<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998.
FILE NO. 33-78648
FILE NO. 811-8500
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 / /
POST-EFFECTIVE AMENDMENT NO. 7 / X /
and
REGISTRATION STATEMENT UNDER THE / /
INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 9 / 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, 1998 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ 75 days after filing pursuant toparagraph (a)(2)
___ on (date) pursuant to paragraph (a) of Rule 485
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<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
Cross Reference Sheet
(Class A and Class B Shares)
April 28, 1998
Registration
Statement
Items Requires by Form N-1A Heading
- --------------------------- -------
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page......................... Cover Page
Item 2. Synopsis........................... Fund Expenses
Item 3. Condensed Financial
Information........................ Financial Highlights
Item 4. General Description of
Registrant......................... Investment Program; General
Information
Item 5. Management of the Fund............. Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor;
Custodian, Transfer Agent 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............................ The Fund's Net Asset Value;
How to Buy Shares; How to Choose
the Class of Shares That is
Right for You; Distributor
Item 8. Redemption or Repurchase........... How to Redeem Shares;
Telephone Transactions
Item 9. Pending Legal Proceedings.......... *
Part B - Information Required in a
- ------
Statement of Additional
Information
Item 10. Cover Page......................... Cover Page
Item 11. Table of Contents.................. Table of Contents
Item 12. General Information and
History............................ General Information and
History
Item 13. Investment Objectives and
Policies........................... Investment Objectives and
Policies
Item 14. Management of the Fund............. Management of the Fund
Holders of Securities
- ------------------------
* Omitted since the answer is negative or the item is not applicable.
** Information required by Item 5A is contained in the Fund's 1997 Annual Report
to Shareholders.
<PAGE>
Item 15. Control Persons and Principal
Holders of Securities........ Control Persons and Principal
Item 16. Investment Advisory and Other
Services..................... Investment Advisory and Other
Services; Custodian, Transfer
Agent 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.
- -----------------------
* Omitted since the answer is negative or the item is not applicable.
ii
<PAGE>
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[GRAPHIC OMITTED]
FLAG INVESTORS
REAL ESTATE SECURITIES FUND, INC.
(Class A and Class B Shares)
Prospectus & Application -- May 1, 1998
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks 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 Flag Investors Class A Shares
("Class A Shares") and Flag Investors Class B Shares ("Class B Shares") of the
Fund. The separate classes provide you with alternatives as to sales load and
Fund expenses. (See "How to Buy Shares.")
This Prospectus sets forth basic information that you should know about the
Fund prior to investing. You should retain it for future reference. A Statement
of Additional Information dated May 1, 1998 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
The Fund's Net Asset Value ................. 5
How to Buy Shares .......................... 5
How to Redeem Shares ....................... 7
Telephone Transactions ..................... 8
How to Choose the Class That Is Right
For You ................................. 8
Dealer Compensation ........................ 9
Dividends and Taxes ........................ 9
Management of the Fund ..................... 10
Investment Advisor and Sub-Advisor ......... 10
Distributor ................................ 11
Custodian, Transfer Agent and
Accounting Services ..................... 11
Performance Information .................... 11
General Information ........................ 12
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>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Alternative Alternative
--------------- -------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .............................................. 4.50%* None
Maximum Sales Charge Imposed on Reinvested Dividends .............................. None None
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) .............................................. 0.32%*** 0.32%***
12b-1 Fees ........................................................................ 0.25% 0.75%
Other Expenses (including a 0.25% shareholder servicing fee for Class B Shares) ... 0.68% 0.93%****
------ ------
Total Fund Operating Expenses (net of fee waivers) ................................ 1.25%*** 2.00%***
====== ======
</TABLE>
- -----------
* If you purchase $1 million or more of Class A Shares, you will not have to
pay an initial sales charge. You may, however, be required to pay a
contingent deferred sales charge when you redeem your shares. (See "How to
Buy Shares" and "How to Redeem Shares.")
** You will be required to pay a contingent deferred sales charge if you
redeem your Class B Shares within six years of purchase. The amount of the
charge declines in relation to the time you hold your shares. Class B
Shares will automatically convert to Class A Shares six years after
purchase. (See "How to Redeem 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 0.65% of the Fund's
average daily net assets and Total Fund Operating Expenses would be 1.58%
of the Class A Shares' average daily net assets and 2.33% of the Class B
Shares' average daily net assets.
**** A portion of the shareholder servicing fee is allocated to your securities
dealers and qualified banks for services provided and expenses incurred in
maintaining your account, responding to your inquiries, and providing you
with information on your investments.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- --------------------------------------------------------- ------ ------- ------- --------
You would pay the following expenses on a $1,000 invest-
ment, 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**
You would pay the following expenses on the same invest-
ment, assuming no redemption:* 1 year 3 years 5 years 10 years
------ -------- ------- ---------
Class B Shares ......................................... $20 $63 $108 $ 196**
</TABLE>
- -----------
* 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.
The Expenses and 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 above table is to describe the various costs and
expenses that you will bear directly and indirectly when you invest in the
Fund. If you purchase shares of either class through a financial institution,
you may be charged separate fees by that institution.
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, you may qualify for reduced sales charges or no sales
charge at all. (See "How to Buy Shares.") Due to the continuous nature of Rule
12b-1 fees, you may pay more than the equivalent of the maximum sales charges
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD Rules") if you hold your shares for a long time.
1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
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, 1997 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, 1997, 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(1)
Year Ended December 31, through December 31,
-------------------------- ----------------------
1997 1996 1995
------------ ------------ ----------------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period .................................. $ 13.89 $ 11.20 $ 10.00
--------- ------- ---------
Income from Investment Operations:
Net investment income ..................... 0.52 0.61 0.56
Net realized and unrealized gain on
investments ............................. 2.44 2.90 1.21
--------- ------- ---------
Total from Investment Operations .......... 2.96 3.51 1.77
--------- ------- ---------
Less Distributions:
Distributions from net investment
income .................................. (0.60) (0.58) (0.49)(2)
Distributions from net realized
capital gains ........................... (0.47) (0.22) (0.05)
Return of capital ......................... -- (0.02) (0.03)(2)
--------- ------- ---------
Total distributions ....................... (1.07) (0.82) (0.57)
--------- ------- ---------
Net asset value at end of period .......... $ 15.78 $ 13.89 $ 11.20
========= ======= =========
Total Return(3) ............................ 22.01% 32.70% 18.19%
Ratios to Average Daily Net Assets:
Expenses(4) ............................... 1.25% 1.25% 1.25%(6)(7)
Net investment income(5) .................. 3.87% 5.29% 6.09%(6)(7)
Supplemental Data:
Net assets at end of period (000) ......... $41,773 $19,816 $ 7,171
Portfolio turnover rate ................... 35% 23% 28%
Average commissions per share(8) .......... $0.0479 $0.0475 --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Class B Shares
------------------------------------------------
For the Period
For the January 3, 1995(1)
Year Ended December 31, through December 31,
-------------------------- --------------------
1997 1996 1995
------------ ------------ --------------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period .................................. $ 13.84 $ 11.18 $ 10.00
--------- --------- --------
Income from Investment Operations:
Net investment income ..................... 0.42 0.52 0.50
Net realized and unrealized gain on
investments ............................. 2.42 2.89 1.20
--------- --------- --------
Total from Investment Operations .......... 2.84 3.41 1.70
--------- --------- --------
Less Distributions:
Distributions from net investment
income .................................. (0.50) (0.51) (0.42)(2)
Distributions from net realized
capital gains ........................... (0.47) (0.22) (0.05)
Return of capital ......................... -- (0.02) (0.05)(2)
---------- ---------- --------
Total distributions ....................... (0.97) (0.75) (0.52)
---------- ---------- --------
Net asset value at end of period .......... $ 15.71 $ 13.84 $ 11.18
========== ========== ========
Total Return(3) ............................ 21.11% 31.67% 17.40%
Ratios to Average Daily Net Assets:
Expenses(4) ............................... 2.00% 2.00% 2.00%(6)(7)
Net investment income(5) .................. 3.12% 4.46% 5.39%(6)(7)
Supplemental Data:
Net assets at end of period (000) ......... $ 9,799 $ 5,295 $ 3,016
Portfolio turnover rate ................... 35% 23% 28%
Average commissions per share(8) .......... $ 0.0479 $ 0.0475 --
</TABLE>
- -----------
(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 the reimbursement of expenses, the
ratio of expenses to average daily net assets would have been 1.58%, 2.28%
and 3.25% (annualized) for Class A Shares and 2.33%, 3.03% and 4.05%
(annualized) for Class B Shares for the years ended December 31, 1997 and
1996 and the period ended December 31, 1995, respectively.
