements, but only upon the delivery of the
securities;
(ix) release and deliver or exchange securities owned by the Fund
in connection with any conversion of such securities,
pursuant to their terms, into other securities;
(x) release and deliver securities owned by the fund for the
purpose of redeeming in kind shares of the Fund upon delivery
thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address
of the person(s) to whom delivery shall be made when such
action is pursuant to sub-paragraph (d).
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<PAGE>
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
certified resolutions of the Fund's Governing Board approving, authorizing and
instructing PNC Bank on a continuous and on-going basis, to deposit in the
Book-Entry System all securities belonging to the Fund eligible for deposit
therein and to utilize the Book-Entry System to the extent possible in
connection with settlements of purchases and sales of securities by the Fund,
and deliveries and returns of securities loaned, subject to repurchase
agreements or used as collateral in connection with borrowings. PNC Bank shall
continue to perform such duties until it receives Written or Oral Instructions
authorizing contrary actions(s).
To administer the Book-Entry System properly, the following provisions
shall apply:
(i) With respect to securities of the Fund which are maintained
in the Book-Entry system, established pursuant to this
sub-paragraph (e) hereof, the records of PNC Bank shall
identify by Book-Entry or otherwise those securities
belonging to the Fund. PNC Bank shall furnish the Fund a
detailed statement of the Property held for the Fund under
this Agreement at least monthly and from time to time and
upon written request.
(ii) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated from any
assets and cash controlled by PNC Bank in other than a
fiduciary or custodian capacity but may be commingled with
other assets held in such capacities. PNC Bank and its sub-
custodian, if any, will pay out money only upon receipt of
securities and will deliver securities only upon the receipt
of money.
(iii) All books and records maintained by PNC Bank which relate to
the Fund's participation in the Book-Entry System will at
all times during PNC Bank's regular business hours be open to
the inspection of the Fund's duly authorized employees or
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<PAGE>
agents, and the Fund will be furnished with all information
in respect of the services rendered to it as it may require.
(iv) PNC Bank will provide the Fund with copies of any report
obtained by PNC Bank on the system of internal accounting
control of the Book-Entry System promptly after receipt of
such a report by PNC Bank.
PNC Bank will also provide the Fund with such reports on its own system
of internal control as the Fund may reasonably request from time to time.
(f) Registration of Securities. All Securities held for the Fund which
are issued or issuable only in bearer form, except such securities held in the
Book-Entry System, shall be held by PNC Bank in bearer form; all other
securities held for the Fund may be registered in the name of the Fund; PNC
Bank; the Book-Entry System; a sub-custodian; or any duly appointed
nominee(s) of the Fund, PNC Bank, Book-Entry system or sub-custodian. The Fund
reserves the right to instruct PNC Bank as to the method of registration and
safekeeping of the securities of the Fund. The Fund agrees to furnish to PNC
Bank appropriate instruments to enable PNC Bank to hold or deliver in proper
form for transfer, or to register its registered nominee or in the name of the
Book-Entry System, any securities which it may hold for the account of the
Fund and which may from time to time be registered in the name of the Fund.
PNC Bank shall hold all such securities which are not held in the Book-Entry
System in a separate account for the Fund in the name of the Fund physically
segregated at all times from those of any other person or persons,
15
<PAGE>
(g) Voting and other Action. Neither PNC Bank nor its nominee shall vote
any of the securities held pursuant to this Agreement by or for the account of
the Fund, except in accordance with Written Instructions. PNC Bank, directly
or through the use of the Book-Entry System, shall execute in blank and
promptly deliver all notice, proxies, and proxy soliciting materials to the
registered holder of such securities. If the registered holder is not the Fund
then Written or Oral Instructions must designate the person(s) who owns such
securities.
(h) Transactions Not Requiring Instructions. In the absence of contrary
Written Instructions, PNC Bank is authorized to take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Fund, all
income, dividends, distributions, coupons, option
premiums, other payments and similar items, included or
to be included in the Property, and, in addition,
promptly advise the Fund of such receipt and credit such
income, as collected, to the Fund's custodian account;
(B) endorse and deposit for collection, in the name of the
Fund, checks, drafts, or other orders for the payment of
money;
(C) receive and hold for the account of the Fund all
securities received as a distribution on the Fund's
portfolio securities as a result of a stock dividend,
share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of
rights or similar securities issued with respect to any
portfolio securities belonging to the Fund held by PNC
Bank hereunder;
(D) present for payment and collect the amount payable upon
all securities which may mature or be called, redeemed,
16
<PAGE>
or retired, or otherwise become payable on the date such
securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such
income and other payments and the endorsement for
collection of checks, drafts, and other negotiable
instruments.
(ii) Miscellaneous Transactions.
(A) PNC Bank is authorized to deliver or cause to be
delivered Property against payment or other
consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for
the account of the Fund in accordance with street
delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the
Fund or PNC Bank or nominee of either, or for
exchange of securities for a different number of
bonds, certificates, or other evidence,
representing the same aggregate face amount or
number of units bearing the same interest rate,
maturity date and call provisions, if any; provided
that, in any such case, the new securities are to
be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral or Written
Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for
payment upon presentation and hold the cash
received by it upon such payment for the account of
the Fund;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of the Fund;
(3) hold for the account of the Fund all stock
dividends, rights and similar securities issued
17
<PAGE>
with respect to any securities held by PNC Bank;
and
(4) execute as agent on behalf of the Fund all
necessary ownership certificates required by the
Internal Revenue Code or the Income Tax Regulations
of the United States Treasury Department or under
the laws of any State now or hereafter in effect,
inserting the Fund's name on such certificate as
the owner of the securities covered thereby, to the
extent it may lawfully do so.
(i) Segregated Accounts.
(i) PNC Bank shall upon receipt of Written or Oral Instructions
establish and maintain a segregated accounts(s) on its records
for and on behalf of the Fund. Such account(s) may be used to
transfer cash and securities, including securities in the
Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and any
releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies;
and
(B) upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA custodian
accounts for such shareholders holding shares through IRA
accounts, in accordance with the Prospectus, the Internal
Revenue Code (including regulations), and with such other
procedures as are mutually agreed upon from time to time by and
among the Fund, PNC Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased securities
upon receipt of Oral or Written Instructions from the fund or its investment
advisor(s) that specify:
(i) the name of the issuer and the title of the securities,
including CUSIP number if applicable;
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<PAGE>
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through whom
the purchase was made. PNC Bank shall upon receipt of
securities purchased by or for the Fund pay out of the moneys
held for the account of the Fund the total amount payable to
the person from whom or the broker through whom the purchase
was made, provided that the same conforms to the total amount
payable as set forth in such Oral or Written Instructions.
(k) Sales of Securities. PNC Bank shall sell securities upon receipt of
Oral Instructions from the Fund that specify:
(i) the name of the issuer and the title of the security,
including CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade, settlement and sale;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the
sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total amount payable is
the same as was set forth in the Oral or Written Instructions. Subject to the
foregoing, PNC Bank may accept payment in such form as shall be satisfactory
19
<PAGE>
to it, and may deliver securities and arrange for payment in accordance with
the customs prevailing among dealers in securities.
(l) Reports.
(i) PNC Bank shall furnish the Fund the following reports:
(A) such periodic and special reports as the Fund may
reasonably request;
(B) a monthly statement summarizing all transactions and
entries for the account of the Fund, listing the portfolio
securities belonging to the fund with the adjusted average
cost of each issue and the market value at the end of such
month, and stating the cash account of the Fund including
disbursement;
(C) the reports to be furnished to the Fund pursuant to Rule
17f-4; and
(D) such other information as may be agreed upon from time to
time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion
or similar communication received by it as custodian of
the Property. PNC Bank shall be under no other obligation
to inform the Fund as to such actions or events.
(m) Collections. All collections of monies or other property in respect,
or which are to become part, of the Property (but not the safekeeping thereof
upon receipt by PNC Bank) shall be at the sole risk of the Fund. If payment is
not received by PNC Bank within a reasonable time after proper demands have
been made, PNC Bank shall notify the Fund in writing, including copies of all
demand letters, any written responses, memoranda of all oral responses and to
telephonic demands thereto, and await instructions from the Fund. PNC Bank
20
<PAGE>
shall not be obliged to take legal action for collection unless and until
reasonably indemnified to its satisfaction. PNC Bank shall also notify the
Fund as soon as reasonably practicable whenever income due on securities is
not collected in due course.
