<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997.
FILE NO. 33-78648
FILE NO. 811-8500
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 6 / X /
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 8 / X /
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, including Area Code (410) 727-1700
Edward J. Veilleux
One South 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, 1997 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
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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, 1996 was filed with the Commission on February 19, 1997.
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<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
Cross Reference Sheet
(Class A and Class B Shares)
April 29, 1997
<TABLE>
<CAPTION>
Registration
Statement
Items Requires by Form N-1A Location
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Part A - Information Required in a Prospectus
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<S> <C> <C>
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 and 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
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* Omitted since the answer is negative or the item is not applicable.
** Information required by Item 5A is contained in the 1996 Annual Report to
Shareholders.
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 and Accounting
Services; Independent Auditors
Item 17. Brokerage Allocation.............................. Brokerage
Item 18. Capital Stock and Other
Securities........................................ Capital Stock; Semi-Annual
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.
</TABLE>
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* Omitted since the answer is negative or the item is not applicable.
ii
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LOGO
FLAG INVESTORS
REAL ESTATE SECURITIES FUND, INC.
(CLASS A AND CLASS B SHARES)
PROSPECTUS & APPLICATION -- MAY 1, 1997
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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 your securities dealer or the Fund's
transfer agent. 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, 1997 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.
TABLE OF CONTENTS
Fee Table ........................................................... 1
Financial Highlights ................................................ 2
Investment Program .................................................. 3
Risk Factors ........................................................ 4
Investment Restrictions ............................................. 4
How to Invest in the Fund ........................................... 5
How to Redeem Shares ................................................ 8
Telephone Transactions .............................................. 9
Dividends and Taxes ................................................. 10
Management of the Fund .............................................. 10
Investment Advisor and Sub-Advisor .................................. 10
Distributor ......................................................... 11
Custodian, Transfer Agent and
Accounting Services ................................................ 12
Performance Information ............................................. 12
General Information ................................................. 13
Application ......................................................... A-1
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 GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<PAGE>
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FEE TABLE
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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
(as a percentage of offering price) ............................................ None None
Maximum Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, whichever is lower) .................................... 0.50%* 4.00%**
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets):
Management Fees (net of fee waivers) ............................................ 0.04%*** 0.04%***
12b-1 Fees ...................................................................... 0.25% 0.75%
Other Expenses (including a .25% shareholder servicing fee for Class B Shares) .. 0.96% 1.21%****
----------------- ----------------
Total Fund Operating Expenses (net of fee waivers) .............................. 1.25%*** 2.00%***
================= ================
</TABLE>
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* 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 upon
redemption. (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, Management Fees would be .65% of the Fund's
average daily net assets and Total Fund Operating Expenses would be 1.86%
of the Class A Shares' average daily net assets and 2.61% 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 services provided and expenses incurred in maintaining shareholder
accounts, responding to shareholder inquiries, and providing information on
their investments.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------- ---------- ----------- ----------- ------------
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:*
Class A Shares ............................................ $57 $83 $111 $189
Class B Shares ............................................ $60 $93 $128 $196**
</TABLE>
<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 ........................................ $20 $63 $108 $196**
</TABLE>
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* Absent fee waivers, 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.
<PAGE>
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 that institution. The Expenses and Example appearing
in the foregoing table have been restated to reflect current, rather than
historical, fees.
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 Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD Rules").
1
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<PAGE>
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FINANCIAL HIGHLIGHTS
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The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by Coopers
& Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the fiscal year ended December 31, 1996 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 fiscal year ended December 31, 1996, which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
------------------------------------- -------------------------------------
For the Period For the Period
For the January 3, 1995+ For the January 3, 1995+
Year Ended through Year Ended through
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <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 ....... 0.61 0.56 0.52 0.50
Net realized and unrealized
gain on investments ........ 2.90 1.21 2.89 1.20
----------------- ----------------- ----------------- -----------------
Total from Investment
Operations ................. 3.51 1.77 3.41 1.70
----------------- ----------------- ----------------- -----------------
LESS DISTRIBUTIONS:
Dividends from net investment
income ..................... (0.58) (0.49)(1) (0.51) (0.42)(1)
Distributions from net
realized short-term gains .. (0.07) (0.05) (0.07) (0.05)
Distributions from net
realized long-term gains ... (0.15) -- (0.15) --
Return of capital ........... (0.02) (0.03)(1) (0.02) (0.05)(1)
----------------- ----------------- ----------------- -----------------
Total distributions ......... (0.82) (0.57) (0.75) (0.52)
----------------- ----------------- ----------------- -----------------
Net asset value at end of
period ..................... $ 13.89 $11.20 $13.84 $11.18
================= ================= ================= =================
TOTAL RETURN(2) ................ 32.70% 18.19% 31.67% 17.40%
RATIOS TO AVERAGE DAILY NET ASSETS:
Expenses .................... 1.25%(4) 1.25%(3,4,5) 2.00%(4) 2.00%(3,4,5)
Net investment income ....... 5.29%(6) 6.09%(3,5,6) 4.46%(6) 5.39%(3,5,6)
SUPPLEMENTAL DATA:
Net assets at end of year
(000) ...................... $19,816 $7,171 $5,295 $3,016
Portfolio turnover rate ..... 23% 28% 23% 28%
Average commissions per share $ 0.07(7) -- $ 0.07(7) --
</TABLE>
- ------
+ Commencement of operations.
(1) Distributions per share have been reclassified to reflect the actual return
of capital amounts for 1995.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Without the waiver of advisory fees and the reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 2.28% and
3.25% (annualized) for Class A Shares and 3.03% and 4.05% (annualized) for
Class B Shares for the year ended December 31, 1996 and the period ended
December 31, 1995, respectively.
(5) Effective January 1, 1996, the Fund's expense and net investment income
ratios have been based on average daily net assets. Prior to that date they
were based on average monthly net assets. Under the prior method, the ratio
of expenses to average net assets was 1.19% for the Class A Shares and 1.90%
for the Class B Shares and the ratio of net investment income to average net
assets was 5.95% for the Class A Shares and 5.25% for the Class B Shares.
(6) Without the waiver of advisory fees and the reimbursement of expenses, the
ratio of net investment income to average daily net assets would have been
4.26% and 3.89% (annualized) for Class A Shares and 3.43% and 3.09%
(annualized) for Class B Shares for the year ended December 31, 1996 and
the period ended December 31, 1995, respectively.
(7) Disclosure is required for fiscal years beginning on or after September 1,
1995. Represents average commissions rate per share charged to the Fund on
purchases and sales of investments during the period.
2
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<PAGE>
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INVESTMENT PROGRAM
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVE 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 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. 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 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 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. By investing in REITs
indirectly through the Fund, a shareholder 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. The Fund's investment advisor and
sub-advisor (collectively, the "Advisors"), currently anticipate that
investments outside the real estate industry will be primarily in securities of
companies whose products and services are related to the real estate industry.
They may include manufacturers and distributors of building supplies, financial
institutions that 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
the time of purchase, in the top two categories by a national rating agency or
determined to be of comparable quality by the Fund's investment advisor or sub-
advisor at the time of purchase and other long- and short-term debt instruments
that 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
3
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<PAGE>
- ------------------------------------------------------------------------------
market in these securities may affect their value. 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 creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to 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.
WHEN-ISSUED SECURITIES
The Fund may purchase securities, at the current market value of the
securities, on a forward commitment or when-issued basis. A segregated account
of the Fund consisting of cash or other liquid 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. While the Fund will purchase securities on a
forward commitment or 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. The value of securities so purchased or sold is subject to
market fluctuation and no interest accrues to the purchaser during this period.
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 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 the 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."
<PAGE>
INVESTMENT RESTRICTIONS
- ------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal and state regulatory
limitations. The following investment restrictions numbered 1 and 2 are matters
of fundamental policy and may not be changed without shareholder approval.
Investment restriction number 3 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
4
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<PAGE>
- -----------------------------------------------------------------------------
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); or
3) 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.
HOW TO INVEST IN THE FUND
- -----------------------------------------------------------------------------
Class A and Class B Shares may be purchased from the Fund's distributor (the
"Distributor"), through any securities dealer that is authorized to distribute
the Fund's shares ("Participating Dealers") or through any financial institution
that is authorized to service shareholder accounts ("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, 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.
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 and
distribution fee 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.
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 the Distributor and the Advisors. Orders for purchases of shares
are accepted on any day on which the New York Stock Exchange is open for
business (a "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 the Distributor or a Participating Dealer or
Shareholder Servicing Agent must be in accordance with such entity's payment
procedures. The Distributor may, in its sole discretion, refuse to accept any
purchase order.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to
that 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 Advisors 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 that 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
5
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<PAGE>
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 the Distributor, Participating Dealers or
Shareholder Servicing Agents at the Offering Price, which for Class A Shares
includes a sales charge that 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 in the following table:
<TABLE>
<CAPTION>
Sales Charge
as Percentage of Dealer
------------------------------ Compensation
Offering Net Amount as Percentage of
Amount of Purchase Price Invested Offering Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
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*
- ------------------------------------------------------------------------------
</TABLE>
* 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 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
Class A shares of other Flag Investors funds with the same sales charge and
purchases of Class A shares of Flag Investors Short-Intermediate Income Fund,
Inc. (formerly, 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 the Distributor, 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. Class A 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.
<PAGE>
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 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 the
Distributor 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.
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
6
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<PAGE>
- -----------------------------------------------------------------------------
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 Class A 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 that 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 the Distributor, the Fund's
sub-advisor, Participating Dealers and their respective affiliates.
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 the
Distributor or a Participating Dealer or Shareholder Servicing Agent.
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. In addition, no charge is
assessed on redemptions of Class B Shares derived from reinvestment of dividends
or capital gains distributions.
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.
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar amount
Payment was Made subject to charge)
- -----------------------------------------------------------------------------
<S> <C>
First ...................... 4.0%
Second ..................... 4.0%
Third ...................... 3.0%
Fourth ..................... 3.0%
Fifth ...................... 2.0%
Sixth ...................... 1.0%
Thereafter ................. None*
- -----------------------------------------------------------------------------
</TABLE>
* 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.
<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 the
Distributor 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. Shares issued pursuant to this offer will
not be
7
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<PAGE>
- -----------------------------------------------------------------------------
subject to the sales charges described above or any other charge. In addition,
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, 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 the Distributor 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. Class A 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 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
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Fund shares of the
same class. Unless the shareholder elects otherwise, all income dividends and
net capital gains distributions, if any, will be reinvested in additional Fund
shares of the same class at net asset value (without a sales charge).
Shareholders may elect to terminate automatic reinvestment by giving written
notice to the Transfer Agent (at the address listed on the inside back cover of
this Prospectus), 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.
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 the Transfer Agent for additional
information.
<PAGE>
HOW TO REDEEM SHARES
- -----------------------------------------------------------------------------
Shareholders may redeem all or part of their investment on any Business Day
by transmitting a redemption order through the Distributor, 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
8
- -----------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
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 following
documents:
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.
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.
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 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 on the inside back cover of this Prospectus. 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 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. 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
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<PAGE>
- -------------------------------------------------------------------------------
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.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following summary of certain federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative, judicial,
or administrative action. No attempt has been made to present a detailed
explanation of the federal, state, or local income tax treatment of the Fund or
its shareholders and the discussion here is not intended as a substitute for
careful tax planning. Accordingly, shareholders are advised to consult their tax
advisors regarding specific questions as to federal, state, and local income
taxes. The Statement of Additional Information sets forth further information
concerning taxes.
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.
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.
The sale, exchange, or redemption of Fund shares is a taxable event for the
shareholder.
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. A majority of the Directors are not affiliated with the Advisors
or the Distributor.
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Richard T. Hale Chairman William K. Morrill, Jr. President
Truman T. Semans Director Keith R. Pauley Executive Vice
Charles W. Cole, Jr. Director President
James J. Cunnane Director Edward J. Veilleux Vice President
Robert S. Killebrew, Jr. Director Gary V. Fearnow Vice President
John F. Kroeger Director Scott J. Liotta Vice President and
Louis E. Levy Director Secretary
Eugene J. McDonald Director Joseph A. Finelli Treasurer
Rebecca W. Rimel Director Laurie D. Collidge Assistant
Carl W. Vogt Director Secretary
</TABLE>
<PAGE>
INVESTMENT ADVISOR AND SUB-ADVISOR
- ------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and ABKB/LaSalle Securities Limited Partnership
("ABKB/LaSalle" or the "Sub-Advisor"). is the Fund's sub-advisor. ICC is the
investment advisor to other mutual funds in the Flag Investors family of funds
and Alex. Brown Cash Reserve Fund, Inc., which funds had approximately $5.7
billion of net assets as of December 31, 1996. ABKB/LaSalle is a registered
investment advisor and together with its affiliates had, as of December 31,
1996, approximately $2.3 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/LaSalle, together with its predecessors, has provided investment advice to
pension funds and other institutional investors with respect to investments in
real estate securities since 1985,
10
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<PAGE>
- ------------------------------------------------------------------------------
although it had not previously acted as investment advisor or sub-advisor to a
mutual fund. ABKB/LaSalle currently provides sub-advisory services to three
mutual funds which had approximately $71 million of combined net assets as of
December 31, 1996.