(5) 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
3.54%, 4.26% and 3.89% (annualized) for Class A Shares and 2.79%, 3.43%
and 3.09% (annualized) for Class B Shares for the years ended December 31,
1997 and 1996 and the period ended December 31, 1995, respectively.
(6) Annualized.
(7) Effective January 1, 1996, the Fund's expense and net investment income
ratios are 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.
(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.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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.
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. When the Fund invests in REITs or
master limited partnerships, shareholders indirectly bear a proportionate share
of the operating expenses of the underlying entity, 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.
REITs pool investors' funds for investment primarily in income producing real
estate or real estate related loans or interests. 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.
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.
<PAGE>
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 subadvisor 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 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
expose the Fund to possible loss because of adverse market action or delay in
connection with the disposition of the underlying obligations.
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
When-Issued Securities
The Fund may purchase securities, at their current market value, 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 choose to sell the securities before the settlement
date. 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 local economic conditions,
overbuilding and increased competition, increase 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 cost 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 your 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 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 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.
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THE FUND'S NET ASSET VALUE
- --------------------------------------------------------------------------------
The following sections describe how to buy and redeem shares of the Fund.
The price you pay or receive is based on the Fund's net asset value per
share. When you buy Class A Shares, the price you pay may be increased by a
sales charge. When you redeem shares of either class, the price you receive may
be reduced by a sales charge. Read the sections on how to buy shares and how to
redeem shares for details on how and when these charges may or may not be
imposed.
The net asset value per share of each class is determined on each
business day as of the close of trading on the New York Stock Exchange
(ordinarily 4:00 p.m. Eastern Time). It is calculated by subtracting the
liabilities attributable to a class from its proportionate share of the Fund's
assets and dividing the result by the outstanding shares of the class. Because
the different classes have different distribution or service fees, their net
asset values may differ from time to time.
In valuing the Fund's assets, its investments are priced at their market
value which is normally based on current prices but which may be determined
according to "fair value" procedures approved by the Fund's Board of Directors.
You may buy or redeem shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that
day, the price you pay or receive will be based on the next Business Day's net
asset value per share.
<PAGE>
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
You may buy either class of the Fund's shares through your securities
dealer or through any financial institution that is authorized to act as a
shareholder servicing agent. Contact them for details on how to enter and pay
for your order. You may also buy shares by sending your check (along with a
completed Application Form) directly to the Fund. The Application Form, which
includes instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental
to the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent investments
must be at least $100. The following are exceptions to these minimums:
o If you are investing in an IRA account, your initial investment may be
as low as $1,000.
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. If you participate in the
monthly plan, your subsequent investments may be as low as $100. If
you participate in the quarterly plan, your subsequent investments
may be as low as $250. Refer to the section on the Fund's Automatic
Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Purchase Price
The price you pay to buy shares will be the Fund's offering price which
is calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule.
Class A Sales
Charge As % of
-------------------------
Offering Net Amount Class B Sales
Amount of Purchase Price Invested Charge
- ------------------------------- ---------- ------------ --------------
Less than $ 50,000 .......... 4.50% 4.71% None
$ 50,000 - $ 99,999.......... 3.50% 3.63% None
$ 100,000 - $249,999 ......... 2.50% 2.56% None
$ 250,000 - $499,999 ......... 2.00% 2.04% None
$ 500,000 - $999,999.......... 1.50% 1.52% None
$1,000,000 and over ........... None None None
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares or when you buy any amount of Class B
Shares, you may have to pay a sales charge when you redeem your shares. Refer
to the section on how to redeem shares for details.
5
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
The sales charge you pay on your current purchase of Class A Shares may
be reduced under the circumstances listed below.
Rights of Accumulation. If you are also purchasing Class A shares of this
or any other Flag Investors fund or if you already have investments in Class A
or Class D shares, you may combine the value of your purchases with the value
of your existing investments to determine whether you qualify for a reduced
sales charge. (For this purpose your existing investments will be valued at the
higher of cost or current value.) You may also combine your purchases and
investments with those of your spouse and your children under the age of 21 for
this purpose. You must be able to provide sufficient information to verify that
you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class
A Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to
initially purchase at least 5% of the total. When you make each purchase during
the period, you will pay the sales charge applicable to their combined value.
If, at the end of the 13-month period, the total value of your purchases is
less than the amount you indicated, you will be required to pay the difference
between the sales charges you paid and the sales charges applicable to the
amount you actually did purchase. Some of the shares you own will be redeemed
to pay this difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
1) If you are buying shares in any of the following types of accounts:
(i) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
fiduciary or advisory services. You may be charged an additional fee
by your securities dealer or servicing agent if you buy shares in
this manner;
(ii) A qualified retirement plan;
(iii) A Flag Investors fund payroll savings plan program.
2) If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
3) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a description of
the conditions).
4) If you are a current or retired Director of the Fund, a director, an
employee or a member of the immediate family of an employee of any of the
following (or their respective affiliates): the Distributor, the Advisors
and any broker-dealer authorized to sell shares of the Fund.
<PAGE>
Purchases by Exchange
You may exchange shares of any other Flag Investors fund with the same
sales charge structure for an equal dollar amount of Class A or B Shares, as
applicable, without payment of the sales charges described above or any other
charge. If you exchange Class A shares of any Flag Investors fund with a lower
sales charge structure into Class A Shares, you will be charged the difference
in sales charges unless (with the exception of Flag Investors Cash Reserve
Prime Class A Shares) you have owned the shares for at least 24 months. You may
enter both your redemption and purchase orders on the same Business Day or, if
you have already redeemed the shares of the other fund, you may enter your
purchase order within 90 days of the redemption. The Fund may modify or
terminate these offers of exchange at any time on 60 days' prior written
notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
Investing Regularly
You may make regular investments in the Fund through any of the following
methods. If you wish to enroll in any of these programs or if you need any
additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or
the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in either class of shares. The amount you decide upon will
be withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in the class of
shares selected at that day's offering price. Either you or the Fund may
discontinue your participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions
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will be reinvested in additional Fund shares at net asset value. You may elect
to receive your distributions in cash or to have your distributions invested in
shares of other Flag Investors funds. To make either of these elections or to
terminate automatic reinvestment, complete the appropriate section of the
attached Application Form or notify the Transfer Agent, your securities dealer
or your servicing agent at least five days before the date on which the next
dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase any class of shares
through a Systematic Purchase Plan. Contact your securities dealer or servicing
agent for details.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem either class of the Fund's shares through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If your shares are in an
account with the Fund, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the number of
shares or dollar amount you wish to redeem. The letter must be signed by
all owners of the shares exactly as their names appear on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature by a
member of the Federal Deposit Insurance Corporation, a trust company,
broker, dealer, securities exchange or association, clearing agency,
savings association or (if authorized by state law) credit union.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
<PAGE>
Redemption Price
The price you receive when you redeem shares will be the net asset value
of the class of shares you are redeeming less any applicable sales charge. The
amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
Sales Charge as a Percentage of the Dollar Amount
Subject to Charge
- --------------------------------------------------
Class A Class B
Years Since Purchase Shares Shares
- ---------------------- ------------ ----------
First ................ 0.50%* 4.00%
Second ............... 0.50%* 4.00%
Third ................ None 3.00%
Fourth ............... None 3.00%
Fifth ................ None 2.00%
Sixth ................ None 1.00%
Thereafter ........... None None
* You will pay a sales charge when you redeem Class A Shares only if you bought
those shares at net asset value as part of an investment of $1,000,000 or
more.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) The sales charge is applied to the lesser of the cost of the shares or their
current market value.