15. Duration and Termination. This Agreement shall continue until terminated
by the Fund or by PNC Bank on sixty (60) days prior written notice to the
other party. In the event this Agreement is terminated (pending appointment of
a successor to PNC Bank or vote of the shareholders of the Fund to dissolve or
to function without a custodian of its cash, securities or other property),
PNC Bank shall not deliver cash, securities or other property of the Fund to
the Fund. It may deliver them to a bank or trust company of PNC Bank's choice,
having an aggregate capital, surplus and undivided profits, as shown by its
last published report, of not less than twenty million dollars ($20,000,000),
as a custodian for the Fund to be held under terms similar to those of this
Agreement. PNC Bank shall not be required to make any such delivery or payment
until full payment shall have been made to PNC Bank of all of its fees,
compensation, costs and expenses. PNC Bank shall have a security interest in
and shall have a right of setoff against Property in the Fund's possession as
security for the payment of such fees, compensation, costs and expenses.
16. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notice shall be addressed (a) if to PNC Bank at PNC
21
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Bank's address, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, marked for the attention of the Custodian
Services Department (or its successor) (b) if to the Fund, at the address of
the Fund; or (c) if to neither of the foregoing, at such other address as
shall have been notified to the sender of any such Notice or other
communication. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
five days after it has been mailed. If notice is sent by messenger, it shall
be deemed to have been given on the day it is delivered.
17. Amendments. This Agreement, or any term hereof, may be changed or waived
only by a written amendment, signed by the party against whom enforcement of
such change or waiver is sought.
18. Delegation. PNC Bank may assign its rights and delegate its duties
hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PNC Bank gives the
Fund thirty (30) days prior written notice; (ii) the delegate agrees with PNC
Bank to comply with all relevant provisions of the 1940 Act; and (iii) PNC
Bank and such delegate promptly provide such information as the Fund may
22
<PAGE>
request, and respond to such questions as the Fund may ask, relative to the
delegation, including (without limitation) the capabilities of the delegate.
19. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
20. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
21. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the
parties may embody in one more separate documents their agreement, if any,
with respect to delegated and/or Oral Instructions.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
This Agreement shall be deemed to be a contract made in Pennsylvania and
governed by Pennsylvania law. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. This Agreement shall be
binding and shall inure to the benefit of the parties hereto and their
respective successors.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION
By: /s/ John Foster
----------------------------------
Title: Vice President
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
By: /s/ Brian C. Nelson
----------------------------------
Title:
24
<PAGE>
AUTHORIZED PERSONS APPENDIX
Name (Typed) Signature
- ------------ ---------
__________________________________ ______________________________________
__________________________________ ______________________________________
__________________________________ ______________________________________
__________________________________ ______________________________________
__________________________________ ______________________________________
25
<PAGE>
EX-99.B(8)(b)
MASTER SERVICES AGREEMENT
THIS AGREEMENT is made as of the 23rd day of August, 1994 by and
between FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland
corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation ("ICC").
W I T N E S S E T H:
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain ICC to provide certain services
on behalf of the Fund, as set forth in the Appendices to this Agreement, and
ICC is willing so to serve.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as
follows:
1. Appointment. The Fund hereby appoints ICC to perform such
services and to serve such functions on behalf of the Fund as set forth in the
Appendices to this Agreement, on the terms set forth in this Agreement and the
Appendices hereto. ICC accepts such appointment and agrees to furnish such
services and serve such functions. The Fund may have currently outstanding one
or more series or classes of its shares of common stock, par value $.001 per
share ("Shares") and may from time to time hereafter issue separate series or
classes of its Shares or classify and reclassify Shares of any series or
class, and the appointment effected hereby shall constitute appointment for
the provision of services with respect to all existing series and classes and
any additional series and classes unless the parties shall otherwise agree in
writing.
2. Delivery of Documents. The Fund has furnished ICC with copies
properly certified or authenticated of the following documents and will
furnish ICC from time to time with copies, properly certified or
authenticated, of all amendments of or supplements thereto, if any:
(a) Resolutions of the Fund's Board of Directors authorizing
the appointment of ICC to act in such capacities on behalf of the Fund as set
forth in the Appendices to this Agreement, and the entering into of this
Agreement by the Fund;
(b) The Fund's Articles of Incorporation and all amendments
thereto (the "Charter") and the Fund's By-Laws and all amendments thereto (the
"By-Laws");
(c) The Fund's most recent Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") and under the
1940 Act as filed with the Securities and Exchange Commission (the "SEC")
relating to the Shares; and
(d) Copies of the Fund's most recent prospectus or
prospectuses, including amendments and supplements thereto (collectively, the
"Prospectus").
3. Services to be Provided; Fees. During the term of this Agreement,
ICC shall perform the services and act in such capacities on behalf of the
Fund as set forth herein and in the Appendices to this Agreement. For the
services performed by ICC for the Fund, the Fund will compensate ICC in such
amounts as may be agreed to from time to time by the parties in writing.
<PAGE>
4. Records. The books and records pertaining to the Fund which are
in the possession of ICC shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during ICC's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by ICC to the
Fund or the Fund's authorized representative at the Fund's expense.
5. Cooperation With Accountants. In addition to any obligations set
forth in an Appendix hereto, ICC shall cooperate with the Fund's independent
accountants and shall take all reasonable actions in the performance of its
obligations under this Agreement to ensure that the necessary information is
made available to such accountants for the expression of such accountants'
opinion of the Fund's financial statements or otherwise, as such may be
required by the Fund from time to time.
6. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the Fund complies with all
applicable requirements of the 1933 Act, the Securities Exchange Act of 1934
(the "1934 Act"), the 1940 Act, and any laws, rules and regulations of
governmental authorities having jurisdiction. ICC undertakes to comply with
all applicable requirements of the 1933 Act, the 1934 Act, the 1940 Act, the
Commodities Exchange Act (if applicable), and all laws, rules and regulations
of governmental authorities having jurisdiction with respect to the
performance by ICC of its duties under this Agreement, including the
Appendices hereto.
7. Expenses.
(a) ICC shall bear all expenses of its employees and overhead
incurred in connection with its duties under this Agreement and shall pay all
salaries and fees of the Fund's directors and officers who are employees of
ICC.
(b) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor, administrator and distributor; the charges and
expenses of any registrar, any custodian or depositary appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, and
any stock transfer, dividend or accounting agent or agents appointed by the
Fund; brokers' commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and corporate fees payable by the Fund
to federal, state or other governmental agencies; the cost and expense of
engraving or printing of stock certificates representing Shares; all costs and
expenses in connection with maintenance of registration of the Fund and its
Shares with the SEC and various states and other jurisdictions (including
filing fees and legal fees and disbursements of counsel); the expenses of
printing, including typesetting, and distributing prospectuses of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of directors
or members of any advisory board or committee other than such directors or
members who are "interested persons" of the Fund (as defined in the 1940 Act);
all expenses incident to the payment of any dividend, distribution, withdrawal
or redemption, whether in Shares or in cash; charges and expenses of any
outside service used for pricing of the Shares; charges and expenses of legal
counsel, including counsel to the directors of the Fund who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund; a
portion of membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other
charges and costs of the Fund's operation unless otherwise explicitly provided
herein.
2
<PAGE>
8. Liability; Indemnification. Neither ICC nor any of its officers,
directors or employees shall be liable for any error of judgment or for any
loss suffered by the Fund in connection with the matters to which this
Agreement, including the Appendices hereto, relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its or their part
in the performance of, or from reckless disregard by it or them of, its or
their obligations and duties under this Agreement. The Fund agrees to
indemnify and hold harmless ICC and its nominees from all taxes, charges,
expenses, assessments, claims and liabilities (including, without limitation,
liabilities arising under the 1933 Act, the 1934 Act, the 1940 Act, and any
state and foreign securities and blue sky laws, all as currently in existence
or as amended from time to time) and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or thing which ICC takes or does or omits to take or do at the request
or on the direction of or in reliance on the advice of the Fund; provided,
that neither ICC nor any of its nominees shall be indemnified against any
liability to the Fund or to its shareholders (or any expenses incident to such
liability) arising out of ICC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement. Notwithstanding anything else in this Agreement or any Appendix
hereto to the contrary, ICC shall have no liability to the Fund for any
consequential, special or indirect losses or damages which the Fund may incur
or suffer as a consequence of ICC's performance of the services provided in
this Agreement or any Appendix hereto.