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 the Distributor, provided that
compensation to the Distributor 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 fiscal year ended December 31,
1996, ICC waived all advisory fees and reimbursed expenses of $61,823. In
addition, from its own resources, ICC paid ABKB/LaSalle a sub advisory fee
(net of fee waivers) equal to .02% of the Fund's average daily net assets.
ICC is an indirect subsidiary of Alex. Brown Incorporated. ABKB/LaSalle, a
Maryland limited partnership, is one of several entities through which LaSalle
Partners Limited Partnership 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 nine corporations, each of which is owned by one of
the following persons: Jonathan E. Bortz; Daniel W. Cummings; Wade W. Judge;
William K. Morrill, Jr.; Stuart L. Scott; Robert C. Spoerri; Lynn C. Thurber;
Earl E. Webb; and Robert F. Works.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
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 17
years of investment experience and has been a portfolio manager with
ABKB/LaSalle or its predecessors since 1986.
Keith R. Pauley, Senior Vice President of ABKB/LaSalle, has over 11 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
DISTRIBUTOR
- -------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor") acts as
distributor of the Fund's shares. Alex. Brown is an investment banking firm that
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 agreements with certain financial
institutions, such as banks, to provide shareholder services, pursuant to which
Alex. Brown will allocate up to all of its distribution fee as compensation for
such 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. Amounts allocated to
Participating Dealers and Shareholder Servicing Agents may
11
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<PAGE>
- ------------------------------------------------------------------------------
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 distribution services for the Class A Shares
for the period ended December 31, 1996, 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, 1996, 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 is less than the payments received, the unexpended portion 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.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- -------------------------------------------------------------------------------
Investment Company Capital Corp. 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,
1996, ICC received a fee equal to .12% of the Fund's average daily net assets.
(See the Statement of Additional Information.) PNC Bank, National Association, a
national banking association, acts as custodian of the Fund's assets.
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.
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 that monitor the performance of mutual funds. The
Fund may also use total return performance data as reported in national
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. 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.
12
- ------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------
GENERAL INFORMATION
- ------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Fund is an open-end diversified management investment company
incorporated under the laws of the State of Maryland on May 2, 1994 and is
authorized to issue 15 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 Fund has another class of shares in addition
to the shares offered hereby: "Flag Investors Real Estate Securities Fund
Institutional Shares." Additional information concerning the Fund's
Institutional Shares may be obtained by calling Alex. Brown at (800) 767-FLAG.
Different classes of the Fund may be offered to certain investors and holders of
such shares may be entitled to certain exchange privileges not offered to Class
A or Class B Shares. All classes of the Fund share a common investment
objective, portfolio of investments and advisory fee, but to the extent the
classes have different distribution/service fees or sales load structures, the
net asset value per share of the classes may differ at times.
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.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Shares should contact the
Transfer Agent at (800) 553-8080, the Fund at (800) 767-FLAG, or any
Participating Dealer or Shareholder Servicing Agent, as appropriate.
13
- ------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
<S> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Make check payable to "Flag Investors Real Estate Securities FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL:
Fund, Inc." and mail with this Application to: 1-800-553-8080, MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M.
(EASTERN TIME).
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663 TO OPEN AN IRA ACCOUNT, PLEASE CALL 1-800-767-3524 FOR AN
Attn: Flag Investors Real Estate Securities Fund, Inc. 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. The Fund reserves the right not to accept checks for more than $50,000 that are not certified or bank checks.
</TABLE>
----------------------------------------
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
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.
- -----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- ---------------------------------- ------------------------------
Date of Trust Tax ID Number
- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
- -----------------------------------------------------------------------------
For the Benefit of
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>
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)
-------------------------------------------------------
List the Account numbers of other Flag Investors Funds (except Class B
shares) that you or your immediate family already own that qualify for
reduced sales charges.
FUND NAME ACCOUNT NO. OWNER'S NAME RELATIONSHIP
-------- ----------- ------------ ------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
--------------------
DISTRIBUTION OPTIONS
--------------------
Please check the appropriate boxes. If none of the options are 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.
A-1
<PAGE>
-----------------------------------
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) ------------------------------
PLEASE ATTACH A VOIDED CHECK.
------------------------------
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------- -------------------------------------------------------------------
Bank Name Depositor's Signature Date
- ------------------------------------------------ -------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any Depositor's Signature Date
(if joint acct., both must sign)
</TABLE>
<PAGE>
-------------------------------------
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)
----------------------
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:
<TABLE>
<S> <C>
Bank: ______________________________________________________ Bank Account No. ___________________________________________
Address:______________________________________________________ Bank Account Name:___________________________________________
______________________________________________________
</TABLE>
- ------------------------------------ SIGNATURE AND TAXPAYER CERTIFICATION
- ------------------------------------
- -------------------------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS IN A BOX]
THE FUND MAY BE REQUIRED TO WITHHOLD AND REMIT TO THE U.S. TREASURY 31% OF ANY
TAXABLE DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND REDEMPTION PROCEEDS PAID TO
ANY INDIVIDUAL OR CERTAIN OTHER NON-CORPORATE SHAREHOLDERS WHO FAIL TO PROVIDE
THE INFORMATION AND/OR CERTIFICATIONS REQUIRED BELOW. THIS BACKUP WITHHOLDING IS
NOT AN ADDITIONAL TAX, AND ANY AMOUNTS WITHHELD MAY BE CREDITED AGAINST THE
SHAREHOLDER'S ULTIMATE U.S. TAX LIABILITY.
<PAGE>
BY SIGNING THIS APPLICATION, I HEREBY CERTIFY UNDER PENALTIES OF PERJURY THAT
THE INFORMATION ON THIS APPLICATION IS COMPLETE AND CORRECT AND THAT AS REQUIRED
BY FEDERAL LAW: (PLEASE CHECK APPLICABLE BOXES)
[ ] U.S. CITIZEN/TAXPAYER:
[ ] I CERTIFY THAT (1) THE NUMBER SHOWN ABOVE ON THIS FORM IS THE CORRECT
SOCIAL SECURITY NUMBER OR TAX ID NUMBER AND (2) I AM NOT SUBJECT TO ANY
BACKUP WITHHOLDING EITHER BECAUSE (A) I AM EXEMPT FROM BACKUP WITHHOLDING,
OR (B) I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS")
THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT
ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED ME THAT I AM NO
LONGER SUBJECT TO BACKUP WITHHOLDING.
[ ] IF NO TAX ID NUMBER OR SOCIAL SECURITY NUMBER HAS BEEN PROVIDED ABOVE, I
HAVE APPLIED, OR INTEND TO APPLY, TO THE IRS OR THE SOCIAL SECURITY
ADMINISTRATION FOR A TAX ID NUMBER OR A SOCIAL SECURITY NUMBER, AND I
UNDERSTAND THAT IF I DO NOT PROVIDE EITHER NUMBER TO THE TRANSFER AGENT
WITHIN 60 DAYS OF THE DATE OF THIS APPLICATION OR IF I FAIL TO FURNISH MY
CORRECT SOCIAL SECURITY NUMBER OR TAX ID NUMBER, I MAY BE SUBJECT TO A
PENALTY AND A 31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND REDEMPTION
PROCEEDS. (PLEASE PROVIDE EITHER NUMBER ON IRS FORM W-9. YOU MAY REQUEST
SUCH FORM BY CALLING THE TRANSFER AGENT AT 800-553-8080).
[ ] NON-U.S. CITIZEN/TAXPAYER:
INDICATED COUNTRY OF RESIDENCE FOR TAX PURPOSES: _________________________
UNDER PENALTIES OF PERJURY, I CERTIFY THAT I AM NOT A U.S. CITIZEN OR
RESIDENT AND I AM AN EXEMPT FOREIGN PERSON AS DEFINED BY THE INTERNAL
REVENUE SERVICE.
[END OF BOX]
================================================================================
I have received a copy of the Fund's prospectus dated May 1, 1997. 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.
- -------------------------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS IN A BOX]
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
[END OF BOX]
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
____________________________________________________ ________________________________________________________________
Signature Date Signature (if joint acct., both must sign) Date
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
FOR DEALER USE ONLY
- --------------------
<TABLE>
<S> <C>
Dealer's Name: ___________________________________ Dealer Code: ____________________________________________________
Dealer's Address:___________________________________ Branch Code: ____________________________________________________
___________________________________
Representative ___________________________________ Rep. No.: _____________________________________________________
</TABLE>
A-2
<PAGE>
- ------------------------------------------------------------------------------
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(Class A and Class B Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ABKB/LaSALLE ALEX. BROWN & SONS INCORPORATED
SECURITIES LIMITED PARTNERSHIP One South Street
100 East Pratt Street Baltimore, Maryland 21202
Baltimore, Maryland 21202 1-800-767-FLAG
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. COOPERS & LYBRAND L.L.P.
One South Street 2400 Eleven Penn Center
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
1-800-553-8080
Fund Counsel
Custodian MORGAN, LEWIS & BOCKIUS LLP
PNC BANK, NATIONAL ASSOCIATION 2000 One Logan Square
Airport Business Park Philadelphia, Pennsylvania 19103
200 Stevens Drive
Lester, Pennsylvania 19113
- ------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
Cross Reference Sheet
(Institutional Shares)
April 29, 1997
<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 (for Class
A and Class B Shares only)
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 and 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 Institutional
Shares; Distributor
Item 8. Redemption or Repurchase.......................... How to Redeem Institutional
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 will be contained, when available, in the
Fund's Annual Report to Shareholders.
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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 and Accounting
Services; Independent Auditors
Item 17. Brokerage Allocation.............................. Brokerage
Item 18. Capital Stock and Other
Securities........................................ Capital Stock; Semi-Annual
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 (for Class
A and Class B Shares only
Part C - Other Information
Part C contains the information required by the items contained
therein under the items set forth in the form.
</TABLE>
- -----------------------
* Omitted since the answer is negative or the item is not applicable.
iv
<PAGE>
________________________________________________________________________________
LOGO
FLAG INVESTORS
REAL ESTATE SECURITIES FUND, INC.
(INSTITUTIONAL SHARES)
PROSPECTUS & APPLICATION -- MAY 1, 1997
- --------------------------------------------------------------------------------
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.
Flag Investors Institutional Shares of the Fund ("Institutional Shares") are
available through your securities dealer or the Fund's transfer agent and may be
purchased only by eligible institutions or by clients of investment advisory
affiliates of Alex. Brown & Sons Incorporated. (See "How to Invest in
Institutional Shares.")
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, 1997 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.
TABLE OF CONTENTS
Fee Table ....................................................... 1
Financial Highlights ............................................ 2
Investment Program .............................................. 3
Risk Factors .................................................... 4
Investment Restrictions ......................................... 4
How to Invest in Institutional Shares ........................... 5
How to Redeem Institutional Shares .............................. 6
Telephone Transactions .......................................... 6
Dividends and Taxes ............................................. 7
Management of the Fund .......................................... 7
Investment Advisor and Sub-Advisor .............................. 8
Distributor ..................................................... 8
Custodian, Transfer Agent and Accounting Services ................ 9
Performance Information ......................................... 9
General Information ............................................. 9
Application ..................................................... A-1
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 GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
________________________________________________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
FEE TABLE
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) ............. None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) .. None
Maximum Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, whichever is lower) ................................................. None
ANNUAL FUND OPERATING EXPENSES (as a percentage of average daily net assets):
Management Fees (net of fee waivers) ...................................................... 0.04%*
12b-1 Fees ................................................................................ None
Other Expenses ............................................................................ 0.96%
----
Total Fund Operating Expenses (net of fee waivers) ........................................ 1.00%*
====
</TABLE>
- ------
* 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 1.00% of the Institutional Shares'
average daily net assets. Absent fee waivers, Management Fees would be .65% of
the Fund's average daily net assets and Total Fund Operating Expenses would be
1.61% of the Institutional Shares' average daily net assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE: 1 year 3 years 5 years 10 years
- --------- ------ ------- ------- --------
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:* ...................................... $10 $32 $55 $122
</TABLE>
- ------
* Absent fee waivers, expenses would be higher.
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 Institutional Shares through a financial institution may be charged
separate fees by that institution. (For more complete descriptions of the
various costs and expenses, see "How to Invest in Institutional Shares",
"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
Class A Shares, another class of shares offered by the Fund, less 12b-1 fees of
.25%, and have been restated to reflect current, rather than historical, fees.
1
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The Fund has offered the Institutional Shares only since January 20, 1997.
However, the Fund has offered Class A Shares since January 3, 1995. Historical
financial information about the Fund is not fully applicable to the
Institutional Shares because the expenses paid by the Fund in the past differ
from those the Institutional Shares will incur. (See "Fee Table") Nevertheless,
historical information about the Fund may be useful to investors if they take
into account the differences in expenses. Accordingly, the financial highlights
included in this table have been derived from the Fund's financial statements
for the Class A Shares for the periods indicated and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the fiscal year ended December 31, 1996 and the report
thereon of Coopers & Lybrand L.L.P. are included in the Statement of Additional
Information. Additional performance information for the Fund's Class A Shares is
contained in the Fund's Annual Report for the fiscal year ended December 31,
1996 which can be obtained at no charge by calling the Fund at (800) 767-FLAG.