2) No sales charge will be applied to shares you own as a result of reinvesting
dividends or distributions.
3) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
4) If you acquired the shares through an exchange of shares of another Flag
Investors fund, the period of time you held the original shares will be
combined with the period of time you held the shares being redeemed to
determine the years since purchase.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging your shares for shares of another Flag Investors fund
with the same sales charge structure.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If shares are being redeemed in your account following your death or a
determination that you are
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disabled. This waiver applies only under the following conditions:
(i) The account is registered in your name either individually, as a joint
tenant with rights of survivorship, as a participant in community
property, or as a minor child under the Uniform Gifts or Uniform
Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities dealer,
servicing agent or the Transfer Agent that such circumstances exist.
4) If you are redeeming Class A Shares, your original investment was at least
$3,000,000 and your securities dealer has agreed to return to the
Distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with
any reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares six years after your purchase. This
conversion will be made on the basis of the relative net asset values of the
classes and will not be a taxable event to you.
Other Redemption Information
If you own Fund shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves all
the tax and sales charge implications normally associated with Fund
redemptions. Contact your securities dealer, your servicing agent or the
Transfer Agent for information on this plan.
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time,
the dividend will be paid to you by check, whether or not that is the payment
option you have selected.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you 60
days' notice.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $50,000 or exchange them for shares in another Flag
Investors fund by calling the Transfer Agent on any Business Day between the
hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically entitled
to telephone transaction privileges unless you specifically request that no
telephone redemptions or exchanges be accepted for your account. You may make
this election when you complete the Application Form or at any time thereafter
by completing and returning documentation supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information at the
time your account is opened and prior to effecting each telephone transaction.
You may be required to provide additional telecopied instructions. If these
procedures are employed, neither the Fund nor the Transfer Agent will bear any
liability for following instructions received by telephone that they reasonably
believe to be genuine. Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by mail. If you hold your shares in certificate form,
you may not exchange or redeem them by telephone.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
- --------------------------------------------------------------------------------
Your decision as to which class of the Fund's shares is best for you
should be based upon a number of factors including the amount of money you
intend to invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy
your shares but the amount of the charge declines as the amount of your
investment increases. You will pay lower expenses while you hold the shares
and, except in the case of investments of $1,000,000 or more, no sales charge
if you redeem them.
If you choose Class B Shares, you will pay no sales charge when you buy
your shares but your annual expenses will be higher than Class A Shares. You
will pay a sales charge if you redeem your shares within six
8
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<PAGE>
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years of purchase, but the amount of the charge declines the longer you hold
your shares and, at the end of six years, your shares convert to Class A Shares
thus eliminating the higher expenses.
In general, if you intend to invest more than $100,000 your combined
sales charges and expenses are lower with Class A Shares. If you intend to
invest less than $100,000 and expect to hold your shares for more than six
years, your combined sales charges and expenses are lower with Class B Shares.
Your securities dealer or servicing agent may receive different levels of
compensation depending upon which class of shares you buy.
DEALER COMPENSATION
- --------------------------------------------------------------------------------
Your securities dealer is paid a commission when you buy shares and is
paid a servicing fee for as long as you hold your shares.
Dealer Compensation as a % of
Offering Price
---------------------------------
Amount of Purchase Class A Shares Class B Shares
- -------------------------- ---------------- ---------------
Less than $ 50,000 .. 4.00% 4.00%
$ 50,000 - $ 99,999 .. 3.00% 4.00%
$ 100,000 - $249,999.. 2.00% 4.00%
$ 250,000 - $499,999 .. 1.50% 4.00%
$ 500,000 - $999,999.. 1.25% 4.00%
$1,000,000 and over .. * 4.00%
- -------------------------- ---- ----
* Your securities dealer may be paid up to 1.00% of the Offering Price
In addition to the commissions shown above, your securities dealer may be
paid an annual fee equal to 0.25% of the value of your Class A Shares or Class
B Shares for as long as you hold them. The annual fee will begin when you buy
your shares.
<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
affecting the Fund and its shareholders 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 tax treatment of the Fund or its shareholders and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, you are advised to consult your tax advisor regarding specific
questions as to federal, state, and local 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 not pay 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. Capital
gains distributions from the Fund are classified as either short-term,
long-term or mid-term depending upon how long the Fund held the securities it
sold to generate the gains. You will be taxed on the distributions according to
the category stipulated by the Fund regardless of how long you have held your
Fund shares. Only a portion of the dividends paid by the Fund is expected to
qualify for the dividends received deduction available to corporate
shareholders. You will be advised annually as to 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 you 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
you.
9
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<PAGE>
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MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian and
transfer agent. The day to day operations of the Fund are delegated to the
Fund's executive officers, to the Advisors and to the Distributor. A majority
of the Directors of the Fund are not affiliated with the Advisors or the
Distributor.
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 mutual funds with approximately $6.5 billion of net
assets as of December 31, 1997. In addition to this Fund, these include other
funds in the Flag Investors family of funds and BT Alex. Brown Cash Reserve
Fund, Inc. ABKB/LaSalle is a registered investment advisor and together with
its affiliates had, as of December 31, 1997, approximately $3.1 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.
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. The Board has established procedures
under which ABKB/LaSalle may allocate transactions to certain affiliates,
provided that compensation 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. As compensation for its services
for the fiscal year ended December 31, 1997, ICC received a fee (net of fee
waivers) equal to 0.32% of the Fund's average daily net assets and, for the
same period, ICC paid ABKB/LaSalle a fee (net of fee waivers) equal to 0.20% of
the Fund's average daily net assets.
ICC is an indirect subsidiary of Bankers Trust Corporation. 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. An affiliate of ICC provides custody
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.
10
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<PAGE>
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Mr. Morrill, Managing Director of ABKB/LaSalle, has nearly 18 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
Mr. Pauley, Senior Vice President of ABKB/LaSalle, has over 12 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor of each class of the Fund's shares since August 31, 1997.
ICC Distributors is a registered broker-dealer that offers distribution
services to a variety of registered investment companies including other funds
in the Flag Investors family of funds and BT Alex. Brown Cash Reserve Fund,
Inc. ICC Distributors is not affiliated with either the Advisor or the
Sub-Advisor.
The Fund has adopted a Distribution Agreement and related Plans of
Distribution with respect to the Class A and Class B Shares (the "Plans"),
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended. In
addition, the Fund may enter into agreements with certain financial
institutions, including certain banks and BT Alex. Brown, to provide
shareholder services, pursuant to which the Distributor may allocate on a
proportional basis up to all of its distribution fee as compensation for such
financial institutions' ongoing shareholder services. Such financial
institutions may charge you separately for these services.
As compensation for providing distribution services for the Class A
Shares for the period from August 31, 1997 through December 31, 1997, the
Distributor received a fee equal to 0.25% (annualized) of the average daily net
assets of the Class A Shares.