9. Responsibility of ICC. ICC shall be under no duty to take any
action on behalf of the Fund except as specifically set forth herein or as may
be specifically agreed to by ICC in writing. In the performance of its duties
hereunder, ICC shall be obligated to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits in performing
services provided for under this Agreement, but ICC shall not be liable for
any act or omission which does not constitute willful misfeasance, bad faith
or gross negligence on the part of ICC or reckless disregard by ICC of its
duties under this Agreement. Notwithstanding anything in this Agreement to the
contrary, ICC shall have no liability to the Fund for any consequential,
special or indirect losses or damages which the Fund may incur or suffer by or
as a consequence of ICC's performance of the services provided hereunder.
10. Non-Exclusivity. The services of ICC to the Fund are not to be
deemed exclusive and ICC shall be free to render accounting or other services
to others (including other investment companies) and to engage in other
activities. It is understood and agreed that directors, officers or employees
of ICC may serve as directors or officers of the Fund, and that directors or
officers of the Fund may serve as directors, officers and employees of ICC to
the extent permitted by law; and that directors, officers and employees of
ICC are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, directors
or officers of any other firm or corporation, including other investment
companies.
11. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed
by registered mail, postage prepaid, to the Fund at 135 E. Baltimore Street,
Baltimore, Maryland 21202, Attention: B. Nelson, or to ICC at 135 E. Baltimore
Street, Baltimore, Maryland 21202, Attention: Mr. Edward J. Veilleux.
12. Miscellaneous.
(a) This Agreement shall become effective as of the date first
above written and shall remain in force until terminated. This Agreement, or
any Appendix hereto, may be terminated at any time without the payment of any
penalty, by either party hereto on sixty (60) days' written notice to the
other party.
(b) This Agreement shall be construed in accordance with the
laws of the State of Maryland.
3
<PAGE>
(c) If any provisions of this Agreement shall be held or made
invalid in whole or in part, the other provisions of this Agreement shall
remain in force. Invalid provisions shall, in accordance with the intent and
purpose of this Agreement, be replaced by mutual consent of the parties with
such valid provisions which in their economic effect come as close as legally
possible to such invalid provisions.
(d) Except as otherwise specified in the Appendices hereto, ICC
shall be entitled to rely on any notice or communication believed by it to be
genuine and correct and to have been sent to it by or on behalf of the Fund.
(e) ICC agrees on behalf of itself and its employees to treat
confidentially all records and other information relative to the Fund and its
prior, present, or potential shareholders, except, after prior notification to
and approval in writing by the Fund, which approval shall not be unreasonably
withheld and may not be withheld where ICC may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested by the Fund.
(f) Any part of this Agreement or any Appendix attached hereto
may be changed or waived only by an instrument in writing signed by both
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
By: /s/ Brian C. Nelson
-------------------------------------
Title:
INVESTMENT COMPANY CAPITAL CORP.
By: /s/ Edward J. Veilleux
-------------------------------------
Title:
4
<PAGE>
Appendix I
TRANSFER AGENCY SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
Flag Investors Real Estate Securities, Inc. and
Investment Company Capital Corp.
This Appendix is hereby incorporated into and made a part of the Master
Services Agreement dated as of August 23, 1994 (the "Master Services
Agreement") between Flag Investors Real Estate Securities Fund, Inc. and
Investment Company Capital Corp. Defined terms not otherwise defined herein
shall have the meaning set forth in the Master Services Agreement.
1. Definitions.
(a) "Authorized Person". The term "Authorized Person" shall mean any
officer of the Fund and any other person, who is fully authorized by the
Fund's Board of Directors, to give Oral and Written Instructions on behalf of
the Fund. Such persons are listed in the Certificate attached hereto.
(b) "Oral Instructions". The term "Oral Instructions" shall mean
oral instructions received by ICC from an Authorized Person or from a person
reasonably believed by ICC to be an Authorized Person.
(c) "Written Instructions". The term "Written Instructions" shall
mean written instructions signed by two Authorized Persons and received by
ICC. The instructions may be delivered by hand, mail, tested telegram, cable,
telex or facsimile sending device.
2. Instructions. Unless otherwise provided in this Appendix, ICC shall
act only upon Oral and Written Instructions. ICC shall be entitled to rely
upon any Oral and Written Instruction it receives from an Authorized Person
(or from a person reasonably believed by ICC to be an Authorized Person)
pursuant to this Agreement. ICC may assume that any Oral or Written
Instruction received hereunder is not in any way inconsistent with the
provisions of the Fund's Articles of Incorporation, the Master Services
Agreement, or any Appendix attached thereto, or of any vote, resolution or
proceeding of the Fund's Board of Directors or shareholders.
The Fund agrees to forward to ICC Written Instructions confirming
Oral Instructions so that ICC receives the Written Instructions by the close
of business on the same day that such Oral Instructions are received. The fact
that such confirming Written Instructions are not received by ICC shall in no
way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. The Fund further agrees that ICC shall
incur no liability to the Fund in acting upon Oral or Written Instructions
provided such instructions reasonably appear to have been received from an
Authorized Person.
If ICC is in doubt as to any action it should or should not take,
ICC may request directions or advice, including Oral or Written Instructions,
from the Fund. ICC shall be protected in any action it takes or does not take
in reliance upon directions, advice or Oral or Written Instructions it
receives from the Fund or from counsel and which ICC believes, in good faith,
to be consistent with those directions, advice or Oral or Written
Instructions. Notwithstanding the foregoing, ICC shall have no obligation (i)
to seek such directions, advice or Oral or Written Instructions, or (ii) to
act in accordance with such directions, advice or Oral or Written Instructions
unless, under the terms of other provisions of this Appendix, the same is a
condition of ICC's properly taking or not taking such action.
5
<PAGE>
3. Description of Services.
(a) General Services To be Provided. ICC shall provide to the Fund
the following services on an ongoing basis:
(i) Calculate 12b-1 payments;
(ii) Maintain proper shareholder registrations;
(iii) Review new applications and correspond with
shareholders, if necessary, to complete or correct
information;
(iv) Direct payment processing of checks or wires;
(v) Prepare and certify stockholder lists in conjunction
with proxy solicitations; solicit and tabulate proxies;
receive and tabulate proxy cards for meetings of the
Fund's shareholders;
(vi) Countersign securities;
(vii) Direct shareholder confirmation of activity;
(viii) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(ix) Mail duplicate confirmation to broker-dealers of their
clients' activity, whether executed through the
broker-dealer or directly with ICC;
(x) Provide periodic shareholder lists and statistics to the
Fund;
(xi) Provide detail for underwriter/broker confirmations;
(xii) Mail periodic year-end tax and statement information;
(xiii) Provide timely notification to investment advisor,
accounting agent, and custodian of Fund activity; and
(xiv) Perform other participating broker-dealer shareholder
services as may be agreed upon from time to time.
(b) Purchase of Shares. ICC shall issue and credit an account of an
investor, in the manner described in the Prospectus, once it receives: (i) a
purchase order; (ii) proper information to establish a shareholder account;
and (iii) confirmation of receipt by, or crediting of funds for such order to,
the Fund's custodian.
(c) Redemption of Shares. ICC shall redeem the Fund's shares only in
accordance with the provisions of the Prospectus and each shareholder's
individual directions. Shares shall be redeemed at such time as the
shareholder tenders his or her shares and directs the method of redemption in
accordance with the terms set forth in the Prospectus. If securities are
received in proper form, Shares shall be redeemed before the funds are
provided to ICC. When the Fund provides ICC with funds, redemption proceeds
will be wired (if requested) or a redemption check issued. All redemption
checks shall be drawn to the recordholder unless third party payment
authorizations have been signed by the recordholder and delivered to ICC.
6
<PAGE>
(d) Dividends and Distributions. Upon receipt of certified
resolutions of the Fund's Board of Directors authorizing the declaration and
payment of dividends and distributions, ICC shall issue the dividends and
distributions in shares, or, upon shareholder election, pay such dividends and
distributions in cash. Such issuance or payment shall be made after deduction
and payment of the required amount of funds to be withheld in accordance with
any applicable tax laws or other laws, rules or regulations. The Fund's
shareholders shall receive tax forms and other information, or permissible
substitute notice, relating to dividends and distributions, paid by the Fund
as are required to be filed and mailed by applicable law, rule or regulation.
ICC shall maintain and file with the IRS and other appropriate taxing
authorities reports relating to all dividends and distributions paid by the
Fund to its shareholders as required by tax or other law, rule or regulation.
