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Flag Investors
Mutual Funds
Growth [Logo]
Flag Investors Emerging Growth Fund Flag
Flag Investors Equity Partners Fund Investors
Flag Investors International Fund Real Estate
Securities
Equity Income Fund
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Intermediate-Term Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate
Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515 Semi-Annual Report
Baltimore, Maryland 21203 June 30, 1996
800-767-FLAG
Distributed by:
ALEX. BROWN &SONS
INCORPORATED
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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Fund Performance
The Fund commenced operations on January 3, 1995, with a net asset value
(NAV) of $10.00 per share. On June 30, 1996, the NAV was $11.58 per Class A
Share and $11.55 per Class B Share. For the first six months of 1996, monthly
distributions totaled $.30 for Class A Shares and $.264 for Class B Shares
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Total Return Performance*
Class A Class B
Periods ended 6/30/96: Shares Shares
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Six Months 6.2% 5.8%
One Year 18.0% 17.1%
Since Inception (1/3/95) 16.5% 15.6%
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Investment Objective
A mutual fund designed to seek total return primarily through investments in
equity securities of companies that are principally engaged in the real estate
industry.
Growth of a $10,000 Investment
in Class A Shares*
January 3, 1995--June 30, 1996
[Graph appears below]
1/95 $10,000
3/95 $10,142
6/95 $10,638
9/95 $11,274
12/95 $11,819
3/96 $12,021
6/96 $12,551
$10,000 invested in the Real Estate Securities
Fund Class A Shares at inception on January 3,
1995 was worth $12,551 on June 30, 1996.
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales charge
was reflected, the quoted performance would be lower. Performance figures for
the classes differ because each maintains a distinct expense structure. For
further details on expense structures, please refer to the Fund's prospectus.
Since investment return and principal value will fluctuate, an investor's shares
may be worth more or less than their original cost when redeemed. Past
performance is not an indicator of future results. Please review the Additional
Performance Information on page 5.
1
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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Dear Shareholders:
We are pleased to report to you on the progress of the Fund for the first
six months of 1996.
Market Commentary
REIT stocks ended the first half of the year with strong performances in
May and June. The biggest turnaround in the first half of 1996 has been the
strong performance of regional mall REITs, which had a total return of 12.4%,
compared to only 3.0% in 1995. The strong performance of the mall REITs reflects
a number of factors. Overall economic growth has been better than many had
expected, with surprisingly strong retail sales, particularly for non-durables
such as apparel. Stronger retail sales have fueled a mini-rebound in the prices
of retail stocks following poor performance in 1995. Additionally, many of the
mall REITs have reported better than expected same store sales and strong
overall operating results. The combination of these events seems to have reduced
investor concerns about the prospective impact of retail bankruptcies on mall
REIT operating results. The returns for the mall REITs were also positively
affected by merger and acquisition activities at several companies.
Hotel REITs, with a total return of 12.8%, had the best performance during
the first half. We have focused on the full-service sector of the hotel industry
for your portfolio because these companies have had substantial growth from new
acquisitions. In addition, because there has been no major development activity
in the full-service hotel sector, these companies have achieved good occupancy
and rate increases.
Office REITs achieved a total return of 11.2% for the first six months.
Office companies have been able to acquire a substantial number of new
properties at attractive spreads to their cost of capital and at prices that
were below replacement costs.
Factory outlet REITs were the worst-performing companies in the first half,
reporting a total return of -3.1%. Several companies in this sector were overly
optimistic in their growth estimates for 1996 and have reported earnings that
were below projections.
The other property sectors turned in solid total returns, reflecting good
occupancies, rents and cash flows.
Community center REITs had a strong first half (8.0% total return) as
national sales indices improved and occupancies remained relatively flat.
The manufactured housing sector had an 8.0% total return in the first half
of 1996. Operating fundamentals for this industry should remain positive, since
there is strong demand for home sites and very little new development under way.
Industrial REITs (6.7% total return) have increased their investments in
new development in order to achieve positive spreads, as prices in selected
markets currently exceed replacement costs.