As compensation for providing distribution and shareholder services for
the Class B Shares for the period from August 31, 1997 through December 31,
1997, the Distributor received a distribution fee equal to 0.75% (annualized)
of the Class B Shares' average daily net assets and a shareholder servicing fee
equal to 0.25% of the Class B Shares' average daily net assets. The
distribution fees are used to compensate the Distributor for its services and
expenses in distributing the Class B Shares. The shareholder servicing fees are
used to compensate the Distributor, securities dealers and servicing agents for
services provided and expenses incurred in maintaining your account, responding
to your inquiries and providing you with information on your investments.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended portion
of the distribution fees may be retained as profit by the Distributor. ICC
Distributors or the Advisor and their respective affiliates may make payments
from their own resources to securities dealers and servicing agents. Payments
by the Distributor will include additional discounts or promotional incentives
in the form of cash or other compensation (including merchandise or travel).
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the period ended December 31,
1997, ICC received a fee equal to 0.09% of the Fund's average daily net assets.
Bankers Trust Company, a subsidiary of Bankers Trust Corporation acts as
custodian of the Fund's assets. (See the Statement of Additional Information.)
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
11
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<PAGE>
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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
compounded 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 publication 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 your bank
with respect to the account through which your shares may be purchased,
although not included in calculations of performance, will reduce your
performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end diversified management investment company
organized under the laws of the State of Maryland on May 2, 1994 and is
authorized to issue 15 million shares of capital stock, with a par value of
$.001 per share. Each share has one vote and is 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.
The Board of Directors of the Fund is authorized to establish additional
series of shares of capital stock, each of which would evidence interests in a
separate portfolio of securities, and separate classes of each series of the
Fund. The shares offered by this Prospectus have been designated "Flag Investors
Real Estate Securities Fund Class A Shares" and "Flag Investors Real Estate
Securities Fund Class B Shares." The Board has no present intention of
establishing any additional series of the Fund but the Fund has another class of
shares, "Flag Investors Real Estate Securities Fund Institutional Shares."
Additional information concerning the Fund's Institutional Shares may be
obtained by calling the Fund 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 the classes may have different
distribution/service fees or sales load structures, and accordingly, the net
asset value per share of the classes may differ at times.
<PAGE>
Annual Meetings
The Fund does not expect to hold annual meetings of shareholders unless
required by Maryland law. 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 shareholder communications in
connection with the meeting.
Reports
You will be furnished 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
If you have questions concerning your shares, contact the Fund at (800)
767-FLAG, the Transfer Agent at (800) 553-8080 or your securities dealer or
servicing agent.
12
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<PAGE>
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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 ICC DISTRIBUTORS, INC.
SECURITIES LIMITED PARTNERSHIP P.O. Box 7558
100 East Pratt Street Portland, Maine 04101
Baltimore, Maryland 21202
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
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
New York, New York 10006 Philadelphia, Pennsylvania 19103
13
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<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors For assistance in completing this
Real Estate Securities Application please call:
Fund, Inc." and mail with this 1-800-553-8080 Monday through
Application to: Friday, 8:30 a.m. to 5:30 p.m.
Flag Investors Funds (Eastern Time).
P.O. Box 419663
Kansas City, MO 64141-6663 To open an IRA account, please call
Attn: Flag Investors Real Estate 1-800-767-3524 for an IRA
Securities Fund, Inc. 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 except checks for more than $50,000 that are not certified or bank
checks.
Your Account Registration (Please Print)
Existing Account No.,if any: ___________________
Individual or Joint Tenant
________________________________________________________
First Name Initial Last Name
________________________________________________________
Social Security Number
________________________________________________________
Joint Tenant Initial Last Name
Corporations, Trusts, Partnerships, etc.
________________________________________________________
Name of Corporation, Trust or Partnership
____________________ _____________________
Tax ID Number Date of Trust
________________________________________________________
Name of Trustees (If to be included in the Registration)
________________________________________________________
For the Benefit of
<PAGE>
Gifts to Minors
______________________________________________________________________
Custodian's Name (only one allowed by law)
______________________________________________________________________
Minor's Name (only one)
_______________________________ ___________________________________
Social Security Number of Minor Minor's Date of Birth (Mo./Day/Yr.)
under the __________________________ Uniform Gifts to Minors Act
State of Residence
Mailing Address
______________________________________________________________________
Street
______________________________________________________________________
City State Zip
(____)________________________________________________________________
Daytime Phone
Letter of Intent -- (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 -- (Optional)
List the Account numbers of other Flag Investors Funds 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.
______________________________ ____________________________________________
Bank Name Depositor's Signature Date
______________________________ ____________________________________________
Existing Flag Investors Fund Depositor's Signature Date
Account No., if any (if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of ____________, 19__ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $___________ from Class A Shares and/or $___________ from Class B
Shares that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000 per class.)
Frequency (check one): [ ] Monthly
[ ] Quarterly (January, April, July and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank: Bank Account No.:
---------------------------- ---------------------------
Address: Bank Account Name:
------------------------- ---------------------------
-------------------------
<PAGE>
Signature and Taxpayer Certification
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
your 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
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.
I acknowledge that I am of legal age in the state of my residence. I have
received a copy of the Fund's prospectus. 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 Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid
backup withholding.
- -------------------------------- -------------------------------------------
Signature Date Signature (if joint acct.,
both must sign) Date
- --------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: Dealer Code:
------------------------- ----------------------------
Dealer's Address: Branch Code:
------------------------- ----------------------------
-------------------------
Representative: Rep. No.:
------------------------- ----------------------------
A-2
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
Cross Reference Sheet
(Institutional Shares)
April 28, 1998
<TABLE>
<CAPTION>
Registration
Statement
Items Requires by Form N-1A Heading
- --------------------------- ------------
<S> <C> <C>
Part A - Information Required in a Prospectus
Item 1. Cover Page........................................ Cover Page
Item 2. Synopsis.......................................... Fund Expenses
Item 3. Condensed Financial
Information....................................... Financial Highlights
Item 4. General Description of
Registrant........................................ Investment Program; General
Information
Item 5. Management of the Fund............................ Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor; Custodian,
Transfer Agent 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........................................... The Fund's Net Asset Value;
How to Buy 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
</TABLE>
- ------------------------------
* Omitted since the answer is negative or the item is not applicable.
** Information required by Item 5A is contained in the Fund's 1997 Annual Report
to Shareholders.
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
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>
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
FLAG INVESTORS
REAL ESTATE SECURITIES FUND, INC.
(Institutional Shares)
Prospectus & Application -- May 1, 1998
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks 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, certain qualified retirement plans,
or investment advisory affiliates of BT Alex. Brown Incorporated ("BT Alex.
Brown"). (See "How to Buy Institutional Shares.")
This Prospectus sets forth basic information that you should know about the
Fund prior to investing. You should retain it for future reference. A Statement
of Additional Information dated May 1, 1998 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
The Fund's Net Asset Value ................. 5
How to Buy Institutional Shares ............ 5
How to Redeem Institutional Shares ......... 6
Telephone Transactions ..................... 6
Dividends and Taxes ........................ 6
Management of the Fund ..................... 7
Investment Advisor and Sub-Advisor ......... 7
Distributor ................................ 8
Custodian, Transfer Agent and
Accounting Services ..................... 8
Performance Information .................... 8
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>
<S> <C>
Maximum Sales Charge Imposed on Purchases ................................... None
Maximum Sales Charge Imposed on Reinvested Dividends ........................ None
Maximum Deferred Sales Charge ............................................... None
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees (net of fee waivers) ........................................ 0.32%*
12b-1 Fees .................................................................. None
Other Expenses .............................................................. 0.68%
------
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 0.65%
of the Fund's average daily net assets and Total Fund Operating Expenses
would be 1.33% of the Institutional Shares' average daily net assets.