(e) Shareholder Account Services. If authorized in the Prospectus,
ICC shall arrange for the following services, in accordance with the
applicable terms set forth in the Prospectus: (i) the issuance of Shares
obtained through any pre-authorized check plan and direct purchases through
broker wire orders, checks and applications; (ii) exchanges of shares of any
fund for Shares of the Fund with which the Fund has exchange privileges; (iii)
automatic redemption from an account where that shareholder participates in an
automatic redemption plan; and (iv) redemption of Shares from an account with
a check writing privilege.
(f) Communications to Shareholders. Upon timely Written
Instructions, ICC shall mail all communications by the Fund to its
shareholders, including, reports to shareholders, confirmations of purchases
and sales of Shares, monthly or quarterly statements, dividend and
distribution notices, and proxy material.
(g) Records. ICC shall maintain records of the accounts for each
shareholder showing the following information: (i) name, address and U.S. Tax
Identification or Social Security number; (ii) number and class of Shares held
and number and class of Shares for which certificates, if any, have been
issued, including certificate numbers and denominations; (iii) historical
information regarding the account of each shareholder, including dividends and
distributions paid and the date and price for all transactions on a
shareholder's account; (iv) any stop or restraining order placed against a
shareholder's account; (v) any correspondence relating to the current
maintenance of a shareholder's account; (vi) information with respect to
withholdings; and (vii) any information required in order for ICC to perform
any calculations contemplated or required by this Appendix or the Master
Services Agreement.
(h) Lost or Stolen Certificates. ICC shall place a stop notice
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or alleged
misappropriation. A new certificate shall be registered and issued upon: (i)
the shareholder's pledge of a lost instrument bond or such other appropriate
indemnity bond issued by a surety company approved by ICC; and (ii) completion
of a release and indemnification agreement signed by the shareholder to
protect ICC.
(i) Shareholder Inspection of Stock Records. Upon requests from Fund
shareholders to inspect stock records, ICC will notify the Fund and the Fund
shall deliver Oral or Written Instructions granting or denying each such
request. Unless ICC has acted contrary to the Fund's Instructions, the Fund
agrees to release ICC from any liability for refusal or permission for a
particular shareholder to inspect the Fund's shareholder records.
(j) Withdrawal of Shares and Cancellation of Certificates. Upon
receipt of Written Instructions, ICC shall cancel outstanding certificates
surrendered by the Fund to reduce the total amount of outstanding shares by
the number of shares surrendered by the Fund.
(k) Telephone Transactions. In accordance with the terms of the
Prospectus, ICC shall act upon shareholder requests made by telephone for
redemption or exchange of ISI shares; provided that (i) the shareholder has
authorized telephone transactions on the Fund's Account Application or
otherwise in writing, (ii) if the request is a redemption, the amount to be
7
<PAGE>
redeemed does not exceed $10,000 and (iii) ICC has complied with the
identification and other security procedures required by the Fund in
connection with telephone transactions.
4. Fees. As compensation for the services performed by ICC for the Fund
pursuant to this Appendix, the Fund will pay to ICC such amounts as may be
agreed to from time to time by the parties in writing.
5. Delegation of Responsibilities. ICC may subcontract to any third party
all or any part of its obligations under this Appendix; provided that any such
subcontracting shall not relieve ICC of any of its obligations under this
Appendix. All subcontractors shall be paid by ICC.
8
<PAGE>
Appendix II
ACCOUNTING SERVICES APPENDIX
to
MASTER SERVICES AGREEMENT
between
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
and
INVESTMENT COMPANY CAPITAL CORP.
This Appendix is hereby incorporated into and made a part of the
Master Services Agreement dated as of August 23, 1994 (the "Master Services
Agreement") between FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC. and
INVESTMENT COMPANY CAPITAL CORP. Defined terms not otherwise defined herein
shall have the meaning set forth in the Master Services Agreement.
1. Accounting Services to be Provided. ICC will perform the following
accounting functions, if required:
(a) Journalize investment, capital share and income and expense;
(b) Verify investment buy/sell trade tickets when received from the
Fund's investment advisor and transmit trades to the Fund's custodian for
proper settlement;
(c) Maintain individual ledgers for investment securities;
(d) Maintain tax lots for each security;
(e) Reconcile cash and investment balances with the custodian, and
provide the Fund's investment advisor with the beginning cash balance
available for investment purposes;
(f) Update the cash availability throughout the day as required by
the Fund's investment advisor;
(g) Post to and prepare the Fund's Statement of Net Assets and
Liabilities and the Statement of Operations;
(h) Calculate various contractual expenses (e.g., advisor and
custody fees);
(i) Monitor the expense accruals and notify Fund management of any
proposed adjustments;
(j) Control all disbursements from the Fund and authorize such
disbursements upon written instructions from the President or any other
officer of the Fund or the investment advisor;
(k) Calculate capital gains and losses;
(l) Determine the Fund's net income;
(m) Obtain security market quotes from independent pricing services
approved by the investment advisor, or if such quotes are unavailable, then
obtain such prices from the investment advisor, and in either case calculate
the market value of portfolio investments;
(n) Transmit or mail a copy of the daily portfolio valuation to the
Fund's investment advisor;
9
<PAGE>
(o) Compute the Fund's net asset value;
(p) As appropriate, compute the yields, total return, expense
ratios, portfolio turnover rate;
(q) Prepare a monthly financial statement, which will include the
following items:
* Schedule of Investments;
* Statement of Net Assets and Liabilities;
* Statement of Operations;
* Statement of Changes in Net Assets;
* Cash Statement;
* Schedule of Capital Gains and Losses;
(r) Assist in the preparation of:
* Federal and State Tax Returns;
* Excise Tax Returns;
* Annual, Semi-Annual and Quarterly Shareholder Reports;
* Rule 24e-2 and 24f-2 Notices;
* Annual and Semi-Annual Reports on Form N-SAR;
* Monthly and Quarterly Statistical Data Information
Reports Sent to Performance Tracking Companies;
(s) Assist in the Blue Sky and Federal registration and compliance
process;
(t) Assist in the review of registration statements; and
(u) Assist in monitoring compliance with Sub-Chapter M of the
Internal Revenue Code of 1986, as amended.
2. Records. ICC shall keep the following records: (a) all books and records
with respect to the Fund's books of account; and (b) records of the Fund's
securities transactions.
3. Liaison With Accountants. In addition to ICC's obligations relating to the
Fund's independent accountants set forth in the Master Services Agreement, ICC
shall act as liaison with the Fund's independent accountants and shall provide
account analyses, fiscal year summaries, and other audit related schedules.
4. Compensation. For services performed by ICC pursuant to this Appendix, the
Fund will pay to ICC compensation for such services as the parties may agree
to from time to time in writing.
10
<PAGE>
EX-99.B(10)
[ LETTERHEAD OF MORGAN, LEWIS & BOCKIUS ]
July 28, 1994
Flag Investors Real Estate Securities Fund, Inc.
135 East Baltimore Street
Baltimore, MD 21202
Ladies and Gentlemen:
We have acted as counsel to you in connection with the organization
of Flag Investors Real Estate Securities Fund, Inc. (the "Fund") and with the
proposed offering of ten million (10,000,000) shares of common stock of the
Fund, par value $.001 per share (the "Shares).
Having prepared the Articles of Incorporation and By-laws of the
Fund, and having assisted in the preparation of the Fund's Registration
Statement on Form N-1A (File No. 33-78648) under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended, including all
pre-effective amendments thereto (the "Registration Statement"), relating to
the offering of the Shares, and having assisted in the preparation of other
related documents, we are of the opinion that:
1. The Fund is a Maryland corporation validly organized and in good
standing under the laws of that state, authorized to issue up to ten million
(10,000,000) shares of its common stock, par value $.001 per share.
2. Upon the effectiveness of the Registration Statement, you will,
in jurisdictions where the Shares are qualified for sale, be authorized to
make a public offering of Shares pursuant to the terms of the offering as
described in the Prospectus filed as part of the Registration Statement, and
the Shares, when issued upon receipt of payment therefore as described in the
Prospectus, will be validly issued, fully paid and non-assessable by the Fund.
We have not reviewed the securities laws of any state or territory
in connection with the proposed offering of Shares and we express no opinion
as to the legality of any offer of sale of Shares under any such state or
territorial securities laws.
This opinion is intended only for your use in connection with the
offering of Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as an exhibit to
the Fund's Registration Statement on Form N-1A to be filed with the
Securities and Exchange Commission.