The apartment sector had a 6.1% total return in the first half of 1996. The
pace of issuing new apartment building permits continued to moderate in the
first half, confirming our expectation of increased development discipline. The
apartment companies showed good growth in their net operating incomes despite
higher than anticipated expenses due to the unusually harsh winter weather in
the first quarter.
Health care REITs (5.9% total return) met expectations. Selected companies
continued to increase their focus on the assisted living sector as a source of
new deal flow.
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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Self-storage REITs (4.7% total return) experienced continued external
growth, but internal growth slowed slightly.
Portfolio
Since year-end 1995, we have increased the Fund's holdings in regional
malls, hotels, and offices and decreased the Fund's holdings in apartments
and shopping centers. The composition of the Fund's portfolio as of June
30, 1996 is illustrated in the chart below.
Office/Industrial/Self-Storage 21%
Manufactured Homes 4%
Regional Malls 12%
Retail/Neighborhood and Community Centers 12%
Hotels 8%
Short-term Investments 3%
Apartments 29%
Factory Outlets 3%
Health Care 8%
Outlook
Despite a continued lack of Initial Public Offering activity, the movement
of real estate ownership into the public arena has remained strong in 1996.
Unlike in 1993 and 1994, when the majority of the growth in securitization
resulted from conversion of private real estate companies into new public
companies, the bulk of growth in 1995 and 1996 has involved the expansion of
better quality, existing public companies through acquisitions of private
companies, private portfolios, and individual assets.
While the mergers of high-profile public companies, such as Simon and
DeBartolo in the regional mall area, seem to attract the most attention from
analysts and investors, the majority of the merger activity to date in terms of
the number of transactions has been public companies acquiring smaller private
companies. Many private real estate companies are finding themselves at a
growing competitive disadvantage to their public counterparts due to their small
size and limited access to capital. These companies are often attractive
acquisition targets for public companies seeking to expand into new markets
because they have a critical mass of assets and an established management team.
Many of these private companies are now willing to consider merging with
existing public companies because they are finding it increasingly difficult to
compete for acquisition and development opportunities with the better
capitalized public companies. Another factor contributing to this trend is the
increasing difficulty associated with forming a new public company.
During the past 2 1/2 years, real estate assets totaling more than $10
billion have been added to the public market through acquisitions of private
companies and privately-held portfolios by existing public companies. Since much
of this activity has been financed using stock and/or REIT operating partnership
units as equity capital, it has reduced the amount of capital these companies
have had to raise through follow-up offerings. We expect this pattern of growth
to continue as the better quality public companies seek to expand their asset
base and establish a dominant market position.
Another potential source of future growth in the real estate securities
market is stock for asset swaps between public companies and institutional
investors with direct property portfolios. A number of institutional investors
are seeking to transition their participation in real estate from direct
ownership to investments in real estate operating companies. A large public
pension fund recently announced plans to convert a substantial portion of its
direct real estate portfolio to real estate securities through stock for asset
swaps. A handful of these types of transactions have already been completed by
other institutional investors.
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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We believe that these types of opportunities will lead to continued growth
in securitization in the foreseeable future. The end result of this process will
be an industry with substantially larger and higher quality companies that have
broader investor appeal.
Summary
The outlook for the next few years for REIT investments remains favorable.
In most markets and product types, there is still a balance between supply and
demand. Rents and occupancies are strong, and there is still opportunity for
cash flow and dividend growth.
Most of the companies in your portfolio have met or exceeded our cash flow
and dividend projections for the first six months of the year. Dividend yields
for REITs continue to exceed the yields on major stock and bond indices. Over
the past three years, REIT prices have remained relatively static, while cash
flows have grown dramatically. As a result, we continue to believe that REIT
stocks are attractive investments at current prices.
We thank you for your participation in the Fund.