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------
For the Period
For the January 3, 1995+
Year Ended through
December 31, 1996 December 31, 1995
------------------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of period .......... $ 11.20 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ........................... 0.61 0.56
Net realized and unrealized gain on
investments .................................. 2.90 1.21
------- ------
Total from Investment Operations ................ 3.51 1.77
------- ------
Less Distributions:
Dividends from net investment income ............ (0.58) (0.49)(1)
Distributions from net realized short-term
gains ........................................ (0.07) (0.05)
Distributions from net realized long-term gains.. (0.15) --
Return of capital ............................... (0.02) (0.03)(1)
------- ------
Total distributions ............................. (0.82) (0.57)
------- ------
Net asset value at end of period ................ $ 13.89 $11.20
======= ======
TOTAL RETURN(2) .................................. 32.70% 18.19%
RATIOS TO AVERAGE DAILY NET ASSETS:
Expenses ........................................ 1.25%(4) 1.25%(3,4,5)
Net investment income ........................... 5.29%(6) 6.09%(3,5,6)
SUPPLEMENTAL DATA:
Net assets at end of period (000) ............... $19,816 $7,171
Portfolio turnover rate ......................... 23% 28%
Average commissions per share ................... $ 0.07(7) --
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of operations.
(1) Distributions per share have been reclassified to reflect the actual return
of capital amounts for 1995.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Without the waiver of advisory fees and the reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 2.28% and
3.25% (annualized) for the year ended December 31, 1996 and the period ended
December 31, 1995, respectively.
(5) Effective January 1, 1996, the Fund's expense and net investment income
ratios have been based on average daily net assets. Prior to that date they
were based on average monthly net assets. Under the prior method, the ratio
of expenses to average net assets was 1.19% and the ratio of net investment
income to average net assets was 5.95%.
(6) Without the waiver of advisory fees and the reimbursement of expenses, the
ratio of net investment income to average daily net assets would have been
4.26% and 3.89% (annualized) for the year ended December 31, 1996 and the
period ended December 31, 1995, respectively.
(7) Disclosure is required for fiscal years beginning on or after September 1,
1995. Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
2
________________________________________________________________________________
<PAGE>
________________________________________________________________________________
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 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 that 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. By
investing in REITs indirectly through the Fund, a shareholder will bear not only
his proportionate share of the expenses of the Fund, but also indirectly,
similar expenses of underlying REITs.
<PAGE>
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. The Fund's investment advisor and
sub-advisor (collectively, the "Advisors"), currently anticipate that
investments outside the real estate industry will be primarily in securities of
companies whose products and services are related to the real estate industry.
They may include manufacturers and distributors of building supplies, financial
institutions that 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
the time of purchase, in the top two categories by a national rating agency or
determined to be of comparable quality by the Fund's investment advisor or
sub-advisor at the time of purchase and other long- and short-term debt
instruments that 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 Securi-
3
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<PAGE>
________________________________________________________________________________
ties 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 in these securities may affect their value. 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 creditworthy
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase the securities at an established time and
price. Default by or bankruptcy proceedings with respect to 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.
WHEN-ISSUED SECURITIES
The Fund may purchase securities, at the current market value of the
securities, on a forward commitment or when-issued basis. A segregated account
of the Fund consisting of cash or other liquid 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. While the Fund will purchase securities on a
forward commitment or 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. The value of securities so purchased or sold is subject to
market fluctuation and no interest accrues to the purchaser during this period.
<PAGE>
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 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 the 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."
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund's investment program is subject to a number of restrictions that
reflect both self-imposed standards and federal and state regulatory
limitations. The following investment restrictions numbered 1 and 2 are matters
of fundamental policy and may not be changed without shareholder approval.
Investment restriction number 3 may be changed by a vote of the majority of the
Board of Directors. The Fund will not:
4
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<PAGE>
________________________________________________________________________________
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); or
3) 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.
HOW TO INVEST IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counsellors, pension funds
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) and clients of investment advisory affiliates of Alex.
Brown & Sons Incorporated ("Alex. Brown" or the "Distributor") may purchase
Institutional Shares through Alex. Brown, through any securities dealer that is
authorized to distribute Institutional Shares ("Participating Dealers"), or by
completing the Application Form attached to this Prospectus and returning it,
together with payment of the purchase price, as instructed in the Application.
The minimum initial investment in Institutional Shares is $500,000, except
that the minimum initial investment is $1,000,000 for qualified retirement
plans. There is no minimum for clients of investment advisory affiliates of
Alex. Brown or for subsequent investments. The Fund reserves the right to
suspend the sale of Institutional Shares at any time at the discretion of the
Distributor and the Advisors.
Orders for purchases of Institutional Shares are accepted on any day on which
the New York Stock Exchange is open for business (a "Business Day"). Purchase
orders for Institutional Shares will be executed at a per share purchase price
equal to the net asset value next determined after receipt of the purchase
order. Purchases made through the Distributor or a Participating Dealer must be
in accordance with such entity's payment procedures. The Distributor may, in its
sole discretion, refuse to accept any purchase order.
<PAGE>
The net asset value per share is determined daily as of the close of the New
York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
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 Advisors 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.
PURCHASES BY EXCHANGE
Shareholders of other Flag Investors funds that offer Institutional shares
may exchange their Institutional shares of those funds for an equal dollar
amount of Institutional 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, 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.
The exchange privilege may be exercised by notifying the Fund's transfer
agent (the "Transfer Agent") by telephone on any Business Day between the hours
of 8:30 a.m. and 5:30 p.m. (Eastern Time) (See "Telephone Transactions" below)
or by regular or express mail at its address listed on the inside back cover of
this Prospectus.
5
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<PAGE>
________________________________________________________________________________
The Fund may modify or terminate this offer of exchange at any time on 60
days' prior written notice to shareholders.
OTHER INFORMATION
Periodic statements of account from the Fund will reflect all dividends,
purchases and redemptions of Institutional Shares.
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such shares
will not be issued. All purchases of Institutional Shares are confirmed and
credited to the shareholder's account on the Fund's books maintained by the
Transfer Agent or its agents. Shareholders will have the same rights and
ownership with respect to such shares as if certificates had been issued.
HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
Shareholders may redeem all or part of their Institutional Shares on any
Business Day by transmitting a redemption order through the Distributor or a
Participating Dealer, or by regular or express mail to the Transfer Agent at its
address listed on the inside back cover of this Prospectus. Shareholders may
also redeem Institutional Shares by telephone (in amounts up to $500,000). (See
"Telephone Transactions" below.) A redemption request is effected at the net
asset value per share next determined after receipt of the order in proper form.
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
Institutional Shares will be made by wire transfer of funds to the shareholder's
bank, or to a Participating Dealer, as appropriate, upon receipt of a duly
authorized redemption request as promptly as feasible and, under most
circumstances, within three Business Days.
<PAGE>
Dividends payable up to the date of the redemption of Institutional Shares
will be paid on the next dividend payable date. If all of the Institutional
Shares in an account have been redeemed on a dividend payment date, the dividend
will be remitted by wire to the shareholder's bank or to a Participating Dealer,
as appropriate.
The Fund has the power under its Articles of Incorporation to redeem
shareholder accounts amounting to less than $500 upon 60 days' written 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.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
Shareholders may exercise the exchange privilege with respect to other Flag
Investors funds, or redeem Institutional Shares in amounts up to $500,000, by
notifying the Transfer Agent by telephone 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 on the inside back cover of this Prospectus. 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 effective that
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected at
the net asset value 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. 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
express mail or facsimile. (See "How to Invest in Institutional
Shares--Purchases by Exchange" and "How to Redeem Institutional Shares.")
6
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<PAGE>
________________________________________________________________________________
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 and net capital
gains distributions, if any, will be reinvested in additional Institutional
Shares at net asset value. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Transfer Agent (at its address
listed on the inside back cover of this Prospectus), 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.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following summary of certain 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 has been made to present a detailed explanation of the federal, state,
or local income tax treatment of the Fund or its shareholders and the discussion
here is not intended as a substitute for careful tax planning. Accordingly,
shareholders are advised to consult their tax advisors regarding specific
questions as to federal, state, and local income taxes. The Statement of
Additional Information sets forth further information concerning taxes.
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.
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.
<PAGE>
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.
The sale, exchange, or redemption of Institutional Shares is a taxable event
for the shareholder.
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. A majority of the Directors are not affiliated with the Advisors
or the Distributor.
The Fund's Directors and officers are as follows:
Richard T. Hale Chairman William K. Morrill, Jr. President
Truman T. Semans Director Keith R. Pauley Executive Vice
Charles W. Cole, Jr. Director President
James J. Cunnane Director Edward J. Veilleux Vice President
Robert S. Killebrew, Jr. Director Gary V. Fearnow Vice President
John F. Kroeger Director Scott J. Liotta Vice President
Louis E. Levy Director and Secretary
Eugene J. McDonald Director Joseph A. Finelli Treasurer
Rebecca W. Rimel Director Laurie D. Collidge Assistant
Carl W. Vogt Director Secretary
7
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<PAGE>
________________________________________________________________________________
INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and ABKB/LaSalle Securities Limited Partnership
("ABKB/LaSalle" or the "Sub-Advisor") is the Fund's sub-advisor. ICC is the
investment advisor to other mutual funds in the Flag Investors family of funds
and Alex. Brown Cash Reserve Fund, Inc., which funds had approximately $5.7
billion of net assets as of December 31, 1996. ABKB/LaSalle is a registered
investment advisor and together with its affiliates had, as of December 31,
1996, approximately $2.3 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/LaSalle, together with its predecessors, has provided investment advice to
pension funds and other institutional investors with respect to investments in
real estate securities since 1985, although it had not previously acted as
investment advisor or sub-advisor to a mutual fund. ABKB/LaSalle currently
provides sub-advisory services to three mutual funds which had approximately $71
million of combined net assets as of December 31, 1996.
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 the Distributor, provided that
compensation to the Distributor 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 the Conduct Rules 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 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 1.00% of the Institutional Shares' average daily net assets. For the
fiscal year ended December 31, 1996, ICC waived all advisory fees and reimbursed
expenses of $61,823. In addition, from its own resources, ICC paid ABKB/LaSalle
a sub-advisory fee (net of fee waivers) equal to .02% of the Fund's average
daily net assets.
<PAGE>
ICC is an indirect subsidiary of Alex. Brown Incorporated. ABKB/LaSalle, a
Maryland limited partnership, is one of several entities through which LaSalle
Partners Limited Partnership 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 nine corporations, each of which is owned by one of
the following persons: Jonathan E. Bortz; Daniel W. Cummings; Wade W. Judge;
William K. Morrill, Jr.; Stuart L. Scott; Robert C. Spoerri; Lynn C. Thurber;
Earl E. Webb; and Robert F. Works.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
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 17
years of investment experience and has been a portfolio manager with
ABKB/LaSalle or its predecessors since 1986.
Keith R. Pauley, Senior Vice President of ABKB/LaSalle, has over 11 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
DISTRIBUTOR
- --------------------------------------------------------------------------------
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor") acts as
distributor of the Fund's 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
8
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<PAGE>
________________________________________________________________________________
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. Alex. Brown receives no compensation for distributing the
Institutional Shares.
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other than
Fund shareholders.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp., 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 fiscal year ended December 31,
1996, ICC received a fee equal to .12% of the Fund's average daily net assets.
(See the Statement of Additional Information.) PNC Bank, National Association, a
national banking association, acts as custodian of the Fund's assets.
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 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 according to
the required standardized calculation. 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.
<PAGE>
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.
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 that monitor the performance of mutual funds. The
Fund may also use total return performance data as reported in national
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. 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.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES
The Fund is an open-end diversified management investment company
incorporated under the laws of the State of Maryland on May 2, 1994 and is
authorized to issue 15 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 is
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.
9
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<PAGE>
________________________________________________________________________________
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 Institutional Shares." The Fund has two
other classes of shares in addition to the shares offered hereby: "Flag
Investors Real Estate Securities Fund Class A Shares" and "Flag Investors Real
Estate Securities Fund Class B Shares." Additional information concerning the
Fund's other classes of shares may be obtained by calling the Distributor at
(800) 767-FLAG. Different classes of the Fund may be offered to certain
investors and holders of such shares may be entitled to certain exchange
privileges not offered to Institutional Shares. All classes of the Fund share a
common investment objective, portfolio of investments and advisory fee, but to
the extent the classes have different distribution/service fees or sales load
structures, the net asset value per share of the classes may differ at times.
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.
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Institutional Shares should
contact the Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or a
Participating Dealer, as appropriate.
10
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<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SEND COMPLETED APPLICATION BY OVERNIGHT CARRIER TO: FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL: 1-800-553-8080,
Alex. Brown & Sons Incorporated/Flag Investors Funds MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M. (EASTERN TIME).
1004 Baltimore Avenue, 4th Floor
Kansas City, MO 64105
Attn: Flag Investors Real Estate Securities Fund, Inc.