Very truly yours,
/s/ MORGAN, LEWIS & BOCKIUS
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated February 2, 1996 on our
audit of the financial statements and financial highlights of Flag Investors
Real Estate Securities Fund in the Statement of Additional Information with
respect to Post-Effective Amendment No. 4 to the Registration Statement (File
Nos. 33-78648 and 811-8500) on Form N-1A under the Securities Act of 1933 and
the Investment Company Act of 1940, respectively, of Flag Real Estate Fund. We
also consent to the reference to our Firm under the Headings, "General
Information" and "Financial Highlights" in the Prospectus and under the heading
"Independent Auditors" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 23, 1996
<PAGE>
EX-99.B(13)
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
SUBSCRIPTION AGREEMENT
For and in consideration of the mutual agreements herein contained,
Alex. Brown Financial Corp. ("Alex. Brown") hereby agrees to purchase from
Flag Investors Real Estate Securities Fund, Inc., a Maryland corporation (the
"Fund"), and the Fund agrees to sell 10,000 shares of the Fund's common stock,
par value $.001 per share, at a price of $10.00 per share (the "Shares"), upon
the terms and conditions set forth herein and as part of a public offering
pursuant to the terms and conditions of the Fund's Registration Statement on
Form N-1A (No. 33-78648), as amended and supplemented, initially filed with
the Securities and Exchange Commission on May 5, 1994.
Alex. Brown agrees to purchase such Shares and to pay the full
consideration therefor to the Fund upon demand.
Alex. Brown hereby confirms to the Fund its representations that it
is purchasing such Shares for investment purposes, with no present intention
of redeeming or reselling any portion thereof, and its agreement that in the
event it should dispose of any of such Shares, such transaction will be
effected by redeeming such Shares through the Fund.
Dated: ALEX. BROWN FINANCIAL CORP.
By: ______________________________________
Title: _____________________________________
Subscription Accepted:
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
By: ______________________________________
Title: _____________________________________
<PAGE>
EX-99.B(15)(a)
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described
in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act") of Flag Investors Real Estate Securities Fund, Inc.
(the "Fund"). Other capitalized terms herein have the meaning given to them in
the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments
made to it under the Distribution Agreement and to make payments on behalf of
the Fund to Shareholder Servicing Agents under Shareholder Servicing
Agreements.
(b) Alex. Brown may make payments in any amount, provided that
the total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under
the Distribution Agreement which is an annual fee, calculated on an average
daily net basis and paid monthly, equal to .25% of the average daily net
assets of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other
investments, provided that expenses relating to such advertising and sales
material will be allocated among such other investment companies or
investments in an equitable manner, and any sales personnel so paid are not
required to devote their time solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown
and the Fund's Advisor and Sub-Advisor are authorized to pay or cause to be
paid on its behalf and such payments shall not be included in the limitations
contained in this Plan. These expenses include: the fees of the Fund's Advisor
and Sub-Advisor and Alex. Brown; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping of its
cash, portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with maintenance of registration of the Fund and its shares with
the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the
Fund, and supplements thereto, to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
of proxy statements and reports to shareholders; fees and travel expenses of
Directors or Director members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
<PAGE>
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and
costs of the Fund's operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its
regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report
in writing at least quarterly to the Fund's Board of Directors, and the Board
shall review, the following: (i) the amounts of all payments under the Plan,
the identity of the recipients of each such payment; (ii) the basis on which
the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan. This Plan shall, unless terminated as hereinafter provided,
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by the vote of the Fund's Board of
Directors and by the vote of a majority of the Directors of the Fund who are
not interested persons (as defined in the 1940 Act), cast in person at a
meeting called for the purpose of voting on such continuance. This Plan may be
terminated at any time by a vote of a majority of the Directors who are not
interested persons (as defined in the 1940 Act) or by the vote of the holders
of a majority of the Fund's outstanding voting securities (as defined in the
1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
<PAGE>
EX-99.B(15)(b)
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described
in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as
amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors Real Estate Securities Fund, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments
made to it under the Distribution Agreement and to make payments on behalf of
the Fund to Shareholder Servicing Agents under Shareholder Servicing
Agreements.
(b) Alex. Brown may make payments in any amount, provided that
the total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under
the Distribution Agreement with respect to distribution of the Shares which is
an annual fee, calculated on an average daily net basis and paid monthly,
equal to .75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other
investments, provided that expenses relating to such advertising and sales
material will be allocated among such other investment companies or
investments in an equitable manner, and any sales personnel so paid are not
required to devote their time solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown
as distributor for the Shares is authorized to pay or cause to be paid on its
behalf and such payments shall not be included in the limitations contained in
this Plan. These expenses include: the fees of the Fund's investment advisor
and Alex. Brown; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent
or agents appointed by the Fund; brokers' commissions chargeable to the Fund
in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and fees
payable by the Fund to federal, state or other governmental agencies; the
costs and expenses of engraving or printing of certificates representing
shares of the Fund; all costs and expenses in connection with maintenance of
registration of the Fund and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (including filing fees
and legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements
of additional information of the Fund supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
<PAGE>
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its
regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report
in writing at least quarterly to the Fund's Board of Directors, and the Board
shall review, the following: (i) the amounts of all payments under the Plan,
the identity of the recipients of each such payment; (ii) the basis on which
the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to
year only so long as such continuance is specifically approved at least
annually by the vote of the Fund's Board of Directors and by the vote of a
majority of the Directors of the Fund who are not interested persons (as
defined in the 1940 Act), cast in person at a meeting called for the purpose
of voting on such continuance. This Plan may be terminated at any time by a
vote of a majority of the Directors who are not interested persons (as defined
in the 1940 Act) or by the vote of the holders of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan may not
be amended to increase materially the amount of payments to be made without
shareholder approval, as set forth in (ii) above, and all amendments must be
approved in the manner set forth under (i) above.
<PAGE>
EX-99.B(18)
Flag Investors Real Estate Securities Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A and Flag Investors Class B
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Real Estate
Securities Fund, Inc. (the "Fund"), including a majority of the Directors of the
Fund who are not "interested persons" of the Fund (the "Independent Directors")
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for two classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A and Flag Investors Class B) and
future classes of Fund shares. The Flag Investors Class A Shares and Class B
Shares have been offered since the Fund's inception on January 3, 1995.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
<PAGE>
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")1; and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be allocated
as follows: (i) distribution and shareholder servicing payments associated with
any Rule 12b-1 Plan or servicing agreement, if any, relating to each respective
class of shares (including any costs relating to implementing such plans or any
amendment thereto) will be borne exclusively by that class; (ii) any incremental
transfer agency fees relating to a particular class will be borne exclusively by
that class; and (iii) Class Expenses relating to a particular class will be
borne exclusively by that class.
The methodology and procedures for calculating the net asset value and
dividends and distributions of the various classes of shares of the Fund and the
proper allocation of income and expenses among the various classes of shares of
the Fund are required to comply with the Fund's internal control structure
pursuant to applicable auditing standards, including Statement on Auditing
Standards No. 55, and to be reviewed as part of the independent accountants'
review of such internal control structure. The independent accountants' report
on the Fund's system of internal controls required by Form N-SAR, Item 77B, is
not required to refer expressly to the procedures for calculating the classes'
net asset values.
- --------
1 Class Expenses are limited to any or all of the following: (i) transfer agent
fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
EXHIBIT A
Date Approved: June 1994
Approval of Distribution Agreement, Plan of Distribution and Form
of Sub-Distribution Agreement
- --------------------------------------------------------------------------------
RESOLVED, that the proposed Distribution Agreement, between the Fund
and Alex. Brown & Sons Incorporated for distribution of the Fund's shares be,
and the same hereby is, approved, and that the appropriate officers of the Fund
be, and they hereby are, authorized and directed to enter into and execute such
Distribution Agreement with such modifications as said officers shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution (the "Plan")
is determined to be reasonably likely to benefit the Fund and its shareholders;
FURTHER RESOLVED, that the expenditures contemplated by the Plan are
comparable to other expenditures for similar funds;
FURTHER RESOLVED, that the Plan be, and the same hereby is, approved;
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement
be, and the same hereby is, approved.