Sincerely,
/s/ William K. Morrill, Jr. /s/ Keith R. Pauley
William K. Morrill, Jr. Keith R. Pauley
President Executive Vice President
July 25, 1996
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares and
4.00% maximum contingent deferred sales charge for the Fund's Class B Shares.
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AVERAGE ANNUAL TOTAL RETURN
Class A Class B
Periods ended 6/30/96: Shares Shares
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One Year 12.68% 13.13%
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Since Inception (1/3/95) 12.92% 13.13%
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These total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid.
Any performance figures shown are for the full period indicated. Since
investment return and principal value will fluctuate, an investor's shares may
be worth more or less than their original cost when redeemed. Past performance
is not an indicator of future results.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus. For more complete information regarding
any of the Flag Investors Funds, including charges and expenses, obtain a
prospectus from your investment representative or directly from the Fund at
1-800-767-FLAG. Read it carefully before you invest.
5
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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Statement of Net Assets June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Market Percent
Market Value of Net Unrealized
Shares Security Cost Price (Note A) Assets Gain/(Loss)
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<S> <C>
COMMON STOCKS: 97.4%
Real Estate Investment Trusts: 94.2%
Apartments: 28.7%
25,100 Avalon Properties, Inc. $ 505,221 $21.75 $ 545,925 3.4% $ 40,704
17,500 Bay Apartment Communities, Inc. 371,758 25.88 452,812 2.8 81,054
15,600 Equity Residential Properties Trust 448,751 32.88 512,850 3.2 64,099
24,900 Evans Withycombe Residential, Inc. * 505,902 20.88 519,787 3.3 13,885
17,000 Irvine Apartment Communities, Inc. 339,044 20.13 342,125 2.1 3,081
22,700 Merry Land & Investment Company, Inc. 480,611 21.00 476,700 3.0 (3,911)
17,200 Oasis Residential, Inc. 382,266 21.88 376,250 2.4 (6,016)
14,700 Post Properties, Inc. 457,484 35.38 520,013 3.3 62,529
16,600 Security Capital Pacific Trust 304,514 21.75 361,050 2.3 56,536
31,900 United Dominion Realty Trust 452,550 14.38 458,562 2.9 6,012
4,248,101 4,566,074 28.7 317,973
Factory Outlets: 3.3%
16,700 Chelsea GCA Realty, Inc. 465,220 31.75 530,225 3.3 65,005
Health Care: 7.7%
18,200 Health Care Property Investors, Inc. 579,406 33.75 614,250 3.9 34,844
28,600 Nationwide Health Properties, Inc. 555,285 21.13 604,175 3.8 48,890
1,134,691 1,218,425 7.7 83,734
Hotels: 6.3%
12,500 FelCor Suite Hotels, Inc. 353,552 30.50 381,250 2.4 27,698
16,100 Patriot American Hospitality, Inc. 426,876 29.63 476,963 3.0 50,087
3,900 Starwood Lodging Trust 111,624 36.38 141,862 0.9 30,238
892,052 1,000,075 6.3 108,023
Mobile Homes: 3.7%
16,900 Manufactured Home Communities, Inc. 295,201 19.25 325,325 2.1 30,124
9,500 Sun Communities, Inc. 226,573 26.88 255,313 1.6 28,740
521,774 580,638 3.7 58,864
Office/Industrial/Self-Storage: 21.4%
16,500 Beacon Properties Corp. 111,445 25.63 110,188 0.7 (1,257)
16,500 Duke Realty Investments, Inc. 479,427 30.25 499,125 3.1 19,698
18,600 Highwoods Properties, Inc. 469,695 27.63 513,825 3.2 44,130
24,800 Security Capital Industrial Trust 416,899 17.63 437,100 2.8 20,201
15,800 Shurgard Storage Centers, Inc. - Class A 391,481 25.25 398,950 2.5 7,469
19,900 Spieker Properties, Inc. 455,645 27.25 542,275 3.4 86,630
</TABLE>
6
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REAL ESTATE SECURITIES FUND
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Statement of Net Assets (continued) June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Market Percent