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- ------- -------- --------- --------- ---------
You would pay the following expenses on a $1,000 invest-
ment, 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 Expenses and 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 above table is to describe the various costs and
expenses that you will bear indirectly when you invest in Institutional Shares.
If you purchase Institutional Shares through a financial institution, you may
be charged separate fees by that institution.
1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in this table have been derived from the
Fund's financial statements for the period indicated and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the fiscal year ended December 31, 1997 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, 1997 which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
March 31, 1997(1)
through
December 31, 1997
------------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................ $ 14.19
-------
Income from Investment Operations:
Net investment income ................................. 0.47
Net realized and unrealized gain on
investments ......................................... 2.14
-------
Total from Investment Operations ...................... 2.61
-------
Less Distributions:
Dividends from net investment income .................. (0.42)
Distributions from net realized capital gains ......... (0.47)
--------
Total distributions ................................... (0.89)
--------
Net asset value at end of period ...................... $ 15.91
========
Total Return ........................................... 18.84%
Ratios to Average Daily Net Assets:
Expenses(2)............................................ 1.00%(4)
Net investment income(3)............................... 4.30%(4)
Supplemental Data:
Net assets at end of period (000) ..................... $ 288
Portfolio turnover rate ............................... 35%(4)
Average commissions per share ......................... $0.0479
</TABLE>
- --------------------------------------------------------------------------------
(1) Commencement of operations.
(2) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 1.39% (annualized) for the period ended
December 31, 1997.
(3) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 3.91% (annualized) for the period
ended December 31, 1997.
(4) Annualized.
2
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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.
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. When the Fund invests in REITs or
master limited partnerships, shareholders indirectly bear a proportionate share
of the operating expenses of the underlying entity, 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.
REITs pool investors' funds for investment primarily in income-producing
real estate or real estate related loans or interests. 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.
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.
<PAGE>
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 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
expose the Fund to possible loss because of adverse market
3
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
action or delay in connection with the disposition of the underlying
obligations.
When-Issued Securities
The Fund may purchase securities, at their current market value, 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 choose to sell the securities before the settlement
date. 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 your 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, as amended.
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 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 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.
4
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THE FUND'S NET ASSET VALUE
- --------------------------------------------------------------------------------
The following sections describe how to buy and redeem shares of the Fund.
The price you pay or receive is based on the Fund's net asset value per
share. The net asset value per share of a class is determined on each business
day as of the close of trading on the New York Stock Exchange (ordinarily 4:00
p.m. Eastern Time). It is calculated by subtracting the liabilities
attributable to a class from its proportionate share of the Fund's assets and
dividing the result by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their market
value which is normally based on current prices but which may be determined
according to "fair value" procedures approved by the Fund's Board of Directors.
You may buy or redeem shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that
day, the price you pay or receive will be based on the next Business Day's net
asset value per share.
HOW TO BUY INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
You may buy Institutional Shares if you are any of the following:
o An eligible institution (e.g., a financial institution, corporation,
investment counselor, trust, estate or educational, religious or
charitable institution).
o A qualified retirement plan with assets of at least $75 million.
o An investment advisory affiliate of BT Alex. Brown purchasing shares
for the accounts of your investment advisory clients.
You may buy Institutional Shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy Institutional Shares by sending your check (along with
a completed Application Form) directly to the Fund. The Application Form, which
incudes instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental
to the interests of the Fund's shareholders.
Investment Minimums
If you are an eligible institution, your initial investment must be at
least $500,000. There are no minimum initial investments for qualified
retirement plans or investment advisory affiliates of BT Alex. Brown. There are
no minimums for subsequent investments.
Purchases by Exchange
You may exchange Institutional shares of any other Flag Investors fund
for an equal dollar amount of Institutional Shares of the Fund. The Fund may
modify or terminate this offer of exchange at any time on 60 days' prior
written notice to shareholders.
<PAGE>
You may request an exchange through your securities dealer or your
servicing agent. Contact them for details on how to enter your order. If your
shares are in an account with the Fund's Transfer Agent, you may also request an
exchange directly through the Transfer Agent by express mail or telephone.
Other Information
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.
HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
You may redeem your shares through your securities dealer your servicing
agent or your investment advisor. Contact them for details on how to enter your
order. If your Institutional Shares are in an account with the Fund, you may
also redeem them by contacting the Transfer Agent by telephone (if you are
redeeming less than $500,000). You will be paid for redeemed shares by wire
transfer of funds to your
5
- --------------------------------------------------------------------------------
<PAGE>
REAL ESTATE
- --------------------------------------------------------------------------------
securities dealer, servicing agent or bank upon receipt of a duly authorized
redemption request as promptly as feasible and, under most circumstances,
within three Business Days.
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time,
the dividend will be remitted by wire to your securities dealer, servicing
agent or bank.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you 60
days' notice.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $500,000 or exchange them for Institutional Shares of
another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are
automatically entitled to telephone transaction privileges unless you
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information at the
time your account is opened and prior to effecting each telephone transaction.
You may be required to provide additional telecopied instructions. If these
procedures are employed, neither the Fund nor the Transfer Agent will bear any
liability for following instructions received by telephone that they reasonably
believe to be genuine. Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in contacting the Transfer Agent by telephone. In such event, you
should make your request by express mail or facsimile. (See "How to Buy
Institutional Shares-Purchases by Exchange" and "How to Redeem Institutional
Shares.")
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 you elect otherwise, all income dividends and net capital gains
distributions, if any, will be reinvested in additional Institutional Shares at
net asset value. You may elect to terminate automatic reinvestment by giving
written notice to the Transfer Agent, either directly or through your securities
dealer or servicing agent, at least five days before the next date on which
dividends or distributions will be paid.
<PAGE>
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences
affecting the Fund and its shareholders 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 tax treatment of the Fund or its shareholders and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, you are advised to consult with your tax advisor regarding
specific questions. 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.
You will be taxed on dividends from the Fund's net investment company
taxable income as ordinary income (whether received in cash or in additional
shares) to the extent of the Fund's earnings and profits. Capital gains
distributions from the Fund are classified as either short-term, long-term or
mid-term depending upon how long the Fund held the securities
6
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
it sold to generate the gains. You will be taxed on the distributions according
to the category stipulated by the Fund regardless of how long you have held
your Fund shares. Only a portion of the dividends paid by the Fund is expected
to qualify for the dividends received deduction available to corporate
shareholders. You will be advised annually as to 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 you in the year in which
the dividends were declared.
The sale, exchange, or redemption of Institutional Shares is a taxable
event for you.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian and
transfer agent. The day to day operations of the Fund are delegated to the
Fund's executive officers, to the Advisors and to the Distributor. A majority
of Directors of the Fund are not affiliated with the Advisors or the
Distributor.
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 mutual funds with approximately $6.5 billion of net
assets as of December 31, 1997. In addition to this Fund, these include other
funds in the Flag Investors family of funds and BT Alex. Brown Cash Reserve
Fund, Inc. ABKB/LaSalle is a registered investment advisor and together with
its affiliates had, as of December 31, 1997, approximately $3.1 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.
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. The Board has established procedures
under which ABKB/LaSalle may allocate transactions to certain affiliates,
provided that compensation 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. As
compensation for its services for the fiscal year ended December 31, 1997, ICC
received a fee (net of fee waivers) equal to 0.32% of the Fund's average daily
net assets and, for the same period, ICC paid ABKB/LaSalle (net of fee waivers)
a fee equal to 0.20% of the Fund's average daily net assets.