IF YOU ARE PAYING BY CHECK, MAKE CHECK PAYABLE TO "FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC." AND MAIL WITH THIS
APPLICATION. IF YOU ARE PAYING BY WIRE, SEE INSTRUCTIONS BELOW.
- -----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
-----------------------------------------
NAME ON ACCOUNT MAILING ADDRESS
- --------------------------------------------------------- ---------------------------------------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive Correspondence
- -------------------------------------- ---------------------------------------------------------------------
Tax ID Number Street
[ ] Corporation [ ] Partnership [ ] Trust ---------------------------------------------------------------------
City State Zip
[ ] Non-Profit or Charitable Organization [ ] Other______ ( )
---------------------------------------------------------------------
If a Trust, please provide the following: Daytime Phone
- -----------------------------------------------------------------------------------------------------------------------------------
Date of Trust For the Benefit of
- -----------------------------------------------------------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
------------------
INITIAL INVESTMENT
------------------
THE MINIMUM INITIAL PURCHASE FOR THE INSTITUTIONAL SHARES OF THE FUND IS $500,000, EXCEPT THAT THE MINIMUM INITIAL PURCHASE IS
$1,000,000 FOR QUALIFIED RETIREMENT PLANS. THERE IS NO MINIMUM FOR CLIENTS OF INVESTMENT ADVISORY AFFILIATES OF ALEX. BROWN.
Indicate the amount to be invested and the method of payment:
______ A. By Mail: Enclosed is a check in the amount of $______ payable to Flag Investors Real Estate Securities Fund, Inc.
______ B. By Wire: A bank wire in the amount of $______has been sent from ________________ ______________________________________
Name of Bank Wire Control Number
WIRE INSTRUCTIONS
Follow the instructions below to arrange for a wire transfer for initial investment:
o Send completed Application by overnight carrier to Alex. Brown & Sons Incorporated/Flag Investors Funds at the address
listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust Company ("IFTC"), as follows:
IFTC
a/c Alex. Brown & Sons Incorporated/Flag Investors Funds
Acct. # 7518625
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Real Estate Securities Fund, Inc. -- Institutional Shares
o "For further credit to ____________________________________________."
(Investor's Fund Account Number)
<PAGE>
--------------------
DISTRIBUTION OPTIONS
--------------------
Please check appropriate boxes. If none of the options are selected, all distributions will be reinvested in additional
Institutional Shares of the Fund.
INCOME DIVIDENDS CAPITAL GAINS
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
----------------------
TELEPHONE TRANSACTIONS
----------------------
I UNDERSTAND THAT I WILL AUTOMATICALLY HAVE TELEPHONE REDEMPTION PRIVILEGES (FOR AMOUNTS UP TO $500,000) AND EXCHANGE PRIVILEGES
(WITH RESPECT TO INSTITUTIONAL SHARES OF OTHER FLAG INVESTORS FUNDS) UNLESS I MARK ONE OR BOTH OF THE BOXES BELOW:
NO, I DO NOT WANT: [ ] Telephone redemption privileges [ ] Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank account designated below.
---------------------------------
BANK ACCOUNT DESIGNATION
(THIS SECTION MUST BE COMPLETED)
---------------------------------
Please attach a blank, voided check to provide account and bank routing information.
- -----------------------------------------------------------------------------------------------------------------------------------
Name of Bank Branch
- -----------------------------------------------------------------------------------------------------------------------------------
Bank Address City/State/Zip
- -----------------------------------------------------------------------------------------------------------------------------------
Name(s) on Account
- -----------------------------------------------------------------------------------------------------------------------------------
Account Number A.B.A. Number
A-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
-----------------------------------------
ACKNOWLEDGMENT, CERTIFICATE AND SIGNATURE
-----------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS IN A BOX]
THE FUND MAY BE REQUIRED TO WITHHOLD AND REMIT TO THE U.S. TREASURY 31% OF ANY TAXABLE DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND
REDEMPTION PROCEEDS PAID TO ANY INDIVIDUAL OR CERTAIN OTHER NON-CORPORATE SHAREHOLDERS WHO FAIL TO PROVIDE THE INFORMATION AND/OR
CERTIFICATIONS REQUIRED BELOW. THIS BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX, AND ANY AMOUNTS WITHHELD MAY BE CREDITED AGAINST
THE SHAREHOLDER'S ULTIMATE U.S. TAX LIABILITY.
BY SIGNING THIS APPLICATION, I HEREBY CERTIFY UNDER PENALTIES OF PERJURY THAT THE INFORMATION ON THIS APPLICATION IS COMPLETE AND
CORRECT AND THAT AS REQUIRED BY FEDERAL LAW: (PLEASE CHECK APPLICABLE BOXES)
[ ] U.S. CITIZEN/TAXPAYER:
[ ] I CERTIFY THAT (1) THE NUMBER SHOWN ABOVE ON THIS FORM IS THE CORRECT TAX ID NUMBER AND (2) I AM NOT SUBJECT TO ANY BACKUP
WITHHOLDING EITHER BECAUSE (A) I AM EXEMPT FROM BACKUP WITHHOLDING, OR (B) I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE
SERVICE ("IRS") THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C)
THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING.
[ ] IF NO TAX ID NUMBER HAS BEEN PROVIDED ABOVE, I HAVE APPLIED, OR INTEND TO APPLY, TO THE IRS FOR A TAX ID NUMBER, AND I
UNDERSTAND THAT IF I DO NOT PROVIDE SUCH NUMBER TO THE TRANSFER AGENT WITHIN 60 DAYS OF THE DATE OF THIS APPLICATION OR IF I
FAIL TO FURNISH MY CORRECT TAX ID NUMBER, I MAY BE SUBJECT TO A PENALTY AND A 31% BACKUP WITHHOLDING ON DISTRIBUTIONS AND
REDEMPTION PROCEEDS. (PLEASE PROVIDE YOUR TAX ID NUMBER ON IRS FORM W-9. YOU MAY REQUEST SUCH FORM BY CALLING THE TRANSFER
AGENT AT 800-553-8080).
[ ] NON-U.S. CITIZEN/TAXPAYER: INDICATED COUNTRY OF RESIDENCE FOR TAX PURPOSES:_________________________________________________
UNDER PENALTIES OF PERJURY, I CERTIFY THAT I AM NOT A U.S. CITIZEN OR RESIDENT AND I AM AN EXEMPT FOREIGN PERSON AS DEFINED BY THE
INTERNAL REVENUE SERVICE.
[END OF BOX]
- -----------------------------------------------------------------------------------------------------------------------------------
I have received a copy of the Fund's prospectus dated May 1, 1997. 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.
- -----------------------------------------------------------------------------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS IN A BOX]
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED
TO AVOID BACKUP WITHHOLDING.
[END OF BOX]
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- -----------------------------------------------------------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
--------------------------------------------
PERSON(S) AUTHORIZED TO CONDUCT TRANSACTIONS
--------------------------------------------
The following person(s) ("Authorized Person(s)") are currently officers, trustees, general partners or other authorized agents of
the investor. Any _______* of the Authorized Person(s) is, by lawful and appropriate action of the investor, a person entitled to
give instructions regarding purchases and redemptions or make inquiries regarding the Account.
- --------------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
- --------------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
- --------------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
- --------------------------------------------------------- -------------------------------------------------------------------
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that person's signature. Investment Company Capital Corp. ("ICC")
may, without inquiry, act upon the instructions (whether verbal, written, or provided by wire, telecommunication, or any other
process) of any person claiming to be an Authorized Person. Neither ICC nor any entity on behalf of which ICC is acting shall be
liable for any claims or expenses (including legal fees) or for any losses resulting from actions taken upon any instructions
believed to be genuine. ICC may continue to rely on the instructions made by any person claiming to be an Authorized Person until it
is informed through an amended Application that the person is no longer an Authorized Person and it has a reasonable period (not to
exceed one week) to process the amended Application. Provisions of this Application shall be equally Applicable to any successor of
ICC.
* If this space is left blank, any one Authorized Person is authorized to give instructions and make inquiries. Verbal
instructions will be accepted from any one Authorized Person. Written instructions will require signatures of the number of
Authorized Persons indicated in this space.
<PAGE>
------------------------
CERTIFICATE OF AUTHORITY
------------------------
INVESTORS MUST COMPLETE ONE OF THE FOLLOWING TWO CERTIFICATES OF AUTHORITY.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board of Directors or Board of Trustees.)
I _____________________________, Secretary of the above-named investor, do hereby certify that at a meeting on _________________, at
which a quorum was present throughout, the Board of Directors (Board of Trustees) of the investor duly adopted a resolution which is
in full force and effect and in accordance with the investor's charter and by-laws, which resolution did the following: (1)
empowered the officers/trustees executing this Application (or amendment) to do so on behalf of the investor; (2) empowered the
above-named Authorized Person(s) to effect securities transactions for the investor on the terms described above; (3) authorized the
Secretary to certify, from time to time, the names and titles of the officers of the investor and to notify ICC when changes in
officers occur; and (4) authorized the Secretary to certify that such a resolution has been duly adopted and will remain in full
force and effect until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
this ______ day of ______, 199__ Secretary _________________________________________________________________________________
The undersigned officer (other than the Secretary) hereby certifies that the foregoing instrument has been signed by the Secretary
of the investor.
- -----------------------------------------------------------------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the investor and that they have done the following under the
authority of the investor's partnership agreement/trust instrument: (1) empowered the general partner/trustee executing this
Application (or amendment) to do so on behalf of the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3) authorized the Secretary to certify, from time to time,
the names of the general partners/trustees of the investor and to notify ICC when changes in general partners/trustees occur. This
authorization will remain in full force and effect until ICC receives a further duly-executed certification. (If there are not
enough spaces here for all necessary signatures, complete a separate certificate containing the language of this Certificate B and
attach it to the Application).
- -----------------------------------------------------------------------------------------------------------------------------------
Signature and title Date
- -----------------------------------------------------------------------------------------------------------------------------------
Signature and title Date
A-2
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ABKB/LaSALLE SECURITIES ALEX. BROWN & SONS INCORPORATED
LIMITED PARTNERSHIP One South Street
100 East Pratt Street Baltimore, Maryland 21202
Baltimore, Maryland 21202 1-800-767-FLAG
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. COOPERS & LYBRAND L.L.P.
One South Street 2400 Eleven Penn Center
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
1-800-553-8080
Fund Counsel
Custodian MORGAN, LEWIS & BOCKIUS LLP
PNC BANK, NATIONAL ASSOCIATION 2000 One Logan Square
Airport Business Park Philadelphia, Pennsylvania 19103-6993
200 Stevens Drive
Lester, Pennsylvania 19113
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
--------------------------
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
One South 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, ONE SOUTH STREET, BALTIMORE,
MARYLAND 21202, OR BY CALLING (800) 767-FLAG.
Statement of Additional Information Dated: May 1, 1997
Relating to Prospectuses Dated:
May 1, 1997 for the Class A and Class B Shares
and
the Institutional Shares
<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................................................ 7
5. Management of the Fund.......................................... 9
6. Investment Advisory and Other Services......................... 15
7. Distribution of Fund Shares.................................... 16
8. Brokerage...................................................... 19
9. Capital Stock.................................................. 20
10. Semi-Annual Reports............................................ 21
11. Custodian, Transfer Agent, and 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 three
classes of shares: Flag Investors Real Estate Securities Fund Class A Shares
("Class A Shares"), Flag Investors Real Estate Securities Fund Class B Shares
("Class B Shares") and Flag Investors Real Estate Securities Fund Institutional
Shares ("Institutional Shares"). As used herein, the "Fund" refers to Flag
Investors Real Estate Securities Fund, Inc. and specific references to any 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 Prospectuses which may be obtained without charge from the Fund's
distributor (the "Distributor") or from Participating Dealers that offer shares
of the respective classes of the Fund ("Shares") to prospective investors.
Prospectuses for the Class A Shares and the Class B Shares 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
Prospectuses. To avoid unnecessary repetition, references are made to related
sections of the Prospectuses. In addition, the Prospectuses and this Statement
of Additional Information omit certain information about the Fund and its
business that is contained in the Registration Statement for 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. As of the date of this Statement of Additional Information, the
Institutional Shares had not yet commenced operations.
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 that rely on professional managers to supervise their
investments.
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. 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 that the Fund's investment advisor (the "Advisor") or sub-advisor
(the "Sub-Advisor") (collectively, the "Advisors") 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 that 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.
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
-2-
<PAGE>
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
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 that 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
-3-
<PAGE>
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 that 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 that 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).
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
-4-
<PAGE>
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 that 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 be
comprised of liquid assets. 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, while 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
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.
-5-
<PAGE>
Investment Restrictions
The Fund's investment program is subject to a number of restrictions
that 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 Fund's outstanding
shares. Accordingly, the Fund will not:
1. 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 equaling 5%
or more of the Fund's total assets are outstanding, the Fund will not purchase
securities for investment.
2. 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.
3. Purchase or sell commodities or commodities contracts, provided that
the Fund may invest in financial futures and options on such futures.
4. 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.
5. Issue senior securities, provided that the Fund may invest in
financial futures and options on such futures.
6. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies.
7. Effect short sales of securities.
8. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions).
9. Purchase participations or other direct interests in oil, gas or
other mineral exploration or development programs or oil, gas or mineral leases.
The following investment restriction may be changed by a vote of the
majority of the Board of Directors. The Fund will not:
1. Invest in shares of any other investment company registered under the
Investment Company Act, except as permitted by federal law.
-6-
<PAGE>
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The Fund's net asset value per Share is determined daily as of the close
of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time)
each day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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 Class A Shares and
Class B Shares by check and Institutional Shares by wire transfer of funds, as
described in the Prospectuses relating to such Shares. 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 has been and expects to continue to qualify as a regulated
investment company ("RIC") under Subchapter M of the Code. In order 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
-7-
<PAGE>
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,
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 that the Fund controls and that 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 that 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) is subject to backup withholding by the Internal Revenue Service for
failure to properly report payments of interest or dividends, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.
-8-
<PAGE>
The Code imposes a nondeductible 4% excise tax on RICs 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 or capital gains for any taxable year
ending in such calendar year. The Fund intends to make sufficient distributions
of its ordinary income and capital gains net income prior to the end of each
calendar year to avoid liability for excise tax. However, 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 One South Street, Baltimore, Maryland 21202.
*RICHARD T. HALE, Chairman (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Director and
President, Investment Company Capital Corp. (registered investment
advisor); Chartered Financial Analyst.
*CHARLES W. COLE, JR., Director (11/11/35)+
Vice Chairman, Alex. Brown Capital Advisory & Trust Company (registered
investment advisor); Chairman, Investment Company Capital Corp.
(registered investment advisor); Director, Provident Bankshares
Corporation and Provident Bank of Maryland; Formerly, President and
Chief Executive Officer, Chief Administrative Officer, and Director,
First Maryland Bancorp, The First National Bank of Maryland and First
Omni Bank; Director, York Bank and Trust Company.
-9-
<PAGE>
*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 (registered investment advisor), 1974-1995.
*TRUMAN T. SEMANS, Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Director, Investment
Company Capital Corp. (registered investment advisor); Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated.
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).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds (registered investment companies); 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); Director, Central Carolina Bank & Trust
(banking), Key Funds (registered investment companies) and AMBAC
Treasurers Trust (registered investment company).
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); Director, Yellow Corporation (trucking); Formerly, Chairman and
Member, National Transportation Safety Board; Director, National
Railroad Passenger Corporation (Amtrak) and Member, Aviation System
Capacity Advisory Committee (Federal Aviation Administration).
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.
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<PAGE>
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; Vice President, Armata
Financial Corp. (registered broker-dealer); and Executive Vice
President, Investment Company Capital Corp. (registered investment
advisor).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated and Manager, Private
Client Marketing, Alex. Brown & Sons Incorporated.
SCOTT J. LIOTTA, Vice President and Secretary (3/18/65) +
Manager, Fund Administration, Alex. Brown & Sons Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (registered investment companies), April 1994-July
1996; Supervisor, Brown Brothers Harriman & Co. (domestic and global
custody), August 1991-April 1994.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated and Vice President,
Investment Company Capital Corp. (registered investment advisor),
September 1995-Present. Formerly, Vice President and Treasurer, The
Delaware Group of Funds (registered investment companies) and Vice
President, Delaware Management Company, Inc. (investments), 1980-1995.
LAURIE D. COLLIDGE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present.
- ---------------------
* Messrs. Hale, Cole, Killebrew and Semans are Directors who are
"interested persons," as defined in the Investment Company Act.
+ Mr. Liotta is Mr. Cole's son-in-law.
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 the Distributor or its affiliates.
There are currently twelve funds in the Flag Investors/ISI Funds and
Alex. Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Hale
serves as Chairman of three funds, 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
Chairman of five funds and as a Director of five other funds in the Fund
Complex. Mr. Cole serves as Chairman of one fund and as a Director of seven
other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy and McDonald
serve as Directors of each fund in the Fund Complex. Ms. Rimel serves as a
Director of ten funds in the Fund Complex. Mr. Vogt serves as a Director of nine
funds in the Fund Complex. Mr. Fearnow serves as Vice President of ten funds in
the Fund Complex. Mr. Veilleux serves as Executive Vice President of one fund
and as Vice President of eleven funds in the Fund Complex. Mr. Liotta serves as
Vice President and Secretary, Mr. Finelli serves as Treasurer and Ms. Collidge
serves as Assistant Secretary 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, the Distributor in the ordinary course of business.
All such transactions were made on
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<PAGE>
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 the Distributor 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") 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 each fund in the Fund Complex
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, 1996, Directors' fees
attributable to the assets of the Fund totaled approximately $334. The following
table shows aggregate compensation payable to each of the Fund's Directors by
the Fund and the Fund Complex, respectively, and pension or retirement benefits
accrued as part of Fund expenses in the fiscal year ended December 31, 1996.
-12-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Total Compensation From
the Fund and Fund
Aggregate Compensation Pension or Complex Payable to
From the Fund for the Retirement Benefits Directors for the Fiscal
Name of Person, Fiscal Year Ended Accrued as Part Year Ended December 31,
Position December 31, 1996 of Fund Expenses 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard T. Hale, Chairman(1) $0 $0 $0
Truman T. Semans, Director(1) $0 $0 $0
Charles W. Cole, Jr., Director(1) $0 $0 $0
James J. Cunnane, Director $114(2) (3) $39,000 for service on 12
Boards in the Fund
Complex
N. Bruce Hannay, Director(4) $7(2) (3) $3.321 for service on 12
Boards in the Fund
Complex
Robert S. Killebrew, Jr., $0 $0 $0
Director(1)
John F. Kroeger, Director $143(2) (3) $49,000 for service on 12
Boards in the Fund
Complex
Louis E. Levy, Director $114(2) (3) $39,000 for service on 12
Boards in the Fund
Complex
Eugene J. McDonald $114(2) (3) $39,000 for service on 12
Director Boards in the Fund
Complex
Rebecca W. Rimel, Director $138(2) (3) $39,000 for service on 6
Boards in the Fund
Complex(5)
Carl W. Vogt, Director(6) $137(2) (3) $39,000 for service on 5
Boards in the Fund
Complex(5)
Harry Woolf(7) $114(2) (3) $39,000 for service on 12
Director Boards in the Fund
Complex
- ------------------
(1) A Director who is an "interested person" as defined in the Investment Company Act.
(2) Of amounts payable to Messrs. Cunnane, Hannay, Kroeger, Levy, McDonald, Vogt and Woolf, and to Ms. Rimel, no
amount was deferred pursuant to the deferred compensation plan.
(3) The Fund Complex has adopted a Retirement Plan for eligible Directors,
as described below. The actuarially computed pension expense for the
Fund for the year ended December 31, 1996 was approximately $533.
(4) Retired, effective January 31, 1996, and is now deceased.
(5) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from each fund for which they serve as a Director.
(6) Elected to the Board on January 30, 1996.
(7) Retired on December 31, 1996.
</TABLE>
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
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<PAGE>
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. Mr. Kroeger has qualified but has not
received benefits. The Fund has one Participant, a Director who retired on
December 31, 1996 who qualified for the Retirement Plan by serving fourteen
years as a Director in the Fund Complex and who will be paid a quarterly fee of
$4,875 by the Fund Complex for the rest of his life. Another Participant who
retired on January 31, 1996 and died on June 2, 1996 was paid fees of $8,090 by
the Fund Complex under the Retirement Plan in the fiscal year ended December 31,
1996. Such fee is allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service at
December 31, 1996 are as follows: for Mr. Cunnane, 2 years; for Mr. Kroeger, 14
years; for Mr. Levy, 2 years; for Mr. McDonald, 4 years; for Ms. Rimel, 1 year;
and for Mr. Vogt, 1 year.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ----------------- -------------------------------------------------------------------
Chairman of Audit Committee Other Participants
----------------------------- ---------------------
<S> <C> <C>
6 years $ 4,900 $ 3,900
7 years $ 9,800 $ 7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, of his or her annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Levy, McDonald, Vogt and Woolf and
Ms. Rimel have each executed a Deferred Compensation Agreement. Currently, the
deferring Directors may select various Flag Investors and Alex. Brown Cash
Reserve 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 ten
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
applies to the personal investing activities of all directors and officers of
the Fund, as well as to designated officers, directors and employees of the
Advisors and the Distributor. As described below, the Code of Ethics imposes
significant restrictions on the Advisor'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 covered employees of the Advisors,
certain directors or officers of the Distributor, and all Fund Directors who are
"interested persons", preclear personal securities investments (with certain
exceptions, such as non-volitional purchases or purchases that 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
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<PAGE>
initial public offering, a prohibition from profiting on short-term trading in
securities and special preclearance of the 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. Officers,
directors and employees of the Advisors and the Distributor may comply with
codes instituted by those entities so long as they contain similar requirements
and restrictions.
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" or the "Advisor")
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 is a wholly owned subsidiary of Alex. Brown Financial
Corporation and an indirect subsidiary of Alex. Brown Incorporated. ICC is also
the investment advisor to other funds in the Flag Investors Family of Funds and
Alex. Brown Cash Reserve Fund, Inc. The address of ICC is One South Street,
Baltimore, Maryland 21202. ABKB/LaSalle is a registered investment advisor and
together with its affiliates had, as of December 31, 1996 approximately $2.3
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.)
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 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 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 following annual rates based upon the Fund's
average daily net assets: 0.40% of the first $100 million, 0.35% of the next
$100 million, 0.30% of the next $100 million and 0.25% of that portion over $300
million.
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
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<PAGE>
Agreement and the Sub-Advisory Agreement were most recently approved by the
Board of Directors in the foregoing manner on September 30, 1996. 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 fiscal year
ended December 31, 1996, and the period from January 3, 1995 (commencement of
operations) through December 31, 1995, ICC waived all fees due it ($106,045 and
$38,795) and reimbursed expenses of $61,823 and $91,068. Absent such fee waivers
and reimbursements, the Fund's Total Operating Expenses would have been 2.28%
and 3.25% of the Class A Shares' average daily net assets and 3.03% and 4.05% of
the Class B Shares' average daily net assets. As compensation for sub-advisory
services for the fiscal year ended December 31, 1996, ICC paid ABKB/LaSalle,
from its own resources, sub-advisory fees of $3,163 (net of fee waivers). For
the period from January 3, 1995 (commencement of operations) through December
31, 1995, 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
and Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
Alex. Brown & Sons Incorporated ("Alex. Brown" or the "Distributor")
serves as the exclusive distributor of the Fund's Shares pursuant to three
separate Distribution Agreements, one for each class of the Fund's shares
(collectively, the "Distribution Agreements").
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 and 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
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 fiscal year ended
December 31, 1996 and the period from January 3, 1995 (commencement of
operations) through December 31, 1995, Alex. Brown received from the Fund
distribution fees in the amounts of $31,554 and $9,662.
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
-16-
<PAGE>
investment representatives and to Participating Dealers. As compensation for
providing distribution services for the Class B Shares for the fiscal year ended
December 31, 1996 and 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 $27,697 and $21,264. In return for the
distribution fees, Alex. Brown paid the distribution-related expenses of the
Fund including one or more of the following: advertising expenses; printing and
mailing of prospectuses to other than current shareholders; compensation to
dealers and sales personnel; and interest, carrying or other financing charges.
In addition, with respect to the Class B Shares, Alex. Brown receives a
shareholder servicing fee at an annual rate of .25% of the average daily net
assets of the Class B Shares. (See the Prospectus.) For the fiscal year ended
December 31, 1996 and the period from January 3, 1995 (commencement of
operations) through December 31, 1995, such shareholder servicing fees totaled
$9,232 and $5,316.
Alex. Brown receives no compensation for distributing the Institutional
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 two separate Plans of
Distribution, one for the Class A Shares and one for the Class B Shares
(collectively, 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, in the case of Class A and Class B Shares, 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 Class A and Class B
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 30, 1996.
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 related Distribution Agreement without the approval of the shareholders of
the class. The Plans may be terminated at any time and the Class A and Class B
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 manner at any time. The Class A and Class B
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 Class A and
Class B 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.
-17-
<PAGE>
In addition, with respect to the Class A Shares and the Class B Shares,
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.
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 fiscal year ended December 31, 1996 and the period ended
December 31, 1995, Alex. Brown received sales commissions on the Class A Shares
of $224,818 and $137,648 and from such amount retained $152,214 and $124,915.
During the same periods, Alex. Brown received contingent deferred sales loads on
the Class B Shares of $57,368 and $116,236 and retained all of this amount.
The Institutional Distribution Agreement was approved by the Fund's
Board of Directors on December 18, 1996. It has an initial term of two years and
will remain in effect from year to year thereafter, if 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 at a meeting called for
such purpose. It may be terminated at any time upon sixty days' written notice,
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 Institutional Shares (as
defined under Capital Stock). The Institutional Distribution Agreement and any
Sub-Distribution Agreement shall automatically terminate in the event of
assignment.
The Fund pays 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
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
-18-
<PAGE>
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.
8. BROKERAGE
The Advisors 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, 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.