Market Value of Net Unrealized
Shares Security Cost Price (Note A) Assets Gain/(Loss)
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<S> <C>
Real Estate Investment Trusts (continued)
Office/Industrial/Self-Storage (continued)
15,700 Storage USA, Inc. $ 468,637 $32.25 $ 506,325 3.2% $ 37,688
15,000 Weeks Corp. 353,353 26.00 390,000 2.5 36,647
3,146,582 3,397,788 21.4 251,206
Regional Malls: 10.7%
18,800 DeBartolo Realty Corp. 267,593 16.13 303,150 1.9 35,557
10,900 JP Realty, Inc. 220,993 21.38 232,988 1.5 11,995
18,300 Simon Property Group, Inc. 438,523 24.50 448,350 2.8 9,827
46,000 Taubman Centers, Inc. 448,604 11.13 511,750 3.2 63,146
8,700 Urban Shopping Centers, Inc. 181,561 23.75 206,625 1.3 25,064
1,557,274 1,702,863 10.7 145,589
Retail: 12.4%
13,800 Developers Diversified Realty Corp. 402,867 31.88 439,875 2.8 37,008
14,700 Federal Realty Investment Trust 312,779 22.50 330,750 2.1 17,971
11,050 Kimco Realty Corp. 290,226 28.25 312,163 2.0 21,937
7,900 Regency Realty Corp. 132,520 21.00 165,900 1.0 33,380
9,800 Vornado Realty Trust 351,481 40.88 400,575 2.5 49,094
8,100 Weingarten Realty Investors 289,688 38.75 313,875 2.0 24,187
1,779,561 1,963,138 12.4 183,577
Real Estate Operating Companies: 3.2%
Hotels: 2.2%
12,500 Host Marriott Corp.* 145,357 13.13 164,062 1.0 18,705
800 Interstate Hotels Corp.* 16,800 22.25 17,800 0.1 1,000
11,900 Red Roof Inns, Inc.* 188,841 14.13 168,088 1.1 (20,753)
350,998 349,950 2.2 (1,048)
Regional Malls: 1.0%
6,100 The Rouse Company 136,862 25.88 157,837 1.0 20,975
Total Common Stocks 14,233,115 15,467,013 97.4 1,233,898
</TABLE>
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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Statement of Net Assets (concluded) June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Market Percent
Market Value of Net
Par Cost Price (Note A) Assets
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<S> <C>
REPURCHASE AGREEMENT: 1.1%
$176,000 Goldman Sachs & Co., 5.05%
Dated 6/28/96, to be repurchased
on 7/1/96, collateralized by
U.S. Treasury Notes with
a market value of $180,037.
(Cost $176,000) $ 176,000 $100.00 $ 176,000 1.1%
Total Investment in Securities 14,409,115** 15,643,013 98.5
Other Assets in Excess of Liabilities, Net 235,339 1.5
Net Assets $15,878,352 100.0%
Net Asset Value and Redemption Price Per:
Class A Share
($12,425,103 / 1,073,293 shares outstanding) $11.58
Class B Share
($3,453,249 / 299,078 shares outstanding) $11.55 (dagger)
Maximum Offering Price Per:
Class A Share
($11.58 / .955) $12.13
Class B Share $11.55
</TABLE>
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
(dagger) Redemption value is $11. 09 following a maximum 4% contingent deferred
sales charge.
See accompanying Notes to Financial Statements.
8
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
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Statement of Operations For the Six Months Ended June 30, 1996
(Unaudited)
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INVESTMENT INCOME (NOTE A):
Dividends $434,093
Interest 5,765
Total income 439,858
EXPENSES:
Investment advisory fee (Note B) 42,029
Distribution fee (Note B) 28,250
Legal 14,959
Transfer agent fee (Note B) 13,650
Custodian fee 12,649
Audit 12,465
Organizational expense (Note A) 9,298
Registration fees 9,275
Accounting fee (Note B) 7,956
Printing andpostage 4,738
Miscellaneous 2,493
Directors' fees 599
Insurance 87
Total expenses 158,448
Less:Fees waived and expenses reimbursed (Note B) (65,540)
Net expenses 92,908
Net investment income 346,950
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions 62,545
Change in unrealized appreciation of investments 415,861
Net gain on investments 478,406
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $825,356
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See accompanying Notes to Financial Statements.