ICC is an indirect subsidiary of Bankers Trust Corporation. ABKB/LaSalle,
a Maryland limited partnership, is one of several entities through which LaSalle
Partners Limited Partnership and its
7
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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. An affiliate of ICC provides custody
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.
Mr. Morrill, Managing Director of ABKB/LaSalle, has nearly 18 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
Mr. Pauley, Senior Vice President of ABKB/LaSalle, has over 12 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as distributor of each class of the Fund's shares. ICC Distributors receives no
compensation for distributing the Institutional Shares. ICC Distributors is a
registered broker-dealer that offers distribution services to a variety of
registered investment companies including other funds in the Flag Investors
family of funds and BT Alex. Brown Cash Reserve Fund, Inc. ICC Distributors is
not affiliated with either the Advisor or the Sub-Advisor.
ICC Distributors bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses
to other than Fund shareholders. The Advisor or its affiliates may make
payments from their own resources to securities dealers and servicing agents.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. is the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. As compensation
for providing accounting services to the Fund for the fiscal year ended December
31, 1997, ICC received a fee equal to 0.09% of the Fund's average daily net
assets. Bankers Trust Company, a subsidiary of Bankers Trust Corporation, acts
as custodian of the Fund's assets. (See the Statement of Additional
Information.)
<PAGE>
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.
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
8
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
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 your bank
with respect to the accounts through which your shares may be purchased,
although not included in calculations of performance, will reduce your
performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end diversified management investment company
organized under the laws of the State of Maryland on May 2, 1994 and is
authorized to issue 15 million shares of capital stock, with a par value of
$.001 per share. Each share has one vote and is 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.
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 Board has no present
intention of establishing any additional series of the Fund but the Fund has two
other classes of shares, "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 Fund 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
advisoryfee, but the classes may have different distribution/ service fees or
sales load structures and, accordingly, the net asset value per share of the
classes may differ at times.
Annual Meetings
The Fund does not expect to hold annual meetings of shareholders unless
required by Maryland law. 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
You will be furnished 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
If you have questions concerning your Institutional Shares, contact the
Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or your
securities dealer or servicing agent.
9
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Send completed Application by overnight For assistance in completing this
carrier to: Application please call:
Flag Investors Funds 1-800-553-8080, Monday through
330 West 9th Street, First Floor Friday, 8:30 a.m. to
Kansas City, MO 64105 5:30 p.m. (Eastern Time).
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 Name of Individual to Receive
Partnership Correspondence
______________________________________ _____________________________________
Tax ID Number Street
/ / Corporation / / Partnership / / Trust _____________________________________
/ / Non-Profit or Charitable Organization City State Zip
/ / 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. There are no minimums for qualified retirement plans or investment
advisory affiliates of BT Alex. Brown Incorporated or for subsequent
investments.
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 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 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 The amount to be invested
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
<PAGE>
Acknowledgment, Certificate and Signature
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 your
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.
I have received a copy of the Fund's prospectus. 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 Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid
backup withholding.
________________________________________________________________________________
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.
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
<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 ICC DISTRIBUTORS, INC.
LIMITED PARTNERSHIP P.O. Box 7558
100 East Pratt Street Portland, Maine 04101
Baltimore, Maryland 21202
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
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
New York, New York 10006 Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
<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 YOUR
PARTICIPATING DEALER OR SHAREHOLDER SERVICING AGENT
OR BY WRITING OR CALLING THE FUND, ONE SOUTH STREET,
BALTIMORE, MARYLAND 21202, OR BY CALLING (800)
767-FLAG.
Statement of Additional Information Dated: May 1, 1998
Relating to Prospectuses Dated:
May 1, 1998 for the Class A and Class B Shares
and
the Institutional Shares
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. General Information and History........................................................................ 1
2. Investment Objective and Policies...................................................................... 1
3. Valuation of Shares and Redemption..................................................................... 6
4. Federal Tax Treatment of Dividends and
Distributions........................................................................................ 7
5. Management of the Fund................................................................................. 9
6. Investment Advisory and Other Services................................................................. 14
7. Distribution of Fund Shares............................................................................ 15
8. Brokerage.............................................................................................. 18
9. Capital Stock.......................................................................................... 19
10. Semi-Annual Reports.................................................................................... 20
11. Custodian, Transfer Agent, and Accounting Services .................................................... 20
12. Independent Accountants ............................................................................... 21
13 Legal Matters...........................................................................................21
14. Performance Information................................................................................ 21
15. Control Persons and Principal Holders of
Securities........................................................................................... 23
16. Financial Statements................................................................................... 23
Appendix.............................................................................................. A-1
</TABLE>
<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 and Shareholder
Servicing Agents that offer shares of the respective classes of the Fund
("Shares") to prospective investors. 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. The Fund began offering Institutional Shares on March 31, 1997.
Under a license agreement dated August 23, 1994 between the Fund and
Alex. Brown Incorporated (now BT 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.
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked it service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others with which the Fund does business experience difficulties as a result
of year 2000 issues.
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. Equity securities include common
-1-
<PAGE>
stock, rights or warrants to purchase common stock, preferred stock and
securities convertible into common stock. 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.
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
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generally tends to reflect the market's perception of the creditworthiness of
the issuer and short-term market developments to a greater extent than more
highly rated securities, which reflect primarily fluctuations in general levels
of interest rates.
Risks of Investment in Real Estate Securities
Even though the Fund will not invest in real estate directly, it may be
subject to risks similar to those associated with the direct ownership of real
estate because of its policy of concentrating in the securities of companies in
the real estate industry. These include declines in the value of real estate,
risks related to general and local economic conditions, dependency on management
skill, heavy cash flow dependency, possible lack of availability of long-term
mortgage funds, overbuilding, extended vacancies of properties, decreased
occupancy rates and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
limitations on rents, changes in neighborhood values and the appeal of
properties to tenants and changes in interest rates.
The risks of ownership of partnership units of master limited
partnerships include those related to changes in economic conditions or changes
in real estate and specific property values. One added risk of master limited
partnerships is that they do not allow for election of independent directors or
trustees to oversee the policies of the partnership. Rather, they rely on a
general partner to exercise fiduciary responsibilities.
In addition to these risks, equity REITs may be affected by changes in
the value of the underlying property owned by the trusts, while mortgage REITs
may be affected by the quality of any credit extended. Further, equity and
mortgage REITs are dependent upon management skills and generally are not
diversified. Equity and mortgage REITs are also subject to heavy cash flow
dependency, defaults by borrowers and self-liquidation. In addition, equity and
mortgage REITs could possibly fail to qualify for tax free pass-through of
income under the Internal Revenue Code of 1986, as amended (the "Code") or to
maintain their exemptions from registration under the Investment Company Act.
The above factors may also adversely affect a borrower's or a lessee's ability
to meet its obligations to the REIT. In the event of a default by a borrower or
lessee, the REIT may experience delays in enforcing its rights as a mortgagee or
lessor and may incur substantial costs associated with protecting its
investments.
Money Market Securities
From time to time the Fund may purchase high-quality short-term debt
securities, commonly known as money market securities. These securities include
direct obligations of the U.S. Government which consist of bills, notes and
bonds issued by the U.S. Treasury. Obligations issued by agencies of the U.S.
Government, while not direct obligations of the U.S. Government, are either
backed by the full faith and credit of the U.S. or are guaranteed by the U.S.
Treasury or supported by the issuing agencies' right to borrow from the U.S.
Treasury.
The obligations of U.S. commercial banks include certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
negotiable interest-bearing instruments with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market, prior
to maturity. Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Time deposits earn a specified rate of
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.