The Advisors' primary consideration in effecting securities
transactions is to obtain best price and execution of orders on an overall
basis. As described below, however, the Advisors may, in their discretion,
effect agency transactions with broker-dealers that furnish statistical,
research or other information or services that 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 the Advisors 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
the Advisors 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. The Advisors are of the opinion that
because the material must be analyzed and reviewed by their staff, its receipt
does not tend to reduce expenses, but may be beneficial in supplementing the
Advisors' research and analysis. Therefore, it may tend to benefit the Fund by
improving the Advisors' investment advice. The Advisors' policy is 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.
-19-
<PAGE>
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 the Board adopted 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 fiscal year ended December 31, 1996 and the period ended
December 31, 1995, Alex. Brown directed $16,906,535 and $11,298,553 of
transactions to broker-dealers and paid $34,640 and $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 amounts of $480
and $1,988, which represented 1.39% and 7.73% of the Fund's aggregate brokerage
commissions and which were paid on transactions that represented 1.35% and 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) that
the Fund has acquired during its most recent fiscal year.
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 that
it seeks to purchase or sell.
9. CAPITAL STOCK
The Fund is authorized to issue 15 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.
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 three classes of
Shares: "Flag Investors Real Estate Securities Fund Class A Shares", "Flag
Investors Real Estate Securities Fund Class B Shares" and "Flag Investors Real
Estate Securities Fund Institutional 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 any applicable service
-20-
<PAGE>
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. SEMI-ANNUAL 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 AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank") 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") 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 fiscal year ended December 31, 1996,
such fees totaled $15,522. As compensation for providing accounting services,
ICC receives an annual fee, calculated and paid monthly as shown below.
Average Net Assets Accounting Services Fee
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
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<PAGE>
In addition, the Fund reimburses ICC for certain out-of-pocket
expenses.
As compensation for providing accounting services to the Fund for the
fiscal year ended December 31, 1996, ICC received fees of $19,225.
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers &
Lybrand L.L.P.
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:
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-,5-, or 10-year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1-, 5- or 10-year periods.
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 (or the later commencement of
operations of the series or class). In calculating the ending redeemable value
for the Class A Shares, the maximum sales load (4.5%) 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. In calculating the
performance of the Class B Shares, the applicable contingent deferred sales
charge (4.0% for the one year period, 2.0% for the five-year period and no sales
charge thereafter) is deducted from the ending redeemable value and all
dividends and distributions by the Fund are assumed to be 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
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<PAGE>
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 Institutional
Shares are sold without a sales load.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 payment for the periods
ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
One-Year Period Ended Inception Through
December 31, 1996 December 31, 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ending Average Ending Average
Class Redeemable Annual Total Redeemable Annual Total
Value Return Value Return
- ---------------------------------------------------------------------------------------------------------------------
Class A $1,267.27 26.73% $1,497.80 22.44%
January 3, 1995 +
- ---------------------------------------------------------------------------------------------------------------------
Class B $ 1,282.61 28.26% $1,505.74 22.78%
January 3, 1995 +
- ---------------------------------------------------------------------------------------------------------------------
Institutional * N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Inception Date.
* Institutional Shares were not offered in any period ended December 31,
1996.
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. 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.
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
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<PAGE>
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, 1996 was 3.84% for the Class A Shares and 3.30%
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 that, 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. The Fund's portfolio
turnover rate was 23% for the fiscal year ended December 31, 1996 and 28% for
the period ended December 31, 1995.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following shareholders owned of record or beneficially 5% or more
of the Fund's total outstanding Shares, as of April 15, 1997:
T. Rowe Price, Trustee 7.81%
Alex. Brown & Sons Inc. Plan 100460
Flag Investors Telephone Income (Attn. Asset Records)
P.O. Box 17215
Baltimore, MD 21297-0354
Alex. Brown & Sons Incorporated 71%*
One South Street
Baltimore, MD 21202
----------
* Alex. Brown owns beneficially less than 1% of such shares.
Directors and officers as a group owned 2.05% of the Fund's total
outstanding Shares, as of April 15, 1997.
-24-
<PAGE>
15. FINANCIAL STATEMENTS
See next page.
-25-
<PAGE>
ABrown FI Real Estate Fund AR
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Net Assets December 31, 1996
<TABLE>
<CAPTION>
Market Percent Unrealized
Market Value of Net Gain/
Shares Security Price (Note 1) Assets (Loss)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS: 98.2%
Real Estate Investment Trusts: 90.7%
Apartments: 26.1%
30,400 Avalon Properties, Inc. $28.75 $ 874,000 3.5% $ 246,346
20,800 Bay Apartment Communities, Inc. 36.00 748,800 3.0 289,828
8,700 Columbus Realty Trust 22.75 197,925 0.8 11,640
16,300 Equity Residential Properties Trust 41.25 672,375 2.7 197,340
32,300 Evans Withycombe Residential, Inc. 21.00 678,300 2.7 17,941
23,000 Irvine Apartment Communities, Inc. 25.00 575,000 2.3 95,506
35,400 Merry Land & Investment
Company, Inc. 21.50 761,100 3.0 14,164
21,400 Oasis Residential, Inc. 22.75 486,850 1.9 14,344
20,500 Post Properties, Inc. 40.25 825,125 3.3 153,959
47,000 United Dominion Realty Trust 15.50 728,500 2.9 65,051
---------- ---- ----------
6,547,975 26.1 1,106,119
Factory Outlets: 2.6%
18,700 Chelsea GCA Realty, Inc. 34.63 647,488 2.6 124,168
---------- ---- ----------
Health Care: 5.9%
18,000 Health Care Property Investors, Inc. 35.00 630,000 2.5 31,254
35,100 Nationwide Health Properties, Inc. 24.25 851,175 3.4 145,733
---------- ---- ----------
1,481,175 5.9 176,987
Hotels: 11.4%
24,600 FelCor Suite Hotels, Inc. 35.38 870,225 3.5 150,043
26,100 Patriot American Hospitality, Inc. 43.13 1,125,563 4.5 397,357
15,600 Starwood Lodging Trust 55.13 859,950 3.4 316,053
---------- ---- ----------
2,855,738 11.4 863,453
Manufactured Housing: 4.4%
25,500 Manufactured Home
Communities, Inc. 23.25 592,875 2.4 133,249
14,800 Sun Communities, Inc. 34.50 510,600 2.0 133,571
---------- ---- ----------
1,103,475 4.4 266,820
Office/Industrial: 18.4%
14,200 Arden Realty Group, Inc. 27.75 394,050 1.6 70,235
6,400 Beacon Properties Corporation 36.63 234,400 0.9 68,403
5,900 Cali Realty Corporation 30.88 182,162 0.7 22,015
</TABLE>
-26-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Percent Unrealized
Market Value of Net Gain/
Shares Security Price (Note 1) Assets (Loss)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (continued)
Real Estate Investment Trusts (concluded)
Office/Industrial (concluded)
8,700 CarrAmerica Realty Corporation $29.25 $ 254,475 1.0% $ 34,423
22,400 Duke Realty Investments, Inc. 38.50 862,400 3.4 190,448
34,900 Highwoods Properties, Inc. 33.75 1,177,874 4.7 234,436
25,200 Spieker Properties, Inc. 36.00 907,200 3.6 295,527
18,600 Weeks Corporation 33.25 618,450 2.5 156,344
---------- ---- ----------
4,631,011 18.4 1,071,831
Regional Malls: 6.6%
4,800 Macerich Company 26.13 125,400 0.5 16,699
26,268 Simon DeBartolo Group, Inc. 31.00 814,308 3.2 191,137
56,800 Taubman Centers, Inc. 12.88 731,300 2.9 155,399
---------- ---- ----------
1,671,008 6.6 363,235
Retail/Neighborhood and
Community Centers: 9.7%
17,500 Developers Diversified
Realty Corp. 37.13 649,688 2.6 125,420
18,000 Federal Realty Investment Trust 27.13 488,250 1.9 96,076
14,150 Kimco Realty Corporation 34.88 493,481 2.0 111,244
7,900 Regency Realty Corporation 26.25 207,375 0.8 74,855
11,600 Vornado Realty Trust 52.50 609,000 2.4 182,629
---------- ---- ----------
2,447,794 9.7 590,224
Self-Storage: 5.6%
19,300 Public Storage, Inc. 31.00 598,300 2.4 175,932
10,400 Shurgard Storage Centers,
Inc.--Class A 29.63 308,100 1.3 39,246
12,800 Storage USA, Inc. 37.63 481,600 1.9 66,644
---------- ---- ----------
1,388,000 5.6 281,822
Real Estate Operating Companies: 7.5%
Hotels: 6.5%
29,100 CapStar Hotel Company* 19.63 571,088 2.3 46,379
47,400 Host Marriott Corp.* 16.00 758,400 3.0 113,663
4,000 Interstate Hotels Corporation* 28.25 113,000 0.5 12,669
11,900 Red Roof Inns, Inc.* 15.50 184,450 0.7 (4,392)
---------- ---- ----------
1,626,938 6.5 168,319
</TABLE>
-27-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded)
<TABLE>
<CAPTION>
Market Percent Unrealized
Market Value of Net Gain/
Shares Security Price (Note 1) Assets (Loss)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS (concluded)
Real Estate Operating Companies (concluded)
Regional Malls: 1.0%
8,400 The Rouse Company $31.75 $ 266,700 1.0% $ 71,193
----------- ----- ---------
Total Investment in Securities
(Cost $19,583,131)** 24,667,302 98.2 5,084,171
Other Assets in Excess of Liabilities, Net 443,768 1.8
----------- -----
Net Assets $25,111,070 100.0%
=========== =====
Net Asset Value and Redemption Price Per:
Class A Share
($19,816,307 / 1,427,132 shares outstanding) $13.89
======
Class B Share
($5,294,763 / 382,694 shares outstanding) $13.84***
======
Maximum Offering Price Per:
Class A Share
($13.89 / .955) $14.54
======
Class B Share $13.84
======
</TABLE>
* Non-income producing security.
** Aggregate cost for federal tax purposes was $19,508,529.
*** Redemption value is $13.29 following a maximum 4% contingent deferred sales
charge.
See Notes to Financial Statements.
-28-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
Dec. 31,
- --------------------------------------------------------------------------------
1996
Investment Income (Note 1):
Dividends $1,051,673
Interest 12,788
----------
Total income 1,064,461
----------
Expenses:
Investment advisory fee (Note 2) 106,045
Distribution fees (Note 2) 68,483
Registration fees 47,454
Legal 35,482
Printing and postage 34,446
Audit 29,367
Custodian fees 20,692
Accounting fee (Note 2) 19,225
Organizational expense (Note 1) 18,699
Transfer agent fees (Note 2) 15,522
Miscellaneous 3,573
Directors' fees 334
Insurance 176
----------
Total expenses 399,498
Less:Fees waived and expenses reimbursed (Note 2) (167,868)
----------
Net expenses 231,630
----------
Net investment income 832,831
----------
Realized and unrealized gain on investments:
Net realized gain from security transactions 489,391
Change in unrealized appreciation or depreciation of investments 4,266,134
----------
Net gain on investments 4,755,525
----------
Net increase in net assets resulting from operations $5,588,356
==========
See Notes to Financial Statements.
-29-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the Period
Year Ended Jan. 3, 1995(1)
Dec. 31, through Dec. 31,
- -------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 832,831 $ 353,419
Net realized gain from security transactions 489,391 47,282
Change in unrealized appreciation or
depreciation of investments 4,266,134 818,037
----------- -----------
Net increase in net assets resulting from operations 5,588,356 1,218,738
----------- -----------
Distributions to Shareholders from:
Net investment income:
Class A Shares (600,459) (185,238)(2)
Class B Shares (158,265) (92,558)(2)
Short-term capital gains:
Class A Shares (100,111) (27,959)
Class B Shares (26,298) (11,617)
Long-term capital gains:
Class A Shares (214,377) --
Class B Shares (56,352) --
Return of capital:
Class A Shares (21,539) (31,299)(2)
Class B Shares (5,650) (15,293)(2)
----------- -----------
Total distributions (1,183,051) (363,964)
----------- -----------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 10,892,733 9,712,132
Value of shares issued in reinvestment of dividends 974,878 246,856
Cost of shares repurchased (1,349,523) (726,085)
----------- -----------
Increase in net assets derived from
capital share transactions 10,518,088 9,232,903
----------- -----------
Total increase in net assets 14,923,393 10,087,677
Net Assets:
Beginning of period 10,187,677 100,000(3)
----------- -----------
End of period $25,111,070 $10,187,677
=========== ===========
</TABLE>
(1) Commencement of operations.
(2) Distributions have been reclassified to reflect the actual return of
capital amounts for 1995.
(3) On July 28, 1994, the Fund sold 10,000 shares to a subsidiary of
Alex. Brown & Sons Incorporated for $100,000.
See Notes to Financial Statements.