Date Approved: September 1994
Resolutions of Board Creating Flag Investors Class A Shares
-----------------------------------------------------------
FURTHER RESOLVED, that the shares of common stock, par value $.001 per
share, of Flag Investors Real Estate Securities Fund, Inc., previously
designated as the "Flag Investors Real Estate Securities Fund Shares" be, and
they hereby are, further designated as the "Flag Investors Class A Shares"
Resolutions of Board Creating Flag Investors Class B Shares
-----------------------------------------------------------
FURTHER RESOLVED, that an additional class of shares of Flag Investors
Real Estate Securities Fund, Inc. (the "Fund") be, and hereby is, classified and
designated as the "Flag Investors Class B Shares" (the "Class B Shares") and
that unissued shares of common stock, par value $.001 per share of the Fund be,
and the same hereby are, reclassified as follows:
TOTAL # OF SHARES CLASS A CLASS B UNCLASSIFIED
- ----------------- --------- --------- ------------
10,000,000 7,000,000 2,000,000 1,000,000
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated for the Class B Shares be, and the same hereby is,
approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
<PAGE>
FOR ARTICLES OF INCORPORATION AS AMENDED AND SUPPLEMENTED TO DATE SEE EXHIBITS
EX-99.B(1)(a) THROUGH EX-99.B(1)(b) TO THIS REGISTRATION STATEMENT, AS FILED
HEREWITH.
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC. (the "Corporation")
having its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with Section
2-105(c) of the Maryland General Corporation Law has adopted a resolution
classifying and designating the Corporation's previously unclassified ten
million (10,000,000) shares of Common Stock, par value $.001 per share, having
an aggregate value of $10,000.00, as follows: seven million (7,000,000) shares
are designated "Flag Investors Real Estate Securities Fund Class A Shares" (the
"Class A Shares"), two million (2,000,000) shares are designated "Flag Investors
Real Estate Securities Fund Class B Shares" (the "Class B Shares") and one
million (1,000,000) shares remain undesignated.
SECOND: Immediately before the designation and classification of the
Class A Shares and Class B Shares pursuant to these Articles Supplementary, the
Corporation was authorized to issue ten million (10,000,000) shares of Common
Stock, par value $.001 per share, having an aggregate par value of $10,000.00,
of which ten million (10,000,000) shares were designated common Stock in the
Corporation's Articles of Incorporation, but which, out of authorized but
unissued shares, had been designated "Flag Investors Real Estate Securities Fund
Shares" and renamed "Flag Investors Real Estate Securities Fund Class A Shares"
by the Corporation's Board of Directors as authorized in the Corporation's
Articles of Incorporation.
THIRD: The Corporation is registered as an open-end investment company
under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Real Estate Securities Fund, Inc.
has caused these Articles Supplementary to be executed by one of its Vice
Presidents and its corporate seal to be affixed and attested by its Secretary on
this 5th day of December 1994.
[CORPORATE SEAL]
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
By: /s/Edward J. Veilleux
--------------------------------------------
Vice President
Attest:/s/ Brian C. Nelson
-----------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
/s/ Edward J. Veilleux
------------------------------
Edward J. Veilleux
<PAGE>
BY-LAWS
OF
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
ARTICLE I
Offices
-------
Section 1. Principal Office. The principal office of the Corporation
shall be in the city of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office
of the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other offices
in such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
------------------------
Section 1. Annual Meetings. An annual meeting of the shareholders of
the Corporation shall not be required to be held in any year in which
shareholders are not required to elect directors under the Investment Company
Act of 1940, as amended (the "1940 Act") even if the Corporation is holding a
meeting of the shareholders for a purpose other than the election of directors.
If the Corporation is required by the 1940 Act to hold a meeting to elect
directors, the meeting shall be designated as the Annual Meeting of shareholders
for that year and shall be held within 120 days after the occurrence of an event
requiring the election of directors. The Board of Directors may, in its
discretion, hold a meeting to be designated as the Annual Meeting of
shareholders on a date within the month of March, in any year where an election
of directors by shareholders is not required under the 1940 Act. The date of an
Annual Meeting shall be set by appropriate resolution of the Board of Directors,
and shareholders shall vote on the election of directors and transact any other
business as may properly be brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the shareholders,
unless otherwise provided by law or by the Charter or the Corporation may be
called for any purpose or purposes by a majority of the Board of Directors or
the President, and shall be called by the President or Secretary on the written
request of the shareholders as provided by the Maryland General Corporation Law.
Such request shall state the purpose or purposes of the proposed meeting and the
matters proposed to be acted on at it; provided, however, that unless requested
by shareholders entitled to cast a majority of all the votes entitled to be cast
at the meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at any special meeting of
the shareholders held during the preceding twelve (12) months.
<PAGE>
Section 3. Place of Meetings. The regular meeting, if any, and any
special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder List. (a)
Notice of the place, date and time of the holding of each regular and special
meeting of the shareholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each shareholder entitled to vote at such meeting
and to each other shareholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the shareholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
shareholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of shareholders shall be deemed waived by any
shareholder who shall attend such meeting in person or by proxy, or who shall,
either before or after the meeting, submit a signed waiver of notice which is
filed with the records of the meeting. A meeting of shareholders convened on the
date for which it was called may be adjourned from time to time without further
notice to a date not more than 120 days after the original record date.
(c) At least five (5) days prior to each meeting of shareholders, the
officer or agent having charge of the share transfer books of the Corporation
shall make a complete list of shareholders entitled to vote at such meeting, in
alphabetical order with the address of and the number of shares held by each
shareholder.
Section 5. Organization. At each meeting of the shareholders, the
Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute or the
Charter of the Corporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting of shareholders
may authorize another person or persons to act for him by a proxy signed by such
shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter of the Corporation or these By-Laws,
any corporate action to be taken by vote of the shareholders shall be authorized
by a majority of the total votes cast at a meeting of shareholders at which a
quorum is present by the holders of shares present in person or represented by
proxy and entitled to vote on such action, except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
<PAGE>
(c) If a vote shall be taken on any question other than the election of
directors, which shall be by written ballot, then unless required by statute or
these By-Laws, or determined by the chairman of the meeting to be advisable, any
such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any meeting of
shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except as
otherwise provided by statute any action required to be taken at any regular or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice and without a vote, if the following are filed with the records of
shareholders' meetings: (i) a unanimous written consent which sets forth the
action and is signed by each shareholder entitled to vote on the matter and (ii)
a written waiver of any right to dissent signed by each shareholder entitled to
notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. Except as otherwise provided in the Charter
of the Corporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the shareholders by law or by the Charter of the Corporation
or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the Corporation are held by fewer than three shareholders) nor more than
fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. Election and Term of Directors. Directors shall be elected
by majority vote of a quorum cast by written ballot at the regular meeting of
shareholders, if any, or at a special meeting held for that purpose. The term of
office of each Director shall be from the time of his election and qualification
<PAGE>
and until his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the Corporation may be
removed by the shareholders by a vote of a majority of the votes entitled to be
cast for the election of Directors.
Section 6. Vacancies. The shareholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a Director.
A majority of the remaining Directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of Directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number of Directors; provided, however, that no vacancies shall be filled by
action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A Director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a Director serves for the balance of the term of the
removed Director.
Section 7. Regular Meetings. Regular meetings of the Board may be held
with notice at such times and places as may be determined by the Board of
Directors.
Section 8. Special Meetings. Special meetings of the Board may be
called by the Chairman of the Board, the President, or by a majority of the
Directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special meeting
of the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each Director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 10. Waiver of Notice of Special Meetings. Notice of any special
meeting need not be given to any Director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than three
members, of the members of the entire Board shall be present in person at any
meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
<PAGE>
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time appoint
one of its members as Chairman of the Board, who shall serve at the pleasure of
the Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of Directors,
the Chairman of the Board, if one has been selected and is present, shall
preside. In the absence or inability of the Chairman of the Board to preside at
a meeting, the President, or, in his absence or inability to act, another
Director chosen by a majority of the Directors present, shall act as chairman of
the meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; provided, however, that for so long as
the Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 15. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time; provided, however, that for so long as the
Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 16. Compensation. Any Director, whether or not he is a salaried
officer, employee or agent of the Corporation, may be compensated for his
services as Director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for transportation
and other expenses, all in such manner and amounts as the Directors may from
time to time determine.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
<PAGE>
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
----------
Section 1. Committees of the Board. The Board may, by resolution
adopted by a majority of the entire Board, designate an Executive Committee,
Compensation Committee, Audit Committee and Nomination Committee, each of which
shall consist of two or more of the Directors of the Corporation, which
committee shall have and may exercise all the powers and authority of the Board
with respect to all matters other than as set forth in Section 3 of this Article
IV.
Section 2. Other Committees of the Board. The Board of Directors may
from time to time, by resolution adopted by a majority of the whole Board,
designate one or more other committees of the Board, each such committee to
consist of two or more Directors and to have such powers and duties as the Board
of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the Board
shall have power or authority to:
(a) recommend to shareholders any action requiring authorization of
shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an investment adviser or
principal underwriter, as such terms are defined in the 1940 Act, or take any
other action required to be taken by the Board of Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital stock of
the Corporation; and
(e) approve any merger or share exchange which does not require
shareholder approval.