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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 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
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than gains in the value of the Fund's position. In addition, futures and futures
option markets may not be liquid in all circumstances. As a result, in volatile
markets, the Fund may not be able to close out a transaction without incurring
losses substantially greater than the initial deposit. Although the contemplated
use of these contracts should tend to minimize the risk of loss due to a decline
in the value of the hedged position, at the same time they tend to limit any
potential gain 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.
The Fund will establish segregated accounts with its custodian and will
maintain liquid assets in an amount at least equal in value to its 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.
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<PAGE>
Investment Restrictions
The Fund's investment program is subject to a number of restrictions
that reflect self-imposed standards as well as federal 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.
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
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<PAGE>
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,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund may enter into agreements that allow a third party, as agent
for the Fund, to accept orders from its customers up until the Fund's close of
business which is ordinarily 4:00 p.m. (Eastern Time). So long as a third party
receives an order prior to the Fund's close of business, the order is deemed to
have been received by the Fund and, accordingly, may receive the NAV computed at
the close of business that day. These "late day" agreements are intended to
permit shareholders placing orders with a third party to place orders up to the
same time as other shareholders.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem shares by check or wire
transfer of funds. 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 in the Prospectus under "The Fund's Net Asset Value" and such
valuation will be made as of the same time the redemption price is determined.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act pursuant to which the Fund is obligated to redeem Shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the Fund or its
shareholders, and the discussion here and in the Fund's Prospectus is not
intended as a substitute for careful tax planning.
The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.
The Fund expects to 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 other income
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<PAGE>
(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").
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 eighteen months, mid-term capital gain or loss if the Shares have been
held for more than twelve but less than eighteen months and otherwise generally
will be treated as a short-term capital gain or loss.
Investors purchasing Shares just prior to the ex-dividend date of any
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend received, even though the net asset value per
Share on the date of such purchase reflected the amount of such distribution.
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.
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
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<PAGE>
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.
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 unit holder
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, BT Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor); and
Chartered Financial Analyst.
*TRUMAN T. SEMANS, Director (10/27/26)
Managing Director Emeritus, BT Alex. Brown Incorporated; Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated (now BT Alex. Brown
Incorporated); Vice Chairman, Alex. Brown Capital Advisory & Trust
Company and Director, Investment Company Capital Corp. (registered
investment advisor).
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).
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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 D.P. Mann
Holdings (insurance); Formerly, Director, 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, Pennsylvania 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, ESQ., 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) and American Science &
Engineering (x-ray detection equipment); 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.
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.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown 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.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, June 1997-Present.
Formerly, Senior Manager, Coopers & Lybrand L.L.P., September 1988 -
June 1997.
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SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown 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.
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* Messrs. Hale and Semans are Directors who are "interested
persons," as defined in the Investment Company Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered, or advised
by BT Alex. Brown Incorporated ("BT Alex. Brown") or its affiliates. There are
currently 13 funds in the Flag Investors/ISI Funds and BT Alex. Brown Cash
Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Hale serves as
Chairman of four funds and as a Director of eight funds in the Fund Complex. Mr.
Semans serves as Chairman of five funds and as a Director of six funds in the
Fund Complex. Messrs. Cunnane, Kroeger, Levy and McDonald serve as Directors of
each fund in the Fund Complex. Ms. Rimel and Mr. Vogt serve as Directors of 11
funds in the Fund Complex. Ms. Olmert serves as Secretary, Mr. Finelli serves as
Treasurer and Mr. Liotta 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 BT Alex. Brown in the ordinary course of business.
All such transactions were made on substantially the same terms as those
prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of BT Alex. Brown or the Advisors 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) (an "Independent 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, 1997, Independent Directors' fees attributable to
the assets of the Fund totaled approximately $1,542.
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, 1997.
-11-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
Total Compensation From
the Fund and Fund
Aggregate Compensation Pension or Complex Payable to
From the Fund Payable to Retirement Benefits Directors for the Fiscal
Name of Person, Directors for the Accrued as Part Year Ended December 31,
Position Fiscal Year Ended of Fund Expenses 1997
December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
<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(1,2) $0 $0 $0
James J. Cunnane, Director $234(3) (4) $39,000 for service on 13
Boards in the Fund
Complex
Robert S. Killebrew, Jr., $0 $0 $0
Director (1,2)
John F. Kroeger, Director $294 (4) $49,000 for service on 13
Boards in the Fund
Complex
Louis E. Levy, Director $234(3) (4) $39,000 for service on 13
Boards in the Fund
Complex
Eugene J. McDonald $234(3) (4) $39,000 for service on 13
Director Boards in the Fund
Complex
Rebecca W. Rimel, Director $239(3) (4) $39,000 for service on 11
Boards in the Fund
Complex(5)
Carl W. Vogt, Director(6) $241(3) (4) $39,000 for service on 11
Boards in the Fund
Complex(5)
</TABLE>
- ----------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) Retired as Director on August 14, 1997.
(3) Of amounts payable to Messrs. Cunnane, Levy, McDonald, Vogt, and to Ms.
Rimel, no amount was deferred pursuant to the deferred compensation
plan.
(4) 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, 1997 was approximately $609.
(5) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from
each fund for which they serve as a director.
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which he or she serves. The Retirement Plan is
unfunded and unvested. Mr. Kroeger has qualified but has not received benefits.
The Fund has one Participant, a Director who retired on December 31, 1996
-12-
<PAGE>
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. 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, 1997 are as follows: for Mr. Cunnane, 3 years; for Mr. Kroeger, 15
years; for Mr. Levy, 3 years; for Mr. McDonald, 5 years; for Ms. Rimel, 2 years;
and for Mr. Vogt, 2 years.
<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 and Vogt and Ms.
Rimel have each executed a Deferred Compensation Agreement. Currently, the
deferring Directors may select from among various Flag Investors and BT 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 any officer, director, or employee of
the Fund or the Advisor preclear personal securities investments (with certain
exceptions, such as non-volitional purchases or purchases that are part of an
automatic dividend reinvestment plan). The foregoing would apply to any officer,
director, or employee of the Distributor that is an access person. The
preclearance requirement and associated procedures are designed to identify any
substantive prohibition or limitation applicable to the proposed investment. The
substantive restrictions applicable to investment personnel include a ban on
acquiring any securities in an initial public offering, a prohibition from
profiting on short-term trading in securities and 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. Trading by investment personnel and certain other employees
of the Advisor would be exempt from this "blackout period" provided that (1) the
market capitalization of a particular security exceeds $2 billion; and (2)
orders of the Advisor (including trades of both clients and covered persons) do
not exceed ten percent of the daily average trading volume of the security for
the prior 15 days. 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.
-13-
<PAGE>
6. INVESTMENT ADVISORY AND OTHER SERVICES
On June 17, 1997 the Board of Directors of the Fund, including a
majority of the Independent Directors, approved an Investment Advisory Agreement
between the Fund and Investment Company Capital 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 are described in greater
detail below. The Investment Advisory and Sub-Advisory Agreements were approved
by a vote of shareholders of the Fund on August 14, 1997. ICC is an indirect
subsidiary of Bankers Trust Corporation. ICC is also the investment advisor to
other funds in the Flag Investors family of funds and BT Alex. Brown Cash
Reserve Fund, Inc. ABKB/LaSalle, a Maryland limited partnership, is a registered
investment advisor that was formed on November 1, 1994 to acquire the real
estate securities investment advisory business of Alex. Brown Kleinwort Benson
Reality 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
Independent Directors who have no direct or indirect financial interest in such
agreements, by votes cast in person at a meeting called for such purpose, or by
a vote of a majority of the outstanding Shares. The Investment Advisory
Agreement and the Sub-Advisory Agreement were most recently approved by the
Board of Directors in the foregoing manner on September 16, 1997. 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.