9
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
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Statement of Changes in Net Assets
For the Six For the Period
Months Ended January 3, 1995*
June 30, 1996 through
(Unaudited) December 31, 1995
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<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 346,950 $ 353,419
Net realized gain from security transactions 62,545 47,282
Change in unrealized appreciation of investments 415,861 818,037
Net increase in net assets resulting from operations 825,356 1,218,738
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares (252,154) (216,537)
Class B Shares (75,890) (107,851)
Short-term capital gains:
Class A Shares -- (27,959)
Class B Shares -- (11,617)
Total distributions (328,044) (363,964)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 5,484,186 9,712,132
Value of shares issued in reinvestment of dividends 249,315 246,856
Cost of shares repurchased (540,138) (726,085)
Increase in net assets derived from capital share
transactions 5,193,363 9,232,903
Total increase in net assets 5,690,675 10,087,677
NET ASSETS:
Beginning of period 10,187,677 100,000**
End of period $15,878,352 $10,187,677
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</TABLE>
* 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.
10
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FLAG INVESTORS
REAL ESTATE SECURITIES FUND
<TABLE>
<CAPTION>
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Financial Highlights
(For a share outstanding throughout each period)
Class A Shares Class B Shares
For the For the
For the Six Period For the Six Period
Months Ended Jan. 3, 1995* Months Ended Jan. 3, 1995*
June 30, 1996 through June 30, 1996 through
(Unaudited) Dec. 31, 1995 (Unaudited) Dec. 31, 1995
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<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 11.20 $10.00 $11.18 $10.00
Income from Investment Operations:
Net investment income 0.31 0.56 0.26 0.50
Net realized and unrealized gain
on investments 0.37 1.21 0.37 1.20
Total from Investment Operations 0.68 1.77 0.63 1.70
Less Distributions:
Dividends from net investment income (0.30) (0.52) (0.26) (0.47)
Distributions from net realized
short-term gains -- (0.05) -- (0.05)
Total distributions (0.30) (0.57) (0.26) (0.52)
Net asset value at end of period $ 11.58 $11.20 $11.55 $11.18
Total Return** 6.20% 18.19% 5.78% 17.40%
Ratios to Average Daily Net Assets:
Expenses 1.25%(1,2) 1.25%(2,6) 2.00%(1,2) 2.00%(4,6)
Net investment income 5.61%(1,3) 5.95%(1,3) 4.63%(1,5) 5.25%(1,5)
Supplemental Data:
Net assets at end of period (000) $12,425 $7,171 $3,453 $3,016
Portfolio turnover rate 9%(1) 28% 9%(1) 28%
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</TABLE>
*Commencement of operations.
**Total return excludes the effect of sales charge.
(1) Annualized.
(2) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 2.26% (annualized) and 3.25%
(annualized) for Class A Shares for the periods ended June 30,1996
and December 31,1995, respectively.
(3) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 4.60% (annualized) and
3.89% (annualized) for Class A Shares for the periods ended June 30,1996 and
December 31,1995, respectively.
(4) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 3.02% (annualized) and 4.05%
(annualized) for Class B Shares for the periods ended June 30,1996 and
December 31,1995, respectively.
(5) Without the waiver of advisory fees (Note B), the ratio of net
investment income to average daily net assets would have been 3.61%
(annualized) and 3.09% (annualized) for Class B Shares for the periods
ended June 30,1996 and December 31,1995, respectively.
(6) Annualized, ratios based upon the SEC NI-A formula would be 1.19% for Class
A Shares and 1.90% for Class B Shares.
See accompanying Notes to Financial Statements.
11
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REAL ESTATE SECURITIES FUND
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Notes to FinancialStatements
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 contingent 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.