Section 4. General. One-third, but not less than two members, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
<PAGE>
All committees shall keep written minutes of their proceedings and
shall report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
------------------------------
Section 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint such other officers, agents and
employees as it may deem necessary or proper. Any two or more offices may be
held by the same person, except the offices of President and Vice President, but
no officer shall execute, acknowledge or verify any instrument in more than one
capacity. The Board may from time to time elect or appoint, or delegate to the
President the power to appoint, such other officers (including one or more
Assistant Vice Presidents, one or more Assistant Treasurers and one or more
Assistant Secretaries) and such agents, as may be necessary or desirable for the
business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Board, the Chairman
of the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from
death, resignation, removal or any other cause, may be filled for the unexpired
portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a Director of the Corporation.
Section 6. Bonds or Other Security. If required by the Board, any
officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief executive
officer of the Corporation. In the absence of the Chairman of the Board (or if
there be none), he shall preside at all meetings of the shareholders and of the
Board of Directors. He shall have, subject to the control of the Board of
Directors, general charge of the business and affairs of the Corporation. He may
<PAGE>
employ and discharge employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these powers.
Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex-officio, except when designated by
the Board. Each Vice President shall perform such other duties as from time to
time may be conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Corporation, except those which the Corporation has placed
in the custody of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934)
pursuant to a written agreement designating such bank or trust company or member
of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the credit
of the Corporation;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the investment
of its funds as ordered or authorized by the Board, taking proper vouchers
therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability of the
Treasurer, or when so directed by the Treasurer, any Assistant Treasurer may
perform any or all of the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
<PAGE>
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 12. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of any officer
of the Corporation, or for any other reason that the Board may deem sufficient,
the Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Rights of Inspection. There shall be kept at the principal
executive office, which shall be available for inspection during usual business
hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
<PAGE>
and the Corporation shall not be bound to recognize any equitable or legal
claim to or interest in any such share or shares on the part of any other
person.
Section 4. Transfer Agents and Registrars. The Corporation may have one
or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date
may not be more than ninety (90) days before the date on which the action
requiring the determination will be taken; and, in the case of a meeting of
shareholders, the record date shall be at least ten (10) days before the date of
the meeting. The Board of Directors shall not close the books of the Corporation
against transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. The
holder of any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which the owner thereof
shall allege to have been lost, stolen or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representatives to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the office(s) of the
Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
----
The Board of Directors shall provide a suitable seal, bearing the name
of the Corporation, which shall be in the charge of the Secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
<PAGE>
ARTICLE VIII
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of December in each year.
ARTICLE IX
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation shall be
deposited with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
Section 2. Custodians. All securities and other investments shall be
deposited in the safekeeping of such banks or other companies as the Board of
Directors of the Corporation may from time to time determine. Every arrangement
entered into with any bank or other company for the safekeeping of the
securities and investments of the Corporation shall contain provisions complying
with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market instruments,
bonds or other securities at any time owned by the Corporation may be held on
behalf of the Corporation or sold, transferred or otherwise disposed of subject
to any limits imposed by these By-Laws, and pursuant to authorization by the
Board and, when so authorized to be held on behalf of the Corporation or sold,
transferred or otherwise disposed of, may be transferred from the name of the
Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall sign or certify
the financial statements of the Corporation which are filed with the Securities
and Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the shareholders in accordance with the
provisions of the 1940 Act.
<PAGE>
ARTICLE XII
Annual Statements
-----------------
The books of account of the Corporation shall be examined by an
independent firm of public accountants at the close of each annual period of the
Corporation and at such other times as may be directed by the Board. A report to
the shareholders based upon each such examination shall be mailed to each
shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
-----------------------------------------
Section 1. Indemnification. The Corporation shall indemnify its
Directors to the fullest extent that indemnification of Directors is permitted
by the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its Directors and to such further extent as is
consistent with law. The Corporation shall indemnify its Directors and officers
who while serving as Directors or officers also serve at the request of the
Corporation as a Director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent with law.
This Article XIII shall not protect any such person against any liability to the
Corporation or any shareholder thereof to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Section 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 (the "1933 Act") and the 1940 Act,
as such statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or former Director
or officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the 1933 Act and the 1940
Act, as such statutes are now or hereafter in force, whether the standards
required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article
XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of shareholders or
disinterested Directors or otherwise, both as to action by a Director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
<PAGE>
a person who has ceased to be a Director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation
Law in this Article XIII are to such law as from time to time amended.
ARTICLE XIV
Amendments
----------
These By-Laws or any of them may be amended, altered or
repealed at any annual meeting of the shareholders or at any special meeting of
the shareholders at which a quorum is present or represented, provided that
notice of the proposed amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also be amended, altered or
repealed by the affirmative vote of a majority of the Board of Directors at any
regular or special meeting of the Board of Directors.
<PAGE>
Flag Investors Class A Shares
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 23rd day of August, 1994, by and between FLAG
INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the shares of Common Stock of the Fund (the "Shares") and Alex.
Brown wishes to become the distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 5 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund may
from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution of
such additional series and classes unless the parties shall otherwise agree in
writing. Alex. Brown accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the Secretary of
State of Maryland on May 2, 1994 and all amendments thereto (the "Articles of
Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of Alex. Brown as the Fund's Distributor of the
Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to Section
8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act"), (File No. 33-78648) and under the 1940
Act as filed with the SEC on May 5, 1994 relating to the Shares of the Fund, and
all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus and all
amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders concerning the
status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary to carry
into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly reports
as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund under the
1933 Act and the 1940 Act and any amendments and supplements thereto;
<PAGE>
(c) the provisions of the Articles of Incorporation of the Fund and any
amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD") and all other self-regulatory organizations applicable to
the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost to the
Fund, the services of personnel to the extent that such services are required to
carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or sales
literature used by Alex. Brown or furnished by Alex. Brown to purchasers or
dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor and sub-advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to Federal, State or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel) except as provided in subparagraph (a) above, the
expenses of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) or members of any advisory board or committee; all expenses incident to the
payment of any dividend, distribution, withdrawal or redemption, whether in
Shares or in cash; charges and expenses of any outside service used for pricing
of the Shares; charges and expenses of legal counsel, including counsel to the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act), and of independent accountants, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
<PAGE>
Fund's independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .25% of the average daily net assets of the Fund. Except as
hereinafter set forth, continuing compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Payment of
Alex. Brown's compensation for the preceding month shall be made as promptly as
possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, directors or officers of any other firm or corporation,
including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act) and do not have a
<PAGE>
financial interest in the operation of this Agreement, by votes cast in person
at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement,
(iii) by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or (iv) by Alex. Brown. The notice provided for herein
may be waived by each party. This Agreement shall automatically terminate in the
event of its assignment (as the term is defined in the 1940 Act).
15. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
Attest: /s/ Mary Connell By /s/ Edward J. Veilleux
----------------------- ------------------------
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest /s/ Mary Connell By /s/ Richard T. Hale
----------------------- ------------------------
<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
<PAGE>
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
<PAGE>
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
Flag Investors Class A Shares
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of Flag Investors Real Estate Securities Fund, Inc. (the
"Fund"). Other capitalized terms herein have the meaning given to them in the
Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement which is an annual fee, calculated on an average daily
net basis and paid monthly, equal to .25% of the average daily net assets of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown and the Fund's
Advisor and Sub-Advisor are authorized to pay or cause to be paid on its behalf
and such payments shall not be included in the limitations contained in this
Plan. These expenses include: the fees of the Fund's Advisor and Sub-Advisor and
Alex. Brown; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing shares of the
Fund; all costs and expenses in connection with maintenance of registration of
the Fund and its shares with the Securities and Exchange Commission and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting, and distributing prospectuses and statements of additional
information of the Fund, and supplements thereto, to the Fund's shareholders;
all expenses of shareholders' and Directors' meetings and of preparing, printing
and mailing of proxy statements and reports to shareholders; fees and travel
expenses of Directors or Director members of any advisory board or committee;
all expenses incident to the payment of any dividend, distribution, withdrawal
or redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
<PAGE>
counsel, including counsel to the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan.