-30-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
For the For the Period
Year Ended Jan. 3, 1995(1)
Dec. 31, through Dec. 31,
- --------------------------------------------------------------------------------
1996 1995
Per Share Operating Performance:
Net asset value at beginning of period $ 11.20 $10.00
------- ------
Income from Investment Operations:
Net investment income 0.61 0.56
Net realized and unrealized gain
on investments 2.90 1.21
------- ------
Total from Investment Operations 3.51 1.77
------- ------
Less Distributions:
Dividends from net investment income (0.58) (0.49)(2)
Distributions from net realized short-term gains (0.07) (0.05)
Distributions from net realized long-term gains (0.15) --
Return of capital (0.02) (0.03)(2)
------- ------
Total distributions (0.82) (0.57)
------- ------
Net asset value at end of period $ 13.89 $11.20
======= ======
Total Return(3) 32.70% 18.19%
Ratios to Average Daily Net Assets:
Expenses 1.25%(4) 1.25%(4,5,6)
Net investment income 5.29%(7) 6.09%(5,6,7)
Supplemental Data:
Net assets at end of period (000) $19,816 $7,171
Portfolio turnover rate 23% 28%
Average commissions per share $ 0.07(8) --
(1) Commencement of operations.
(2) Distributions per share have been reclassified to reflect the actual return
of capital amounts for 1995.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of expenses to average daily net assets would have been 2.28% and
3.25% (annualized) for the year ended December 31, 1996 and the period
ended December 31, 1995, respectively.
(5) Annualized.
(6) Effective January 1, 1996, the Fund's expense and net investment income
ratios have been based on average daily net assets. Prior to that date they
were based on average monthly net assets. Under the prior method, the ratio
of expenses to average net assets was 1.19% and the ratio of net investment
income to average net assets was 5.95%.
(7) Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of net investment income to average daily net assets would
have been 4.26% and 3.89% (annualized) for the year ended December 31, 1996
and the period ended December 31, 1995, respectively.
(8) Disclosure is required for fiscal years beginning on or after September 1,
1995. Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
-31-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
For the For the Period
Year Ended Jan. 3, 1995(1)
Dec. 31, through Dec. 31,
- --------------------------------------------------------------------------------
1996 1995
Per Share Operating Performance:
Net asset value at beginning of period $11.18 $10.00
------ ------
Income from Investment Operations:
Net investment income 0.52 0.50
Net realized and unrealized gain
on investments 2.89 1.20
------ ------
Total from Investment Operations 3.41 1.70
------ ------
Less Distributions:
Dividends from net investment income (0.51) (0.42)(2)
Distributions from net realized short-term gains (0.07) (0.05)
Distributions from net realized long-term gains (0.15) --
Return of capital (0.02) (0.05)(2)
------ ------
Total distributions (0.75) (0.52)
------ ------
Net asset value at end of period $13.84 $11.18
====== ======
Total Return(3) 31.67% 17.40%
Ratios to Average Daily Net Assets:
Expenses 2.00%(4) 2.00%(4,5,6)
Net investment income 4.46%(7) 5.39%(5,6,7)
Supplemental Data:
Net assets at end of period (000) $5,295 $3,016
Portfolio turnover rate 23% 28%
Average commissions per share $ 0.07(8) --
(1) Commencement of operations.
(2) Distributions per share have been reclassified to reflect the actual return
of capital amounts for 1995.
(3) Total return excludes the effect of sales charge.
(4) Without the waiver of advisory fees and reimbursement of expenses (Note
2), the ratio of expenses to average daily net assets would have been
3.03% and 4.05% (annualized) for the year ended December 31, 1996 and
the period ended December 31, 1995, respectively.
(5) Annualized.
(6) Effective January 1, 1996, the Fund's expense and net investment income
ratios have been based on average daily net assets. Prior to that date
they were based on average monthly net assets. Under the prior method,
the ratio of expenses to average net assets was 1.90% and the ratio of net
investment income to average net assets was 5.25%.
(7) Without the waiver of advisory fees and reimbursement of expenses (Note 2),
the ratio of net investment income to average daily net assets would have
been 3.43% and 3.09% (annualized) for the year ended December 31, 1996 and
the period ended December 31, 1995, respectively.
(8) Disclosure is required for fiscal years beginning on or after September 1,
1995. Represents average commission rate per share charged to the Fund
on purchases and sales of investments during the period.
See Notes to Financial Statements.
-32-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--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 Class A Shares and Class B
Shares have different sales charges and distribution fees, and the Class B
Shares have a contingent deferred sales charge.
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:
A. 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.
B. 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.
C. 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.
-33-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
D. 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.
NOTE 2--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.
As compensation for its services, ABKB/LaSallereceives a fee from ICC,
payable from its advisory fee, calculated daily and paid monthly at the
following annual rates based upon the Fund's average daily net assets: 0.40% of
the first $100 million, 0.35% of the next $100 million, 0.30% of the next $100
million and 0.25% of that portion in excess of $300 million.
-34-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTE 2--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 year ended December 31, 1996, ICC waived
fees of $106,045 and reimbursed expenses of $61,823.
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 $19,225 for accounting services for the year ended December
31, 1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated daily and paid monthly. ICC received $15,522 for
transfer agent services for the year ended December 31, 1996.
As compensation for providing distribution services, Alex. Brown & Sons
Incorporated 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 year ended December 31,
1996, distribution fees aggregated $68,483, of which $31,554 was attributable to
the Class A Shares and $36,929 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 period January 1, 1996 through December 31, 1996 was $533, and
the accrued liability was approximately $867.
-35-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 10 million shares of $.001 par
value capital stock (7 million Class A, 2 million Class B and 1 million
undesignated). Transactions in shares of the Fund were as follows:
Class A Shares
------------------------------
For the For the Period
Year Ended Jan. 3, 1995* to
Dec. 31, 1996 Dec. 31, 1995
------------- ----------------
Shares sold 807,325 655,079
Shares issued to shareholders on
reinvestment of dividends 63,818 16,704
Shares redeemed (84,104) (41,690)
---------- ----------
Net increase in shares outstanding 787,039 630,093
========== ==========
Proceeds from sale of shares $9,428,874 $6,763,257
Value of reinvested dividends 787,477 178,010
Cost of shares redeemed (1,047,300) (439,765)
---------- ----------
Net increase from capital share transactions $9,169,051 $6,501,502
========== ==========
Class B Shares
------------------------------
For the For the Period
Year Ended Jan. 3, 1995* to
Dec. 31, 1996 Dec. 31, 1995
------------- ----------------
Shares sold 124,181 290,349
Shares issued to shareholders on
reinvestment of dividends 15,254 6,473
Shares redeemed (26,509) (27,054)
---------- ----------
Net increase in shares outstanding 112,926 269,768
========== ==========
Proceeds from sale of shares $1,463,859 $2,948,875
Value of reinvested dividends 187,401 68,846
Cost of shares redeemed (302,223) (286,320)
---------- ----------
Net increase from capital share transactions $1,349,037 $2,731,401
========== ==========
*Commencement of operations.
-36-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTE 4--Investment Transactions
Purchases and sales of investment securities, other than short-term
obligations, aggregated $13,781,802 and $3,606,961, respectively, for the year
ended December 31, 1996.
On December 31, 1996, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $5,163,165
and aggregate gross unrealized depreciation of all securities in which there was
an excess of tax cost over value was $4,392.
NOTE 5--Net Assets
On December 31, 1996, net assets consisted of:
Paid-in capital:
Class A Shares $15,693,112
Class B Shares 4,058,303
Undistributed net investment income 275,484
Unrealized appreciation of investments 5,084,171
-----------
$25,111,070
===========
-37-
<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, 1996 and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and financial
highlights for each of the respective periods presented. 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, 1996, 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, 1996 and the
results of its operations for the year then ended, the changes in its net assets
and its financial highlights for each of the respective periods in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Philadelphia, Pennsylvania
February 4, 1997
-38-
<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 - Debt rated AAA by S&P has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong. Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. Debt rated A has strong capacity
to pay interest and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
debt in higher rated categories. Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal. Whereas it normally
exhibits 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 debt in this category than for debt 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 fiscal year ended
December 31, 1996
- Statement of Operations for the fiscal year ended December
31, 1996
- Financial Highlights for the fiscal year ended December 31,
1996
- Notes to Financial Statements
- Report of Independent Accountants
(b) Exhibits
(1)(a) Articles of Incorporation, dated April 29, 1994.(3)
(1)(b) Articles Supplementary to Articles of Incorporation, dated
December 5, 1994.(3)
(1)(c) Articles Supplementary to Articles of Incorporation, dated
December 19, 1996, filed herewith.
(2) By-Laws, as amended through December 18, 1996, filed
herewith.
(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.(3)
(5)(b) Investment Sub-Advisory Agreement among the Registrant,
Investment Company Capital Corp. and ABKB/LaSalle Securities
Limited Partnership.(3)
(6)(a) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated.(3)
(6)(b) Form of Sub-Distribution Agreement between Alex. Brown &
Sons Incorporated and Participating Dealers.(4)
(6)(c) Form of Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents.(3)
(6)(d) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to the Flag Investors Class B
Shares.(3)
(6)(e) Distribution Agreement between Registrant and Alex. Brown &
Sons Incorporated with respect to the Flag Investors
Institutional Shares, filed herewith.
(7) Not Applicable.
(8)(a) Custodian Agreement between Registrant and PNC Bank,
National Association.(3)
(8)(b) Master Services Agreement between Registrant and ICC.(3)
C-1
<PAGE>
(9) Not Applicable.
(10) Opinion of Counsel.(3)
(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement.(3)
(14) Not Applicable.
(15)(a) Distribution Plan.(3)
(15)(b) Distribution Plan with respect to Flag Investors
Class B Shares.(3)
(16) Schedule of Computation of Performance Quotations.(2)
(18)(a) Rule 18f-3 Plan.(4)
(18)(b) Rule 18f-3 Plan, as amended through March 26, 1997, filed
herewith.
(24) Powers of Attorney, filed herewith.
(27) Financial Data Schedule, 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.
3 Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR on April 26, 1996.
4 Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR on November 21, 1996.
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 15, 1997.
C-2
<PAGE>
Title of Class Number of Record Holders
- --------------------------------------------------------------------------------
Flag Investors Real Estate Securities Fund Class A Shares 866
Flag Investors Real Estate Securities Fund Class B Shares 317
Flag Investors Real Estate Securities Fund Institutional Shares 0
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
C-3
<PAGE>
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 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.
C-4
<PAGE>
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.
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 Short-Intermediate Income
Fund, Inc. (formerly, 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):
C-5
<PAGE>
(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
Benjamin Howell Griswold, IV Director None
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial None
Officer and
Treasurer
Robert F. Price Secretary and None
General Counsel
- ---------
* One South Street
Baltimore, Maryland 21202
(c) Not Applicable.
C-6
<PAGE>
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, One South 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-7
<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. 6 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 28th day of April, 1997.
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 28, 1997
- --------------------------- --------------
Richard T. Hale Date
* Director April 28, 1997
- --------------------------- --------------
Truman T. Semans Date
Director April 28, 1997
- --------------------------- --------------
Charles W. Cole, Jr. Date
* Director April 28, 1997
- --------------------------- --------------
James J. Cunnane Date
Director April 28, 1997
- --------------------------- --------------
Robert S. Killebrew, Jr. Date
* Director April 28, 1997
- --------------------------- --------------
John F. Kroeger Date
* Director April 28, 1997
- --------------------------- --------------
Louis E. Levy Date
* Director April 28, 1997
- --------------------------- --------------
Eugene J. McDonald Date
* Director April 28, 1997
- --------------------------- --------------
Rebecca W. Rimel Date
* Director April 28, 1997
- --------------------------- ---------------
Carl W. Vogt Date
/s/ William K. Morrill, Jr. President April 28, 1997
- --------------------------- ---------------
William K. Morrill, Jr. Date
/s/ Joseph A. Finelli Chief Financial April 28, 1997
- --------------------------- and Accounting ---------------
Joseph A. Finelli Officer Date
* By: /s/ Scott J. Liotta
--------------------
Scott J. Liotta
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Edgar
Exhibit Exhibit Page
Number Number Document Number
- ------ ------ -------- ------
<S> <C> <C> <C>
(1)(a) Articles of Incorporation, dated April 29, 1994.(3)
(1)(b) Articles Supplementary, dated December 5, 1994.(3)
EX-99.B (1)(c) Articles Supplementary
to Articles of Incorporation,
dated December 19, 1996, filed
herewith.
EX-99.B (2) By-Laws, as amended through March 26, 1997,
filed herewith.
(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.(3)
(5)(b) Investment Sub-Advisory Agreement among the
Registrant, Investment Company Capital Corp. and
ABKB/LaSalle Securities Limited Partnership.(3)
(6)(a) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated.(3)
(6)(b) Form of Sub-Distribution Agreement between Alex.
Brown & Sons Incorporated and Participating
Dealers.(4)
(6)(c) Form of Shareholder Servicing Agreement
between Registrant and Shareholder Servicing
Agents.(3)
(6)(d) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to
the Flag Investors Class B Shares.(3)
EX-99.B (6)(e) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to
the Flag Investors Institutional Shares, filed
herewith.
(7) Not Applicable.