Significant accounting policies are as follows:
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 enter into tri-party
repurchase agreements. Securities held as collateral for tri-party
repurchase agreements are maintained by the broker's custodial bank in a
segregated account until maturity of the repurchase agreement. The agreement
ensures that the market value of the collateral, including accrued interest
thereon, is sufficient in the event of default. If the counterparty defaults
and the value of the collateral declines or if the counterparty enters into
an insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
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.
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees -
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., 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 following annual rates based upon
the Fund's average daily net assets: 0.65% of the first $100 million, 0.55%
of the next $100 million, 0.50% of the next $100 million and 0.45% of that
portion in excess of $300 million.
ICC has agreed to reduce its aggregate fees attributable to the Fund or make
payments to the Fund,
12
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REAL ESTATE SECURITIES FUND
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Notes to Financial Statements (continued)
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 June 30, 1996, ICC
waived fees of $42,029 and reimbursed expenses of $23,511.
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 $7,956 for accounting services for the period ended
June 30, 1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated daily and paid monthly. ICC received $13,650
for transfer agent services for the period ended June 30, 1996.
As compensation for providing distribution services, Alex. Brown & Sons
Incorporated ("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 June 30, 1996, distribution fees aggregated
$28,250, of which $12,134 was attributable to the Class A Shares and $16,116
was attributable to the Class B Shares.
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated
to the Fund for the six months ended June 30, 1996 was $75.
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:
Class A Shares
For the Six
Months Ended For the Period
June 30, 1996 Jan. 3. 1995*
(Unaudited) to Dec. 31, 1995
Shares sold 441,421 655,079
Shares issued to
shareholders on
reinvestment of
dividends 17,705 16,704
Shares redeemed (25,925) (41,690)
Net increase in shares
outstanding 433,201 630,093
Proceeds from sale
of shares $4,958,535 $6,763,257
Value of reinvested
dividends 198,150 178,010
Cost of shares
redeemed (293,014) (439,765)
Net increase from
capital share
transactions $4,863,671 $6,501,502
Class B Shares
For the Six
Months Ended For the Period
June 30, 1996 Jan. 3. 1995*
(Unaudited) to Dec. 31, 1995
Shares sold 46,626 290,349
Shares issued to
shareholders on
reinvestment of
dividends 4,583 6,473
Shares redeemed (21,900) (27,054)
Net increase in shares
outstanding 29,309 269,768
Proceeds from sale
of shares $525,651 $2,948,875
Value of reinvested
dividends 51,165 68,846
Cost of shares
redeemed (247,124) (286,320)
Net increase from
capital share
transactions $329,692 $2,731,401
*Commencement of operations.
13
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[Logo]
FLAG INVESTORS
REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
D. Investment Transactions - Purchases and sales of investment securities, other
than short-term obligations, aggregated $5,808,697 and $557,027, respectively,
for the six months ended June 30, 1996.
At June 30, 1996, aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $1,265,835 and
aggregate gross unrealized depreciation of all securities in which there was
an excess of tax cost over value was $31,937.
E. Net Assets - At June 30, 1996, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $11,465,173
Flag Investors Class B Shares 3,061,094
Undistributed net investment
income 47,937
Accumulated net realized
gain from security
transactions 70,250
Unrealized appreciation
of investments 1,233,898
$15,878,352
Directors and Officers
Richard T. Hale Harry Woolf
Chairman Director
Truman T. Semans William K. Morrill, Jr.
Director President
Charles W. Cole, Jr. Keith R. Pauley
Director Executive Vice President
James J. Cunnane Gary V. Fearnow
Director Vice President
John F. Kroeger Edward J. Veilleux
Director Vice President
Louis E. Levy Brian C. Nelson
Director Vice President
Eugene J. McDonald Joseph A. Finelli
Director Treasurer
Rebecca W. Rimel Edward J. Stoken
Director Secretary
Carl W. Vogt, Esq. Laurie D. DePrine
Director Assistant Secretary