This Plan shall, unless terminated as hereinafter provided, continue in effect
from year to year only so long as such continuance is specifically approved at
least annually by the vote of the Fund's Board of Directors and by the vote of a
majority of the Directors of the Fund who are not interested persons (as defined
in the 1940 Act), cast in person at a meeting called for the purpose of voting
on such continuance. This Plan may be terminated at any time by a vote of a
majority of the Directors who are not interested persons (as defined in the 1940
Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan may not be amended to
increase materially the amount of payments to be made without shareholder
approval, as set forth in (ii) above, and all amendments must be approved in the
manner set forth under (i) above.
<PAGE>
New Class B Shares
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 30th day of December, 1994, by and between
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors Class
B Shares (the "Shares") and Alex. Brown wishes to become the distributor of the
Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 9 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund may
from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution of
such additional series and classes unless the parties shall otherwise agree in
writing. Alex. Brown accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the Secretary of
State of Maryland on March 2, 1994 and all amendments thereto (the "Articles of
Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of Alex. Brown as the Fund's Distributor of the
Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed pursuant to Section
8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act") (File No. 33-78648) and under the 1940
Act as filed with the SEC on May 5, 1994 relating to the Shares of the Fund, and
all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such prospectus
and all amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders concerning the
status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary to carry
into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly reports
as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund under the
1933 Act and the 1940 Act and any amendments and supplements thereto;
<PAGE>
(c) the provisions of the Articles of Incorporation of the Fund and any
amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD") and all other self-regulatory organizations applicable to
the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost to the
Fund, the services of personnel to the extent that such services are required to
carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or sales
literature used by Alex. Brown or furnished by Alex. Brown to purchasers or
dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor; the charges and expenses of any registrar, custodian or
depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to Federal, State or other governmental
agencies; the cost and expense of engraving or printing of stock certificates
representing Shares; all costs and expenses in connection with maintenance of
registration of the Fund and the Shares with the SEC and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above, the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or members of any advisory
board or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Shares; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be under
no duty to, perform services on behalf of the Fund which are not required by
this Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and Alex. Brown's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
<PAGE>
Fund's independent accountants. Payment or assumption by Alex. Brown of any Fund
expense that Alex. Brown is not required to pay or assume under this Agreement
shall not relieve Alex. Brown of any of its obligations to the Fund or obligate
Alex. Brown to pay or assume any similar Fund expense on any subsequent
occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .75% of the average daily net assets of the shares of the Fund.
Except as hereinafter set forth, continuing compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculations of the fees as set forth
above. Payment of Alex. Brown's compensation for the preceding month shall be
made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee (as such
term is defined in the NASD Rules of Fair Practice) equal to .25% of the average
daily net assets of the Shares of the Fund. Such fee shall be calculated and
accrued daily and the amounts of the daily accruals shall be paid monthly in the
manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund are not to
be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, directors or officers of any other firm or corporation,
including other investment companies.
14. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act) and do not have a
financial interest in the operation of this Agreement, by votes cast in person
at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party without the payment of any penalty,
(i) by vote of the Fund's Board of Directors, (ii) by vote of a majority of the
directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement,
(iii) by vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or (iv) by Alex. Brown. The notice provided for herein
may be waived by each party. This Agreement shall automatically terminate in the
event of its assignment (as the term is defined in the 1940 Act).
16. Liability. In the performance of its duties hereunder, Alex. Brown
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
18. Questions of Interpretation. Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the 1940 Act shall be resolved by reference to such
term or provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected in
any provision of this Agreement is revised by rule, regulation or order of the
SEC, such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS REAL ESTATE SECURITIES FUND,
INC.
Attest: /s/ Brian C. Nelson By /s/ Edward J. Veilleux
--------------------- ---------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Brian C. Nelson By /s/ Richard T. Hale
--------------------- ---------------------------
Title:
<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating
Dealer and as such are authorized (i) to accept orders for the purchase of
Shares and to transmit to the Funds such orders and the payment made therefore,
(ii) to accept orders for the redemption of Shares and to transmit to the Funds
such orders and all additional material, including any certificates for Shares,
as may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each Fund,
in each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look
solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
<PAGE>
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to register or qualify in certain
states where registration or qualification is required. We will inform you as to
the states or other jurisdictions in which we believe the Shares have been
qualified for sale under, or are exempt from the requirements of, the respective
securities laws of such states. You agree that you will offer Shares to your
customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full authority to
take such action as it deems advisable in respect of all matters pertaining to
the offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provision of the
<PAGE>
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to the
above address. Any notice to you shall be duly given if mailed or telegraphed to
you at the address specified by you below.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
--------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described in
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the Flag Investors Class B Shares (the "Shares") of Flag
Investors Real Estate Securities Fund, Inc. (the "Fund"). Other capitalized
terms herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated ("Alex.
Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that the
total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement with respect to distribution of the Shares which is an
annual fee, calculated on an average daily net basis and paid monthly, equal to
.75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the Distribution
Agreement, the Fund assumes certain expenses, which Alex. Brown as distributor
for the Shares is authorized to pay or cause to be paid on its behalf and such
payments shall not be included in the limitations contained in this Plan. These
expenses include: the fees of the Fund's investment advisor and Alex. Brown; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
<PAGE>
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating Dealers
may expend their own resources separate and apart from amounts payable under the
Plan to support the Fund's distribution effort. Alex. Brown will report to the
Board of Directors on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan;
and (ii) by a vote of holders of at least a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated at any time by a vote of a majority of the Directors who
are not interested persons (as defined in the 1940 Act) or by the vote of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles W. Cole, Jr., whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange Commission under the
1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Charles W. Cole, Jr.
-------------------------------
Charles W. Cole, Jr.
Date: April 25, 1996
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane,
whose signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
his true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ James J. Cunnane
----------------------------
James J. Cunnane
Date: May 24, 1995
<PAGE>
EX-99.B(24)
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli
whose signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
his true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as Chief Financial and Accounting
Officer of the Fund such Registration Statement and any and all
such pre- and post-effective amendments filed with the Securities
and Exchange Commission under the 1933 Act and the 1940 Act, and
any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said
attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ Joseph A. Finelli
------------------------------
Joseph A. Finelli
Date: April 25, 1996
<PAGE>
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale,
whose signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
his true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ Richard T. Hale
------------------------------
Richard T. Hale
Date: July 8, 1994
<PAGE>
Date: May 24, 1995
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Robert S. Killebrew, Jr.,
whose signature appears below, does hereby constitute and appoint Edward J.
Veilleux and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange Commission under the
1933 Act and the 1940 Act, and any other instruments or documents related
thereto, and the undersigned does hereby ratify and confirm all that said
attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Robert S. Killebrew, Jr.
--------------------------------
Robert S. Killebrew, Jr.
Date: April 25, 1996
<PAGE>
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger,
whose signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
his true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ John F. Kroeger
------------------------------
John F. Kroeger
Date: July 8, 1994
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy,
whose signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
his true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ Louis E. Levy
-----------------------------------
Louis E. Levy
Date: September 22, 1994
<PAGE>
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J.
McDonald, whose signature appears below, does hereby constitute
and appoint Edward J. Veilleux and Brian C. Nelson, and each of
them singly, his true and lawful attorney-in-fact and agent, with
full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may
deem necessary or advisable or which may be required to enable
Flag Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ Eugene J. McDonald
------------------------------
Eugene J. McDonald
Date: July 5, 1994
<PAGE>
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, William K.
Morrill, Jr., whose signature appears below, does hereby constitute
and appoint Edward J. Veilleux and Brian C. Nelson, and each of
them singly, his true and lawful attorney-in-fact and agent, with
full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may
deem necessary or advisable or which may be required to enable
Flag Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ William K. Morrill, Jr.
------------------------------
William K. Morrill, Jr.
Date: July 8, 1994
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel,
whose signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
her true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in her name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her
hand and seal as of the date set forth below.
/s/ Rebecca W. Rimel
-----------------------------------
Rebecca W. Rimel
Date: July 25, 1995
<PAGE>
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans,
whose signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
his true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ Truman T. Semans
------------------------------
Truman T. Semans
Date: July 13, 1994
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Brian
C. Nelson, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Real Estate Securities Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
-------------------------
Carl W. Vogt
Date: April 25, 1996
<PAGE>
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose
signature appears below, does hereby constitute and appoint
Edward J. Veilleux and Brian C. Nelson, and each of them singly,
his true and lawful attorney-in-fact and agent, with full power
of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place
and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to
comply with the Securities Act of 1933, as amended (the "1933
Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and
all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on
behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-
effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes,
shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his
hand and seal as of the date set forth below.
/s/ Harry Woolf
------------------------------
Harry Woolf
Date: July 6, 1994
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