(8)(a) Custodian Agreement between Registrant and
PNC Bank, National Association.(3)
(8)(b) Master Services Agreement between Registrant
and Alex. Brown & Sons Incorporated.(3)
(9) Not Applicable.
(10) Opinion of Counsel.(3)
EX-99.B (11) Consent of Independent Accountants, filed
herewith.
(12) Not Applicable.
(13) Subscription Agreement.(3)
(14) Not Applicable.
(15)(a) Distribution Plan.(3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(15)(b) Distribution Plan with respect to Flag Investors
Class B Shares.(3)
(16) Schedule of Computation of Performance
Quotations.(2)
(18)(a) Rule 18f-3 Plan.(4)
EX-99.B (18)(b) Rule 18f-3 Plan, as amended March 26, 1997, filed
herewith.
EX-99.B (24) Powers of Attorney, filed herewith.
EX-27 (27) Financial Data Schedule, 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.
3 Incorporated by reference to Post-Effective Amendment No. 4 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR on April 26, 1996.
4 Incorporated by reference to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR on November 21, 1996.
<PAGE>
EX-99.B (1)(c)
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 increasing the total number of shares of capital stock which the
Corporation has the authority to issue to fifteen million (15,000,000) shares of
Common Stock, par value $.001 per share, having an aggregate value of
$15,000.00, as follows: seven million (7,000,000) shares are designated "Flag
Investors Real Estate Securities Fund Class A Shares", two million (2,000,000)
shares are designated "Flag Investors Real Estate Securities Fund Class B
Shares", five million (5,000,000) shares are designated "Flag Investors Real
Estate Securities Fund Institutional Shares" and one million (1,000,000) shares
remain undesignated.
SECOND: Immediately before the increase, 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 seven
million (7,000,000) shares were designated "Flag Investors Real Estate
Securities Fund Class A Shares", two million (2,000,000) shares were designated
"Flag Investors Real Estate Securities Fund Class B Shares" and one million
(1,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors 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 19th day of December, 1996.
[CORPORATE SEAL]
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
By: /s/ Edward J. Veilleux
-------------------------
Edward J. Veilleux
Vice President
Attest: /s/ Edward J. Stoken
-----------------------
Edward J. Stoken
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
Vice President
-2-
<PAGE>
EX-99.B(2)
As Amended Through
December 18, 1996
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.
<PAGE>
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.
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
<PAGE>
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.
(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,
<PAGE>
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 plurality vote of a quorum cast by written ballot at the regular
meeting of shareholders, if any, or at a special meeting held for that purpose.
The term of office of each Director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
<PAGE>
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
<PAGE>
hours before the time at which such meeting is to be held, or by first-class
mail, postage prepaid, or by commercial delivery services addressed to him at
his residence or usual place of business, at least three days before the day on
which such meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another Director chosen by a majority of the Directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
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Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; provided, however, that for so long as
the Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time; provided, however, that for so
long as the Corporation is registered as an investment company under the 1940
Act, this Section shall be inapplicable to the approval of any investment
advisory agreement, sub-advisory agreement or any plan (or agreement containing
a plan) pursuant to Rule 12b-1 under the 1940 Act.
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as Director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
Directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee,
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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 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;
<PAGE>
(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;
(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.
<PAGE>
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
<PAGE>
limitation, the rights to receive dividends or other distributions, and to vote
as such owner, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in any such share or shares on the part of any
other person.
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.
<PAGE>
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the Secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of 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.
<PAGE>
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.
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
<PAGE>
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
<PAGE>
agreement, vote of shareholders or disinterested Directors or otherwise, both as
to action by a Director or officer of the Corporation in his official capacity
and as to action by such person in another capacity while holding such office or
position, and shall continue as to a person who has ceased to be a Director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to time
amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
<PAGE>
EX-99.B(6)(e)
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS INSTITUTIONAL SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 20th day of January, 1997, 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's Articles of Incorporation, filed with
the Secretary of State of the State of Maryland on March 2, 1994, authorize the
Board of Directors of the Fund to increase or decrease the number of shares of
capital stock of the Fund and the number of shares of any class of capital stock
of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the
designation of two classes of shares of the Fund known respectively as the Flag
Investors Real Estate Securities Fund Class A Shares and the Flag Investors Real
Estate Securities Fund Class B Shares; and
WHEREAS, the Fund's Board of Directors has further
authorized the creation of an institutional class of shares of the Fund known as
the Flag Investors Real Estate Securities Fund Institutional Shares (the
"Shares") ; 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 Institutional Shares (the "Shares") and Alex. Brown wishes to become
the distributor of the Shares; and
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:
<PAGE>
1. Appointment. The Fund appoints Alex. Brown as
Distributor for the Shares for the period and on the terms set forth in this
Agreement. Alex. Brown accepts such appointment and agrees to render the
services set forth herein.
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 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;
(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;
2
<PAGE>
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.
(a) 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.
(b) Alex. Brown may enter into shareholder processing
and servicing agreements;
(c) Alex. Brown may, and when requested by the Fund
shall, suspend its efforts to effectuate sales of the Shares at any time when in
the opinion of Alex. Brown or of the Fund no sales should be made because of
market or other economic considerations or abnormal circumstances of any kind;
and
(d) the Fund may withdraw the offering of the Shares
(i) at any time with the consent of Alex. Brown, or (ii) without such consent
when so required by the provisions of any statute or of any order, rule or
regulation of any governmental body having jurisdiction.
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.
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;
(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;
3
<PAGE>
(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; 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.
4
<PAGE>
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 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. Alex. Brown shall receive no
compensation for the services to be rendered and the expenses assumed by it
pursuant to this Agreement.
10. Compensation for Servicing Shareholder Accounts. The
Fund acknowledges that Alex. Brown may, from its own resources, 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, from its own
resources, compensate each such Participating Dealer for such services.
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:
5
<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.
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.
6
<PAGE>
[SEAL] FLAG INVESTORS REAL ESTATE SECURITIES
FUND, INC.
Attest:/s/ Laurie D. Collidge By/s/ Edward J. Veilleux
---------------------- --------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:/s/ Laurie D. Collidge By /s/ Richard T. Hale
---------------------- --------------------------
Title:
7
<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
FORM OF
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
<PAGE>
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 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 NASD's
Conduct Rules, including, without limitation, the provisions of Rule 2830. 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
2
<PAGE>
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.
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.
3
<PAGE>
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:______________________________
4
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
Flag Investors Real Estate Securities Fund, Inc.
We consent to the inclusion of our report dated February 4, 1997 on our audit of
the financial statements and financial highlights of Flag Investors Real Estate
Securities Fund, Inc., in the Statement of Additional Information with respect
to this Post-Effective Amendment No. 6 to the Registration Statement (No.
33-78648) on Form N-1A under the Securities Act of 1933 and the Investment
Company Act of 1940, respectively, of Flag Investors Real Estate Securities
Fund, Inc. We also consent to the reference to our Firm under the headings
"Financial Highlights" and "General Information" in the Prospectuses and
"Independent Accountants" in the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 24, 1997
<PAGE>
EX-99.B(18)(b)
Flag Investors Real Estate Securities Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B and
Flag Investors Institutional Shares
Adopted December 13, 1995
Amended through March 26, 1997
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, Flag Investors Class B and Flag
Investors Institutional) 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. The Flag Investors Institutional Shares have been offered
since January 20, 1997.
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. For each additional class of shares approved by the Fund's
Board of Directors after the date hereof, the appropriate officers of the Fund
will attest the resolutions approving such class as an exhibit hereto. 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.
<PAGE>
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,
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.
- --------
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>
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.
<PAGE>
EXHIBIT A
Exhibits to Registrant's 18f-3 Plan
1. Articles of Incorporation filed as Exhibit (1)(a) to Post-Effective Amendment
No. 4 to Registrant's Registration Statement on Form N-1A (Registration No.
33-78648), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-96-000269) on April 26, 1996 is herein incorporated by
reference.
2. Articles Supplementary establishing the Institutional Shares filed as Exhibit
(1)(c) to this Registration Statement on Form N-1A (Registration No. 33-78648)
are herein incorporated by reference.
3. By-Laws as amended through December 18, 1996 filed as Exhibit (2) to this
Registration Statement on Form N-1A (Registration No. 33-78648) are herein
incorporated by reference.
4. Distribution Agreement between Registrant and Alex. Brown Incorporated with
respect to Flag Investors Class A Shares filed as Exhibit (6)(a) to
Post-Effective Amendment No. 4 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000269) on April 26, 1996 is
herein incorporated by reference.
5. Distribution Plan with respect to Class A Shares filed as Exhibit (15)(a) to
Post-Effective Amendment No. 4 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000269) on April 26, 1996 is
herein incorporated by reference.
6. Distribution Agreement between Registrant and Alex. Brown Incorporated with
respect to Flag Investors Class B Shares filed as Exhibit (6)(d) to
Post-Effective Amendment No. 4 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000269) on April 26, 1996 is
herein incorporated by reference.
7. Distribution Plan with respect to Class B Shares filed as Exhibit (15)(b) to
Post-Effective Amendment No. 4 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-96-000269) on April 26, 1996 is
herein incorporated by reference.
8. Distribution Agreement with respect to Flag Investors Institutional Shares
filed as Exhibit (6)(e) to this Registration Statement on Form N-1A
(Registration No. 33-78648) is herein incorporated by reference.
9. Form of Sub-Distribution Agreement between Alex. Brown & Sons Incorporated
and Participating Dealers filed as Exhibit (6)(b) to Post-Effective Amendment
No. 5 to Registrant's Registration Statement on Form N-1A (Registration No.
33-78648), filed with the Securities and
<PAGE>
Exchange Commission via EDGAR on November 21, 1996, 1996 (Accession No.
0000950116-96-001366) is herein incorporated by reference.
10. Prospectus relating to its Class A and Class B Shares filed as part of this
Registration Statement on Form N-1A (Registration No. 33-78648) is herein
incorporated by reference, as amended from time to time.
11. Prospectus relating to its Institutional Class filed as part of this
Registration on Form N-1A (Registration No. 33-78648) is herein incorporated
by reference, as amended from time to time.
<PAGE>
BOARD APPROVALS
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 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 Re-designating Flag Investors Shares as Class A Shares;
Designating Class B Shares; Authorizing Filing of Articles Supplementary;
Approving Class B Distribution Agreement and Plan of Distribution
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"
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 CLASS A CLASS B UNCLASSIFIED
SHARES ------- ------- ------------
------
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
<PAGE>
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.
Approved: December 18, 1996
Resolutions of Board Creating
Institutional Class of Shares
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Real Estate Securities Fund, Inc. is
authorized to issue is hereby increased from ten million (10,000,000) to fifteen
million (15,000,000) and that from such amount, five million (5,000,000)
authorized and unissued shares be, and hereby are, designated and classified as
the "Flag Investors Real Estate Securities Fund Institutional Shares";
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 to effectuate the increase in authorized shares
and to designate and classify the new class;
FURTHER RESOLVED, that any filings previously made and any actions
previously taken by the appropriate officers of each Fund in connection with the
establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of such Fund.
<PAGE>
Approved: December 18, 1996
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
-------------------------------------------
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Real Estate Securities Fund, Inc. and Alex. Brown & Sons Incorporated
for the Flag Investors Institutional Shares of said Fund be, and the same hereby
is, approved;
FURTHER RESOLVED, that the proper officers of Flag Investors Real
Estate Securities Fund, Inc. be, and each of them hereby is, authorized and
directed to enter into and execute the Distribution Agreement on behalf of the
Fund, and to take all other actions that such officer deems necessary or
appropriate in connection with the execution of such agreement, the taking of
any action to establish conclusively such officer's authority therefore and the
approval and ratification thereof by the Fund.
Approved: March 26, 1997
Approval of Amended Rule 18f-3 Plan
RESOLVED, based upon information presented to the Board of Directors of
Flag Investors Real Estate Securities Fund, Inc. (the "Fund"), that the
Directors, including a majority of the Directos who are not "interested persons"
of the Fund, have determined that the Fund's amended Rule 18f-3 Plan, including
the expense allocation described therein, is in the best interests of the Fund
and each of its classes;
FURTHER RESOLVED, that the amended Rule 18f-3 for the Fund be, and
hereby is, approved, in substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to take any and all actions necessary or
appropriate to cause the amended Rule 18f-3 Plan to be filed with the Securities
and Exchange Commission.
<PAGE>
EX-99.B(24)
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 Scott J. Liotta, 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: March 26, 1997
<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 Scott
J. Liotta, 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: March 26, 1997
<PAGE>
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 Scott J. Liotta, 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 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: March 26, 1997
<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 Scott
J. Liotta, 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: March 26, 1997
<PAGE>
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 Scott J. Liotta, 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: March 26, 1997
<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 Scott
J. Liotta, 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: March 26, 1997
<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 Scott
J. Liotta, 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: March 26, 1997
<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 Scott
J. Liotta, 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: March 26, 1997
<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 Scott
J. Liotta, 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: March 26, 1997
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, William K. Morrill, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Scott J. Liotta, 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 President
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: March 26, 1997
<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 Scott J. Liotta, 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: March 26, 1997
<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 Scott
J. Liotta, 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: March 26, 1997
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