Advisory fees paid by the Fund to ICC and sub-advisory fees paid by ICC
to ABKB/LaSalle for the last three fiscal years were as follows:
Fiscal Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
ICC $126,983(1) $0(2) $0(3)
ABKB/LaSalle $80,292(4) $3,163(4) $0(4)
- ----------
1. Net of fee waivers of $128,442.
2. Net of fee waivers of $106,045 and expense reimbursements of $61,823.
3. Net of fee waivers of $38,795 and expense reimbursements of $91,068.
4. Net of fee waivers.
-14-
<PAGE>
ICC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's Custodian. (See "Custodian, Transfer Agent and Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as the distributor of each class of the Fund's Shares pursuant to a Distribution
Agreement (the "Distribution Agreement") effective August 31, 1997. Prior to
August 31, 1997, Alex. Brown & Sons Incorporated ("Alex. Brown") was distributor
of the Fund's Shares for the same rate of compensation and on substantially the
same terms and conditions as ICC Distributors.
The Distribution Agreement provides that ICC Distributors shall; (i)
use reasonable efforts to sell Shares upon the terms and conditions contained in
the Distribution Agreement and the Fund's then current Prospectus; (ii) use its
best efforts to conform with the requirements of all federal and state laws
relating to the sale of the Shares; (iii) adopt and follow procedures as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. and any other applicable self-regulatory organization;
(iv) perform its duties under the supervision of and in accordance with the
directives of the Fund's Board of Directors and the Fund's Articles of
Incorporation and By-Laws; and (v) provide the Fund's Board of Directors with a
written report of the amounts expended in connection with the Distribution
Agreement. ICC Distributors shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of ICC Distributors are not exclusive and ICC Distributors
shall not be liable to the Fund or its shareholders for any error of judgment or
mistake of law, for any losses arising out of any investment, or for any action
or inaction of ICC Distributors in the absence of bad faith, willful misfeasance
or gross negligence in the performance of its duties or obligations under the
Distribution Agreement or by reason of its reckless disregard of its duties and
obligations under the Distribution Agreement. The Distribution Agreement further
provides that the Fund and ICC Distributors will mutually indemnify each other
for losses relating to disclosures in the Fund's registration statement.
The Distribution Agreement may be terminated at any time upon 60 days'
written notice by the Fund, without penalty, by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect thereafter with respect to each class of the Fund provided that it is
approved at least annually by (i) a vote of a majority of the outstanding voting
securities of the related class of the Fund or (ii) a vote of a majority of the
Fund's Board of Directors including a majority of the Independent Directors and,
with respect to each class of the Fund for which there is a plan of
distribution, so long as such plan of distribution is approved at least annually
by the Independent Directors in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement, including the form of
Sub-Distribution Agreement, was initially approved by the Board of Directors,
including a majority of the Independent Directors, on August 4, 1997 and most
recently on March 27, 1998.
ICC Distributors 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. Any Sub-Distribution Agreement may be terminated in the
same manner as the Distribution Agreement and shall automatically terminate in
the event of assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which ICC Distributors will allocate a portion of
its distribution fee as compensation for such financial institutions' ongoing
shareholder services. The Fund may also enter into Shareholder Servicing
Agreements pursuant to which the Advisor, the Distributor, or their respective
affiliates, will provide compensation out of their own resources for ongoing
shareholder services. Although banking laws
-15-
<PAGE>
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.
As compensation for providing distribution services for the Class A
Shares as described above, ICC Distributors receives an annual fee, calculated
and paid monthly, equal to .25% of the Class A Shares' average daily net assets.
ICC Distributors expects to allocate a substantial portion of its annual fee to
Participating Dealers and Shareholder Servicing Agents. As compensation for
providing distribution services for the Class B Shares as described above, ICC
Distributors receives an annual fee equal to .75% of the Class B Shares' average
daily net assets. ICC Distributors expects to retain the entire distribution fee
as reimbursement for front-end payments to Participating Dealers. In addition,
with respect to the Class B Shares, ICC Distributors 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.) ICC Distributors receives no compensation
for distributing the Institutional Shares.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributor received fees
in the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
------------------------------
Fee 1997 1996 1995
--- ---- ---- ----
<S> <C> <C> <C>
12b-1 Fee $134,163(1) $59,251(3) $25,610(3,4)
Class B Shareholder Servicing Fee $ 17,894(2) $ 9,232(3,4) $ 5,316(3,4)
</TABLE>
- -------------
1 Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $79,839 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $54,324.
2 Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $10,580 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $7,314.
3 Fees received by Alex. Brown, the Fund's distributor for the fiscal
years ended December 31, 1996 and December 31, 1995.
4 For Flag Investors Class B Shares, amounts represent fees received for
the period from January 3, 1995 (commencement of offering) through
December 31, 1996.
In return for the distribution fees, ICC Distributors 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.
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 ICC
Distributors for distribution and other shareholder servicing assistance as set
forth in the Distribution Agreement, and ICC Distributors is authorized to make
payments out of its fee to Participating Dealers and Shareholder Servicing
Agents.
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
-16-
<PAGE>
class. The Plans may be terminated at any time by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the outstanding class
of Shares (as defined under "Capital Stock").
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 ICC Distributors pursuant to the
Distribution Agreement 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 Independent Directors will be committed to the
discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors.
The Plans do not provide for any charges to the Fund for excess amounts expended
by ICC Distributors and, if either Plan is terminated in accordance with its
terms, the obligation of the Fund to make payments to ICC Distributors 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.
The Fund's distributor received commissions on the sale of the Flag
Investors Class A Shares and contingent deferred sales loads on the Flag
Investors Class B Shares and retained from such commissions and sales charges
the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
------------------------------
Class 1997 1996 1995
----- ---- ---- ----
Received Retained Received Retained Received Retained
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A $264,345(1) $124,308(3) $224,818(5) $152,214(5) $ 57,368(5) $ 57,368(5)
Commissions
Class B $168,550(2) $ 61,341(4) $137,648(5,6) $124,915(5,6) $116,236(5,6) $116,236(5,6)
Contingent
Deferred Sales
Charge
</TABLE>
- -------------
(1) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $197,926 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $66,419.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $97,703 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $70,847.
(3) Of commissions received, Alex. Brown retained $124,308 and ICC Distributors
retained $0, respectively.
(4) Of sales charges received, Alex. Brown retained $61,341 and ICC
Distributors retained $0, respectively.
(5) By Alex. Brown, the Fund's distributor for the fiscal years ended December
31, 1996 and December 31, 1995.
(6) For the period from January 3, 1995 (commencement of offering) through
December 31, 1996.
General Information
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
-17-
<PAGE>
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the Independent
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 ICC Distributors, 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, its
affiliates and ICC Distributors.
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 the
affiliates of the Advisors in any transaction in which such an affiliate acts as
a principal, nor will the Fund buy or sell over-the-counter securities with the
affiliates of the Advisors acting as market maker.
If the affiliates of the Advisors are 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, the Advisors are also authorized to pay broker-dealers higher
commissions on brokerage transactions than another broker might have charged on
brokerage transactions for the Fund for brokerage or research services. The
allocation of orders among broker-dealers and the commission rates paid by the
Fund will be reviewed periodically by the Board of Directors. The foregoing
policy under which the Fund may pay higher commissions to certain broker-dealers
in the case of agency transactions, does not apply to transactions effected on a
principal basis.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through the affiliates of the Advisors. At the time of such authorization the
Board adopted certain policies and procedures incorporating the standards of
Rule 17e-1
-18-
<PAGE>
under the Investment Company Act which requires that the commissions paid to the
affiliates of the Advisors 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.
ICC directed transactions to broker-dealers and paid related commissions because
of research services in the following amounts:
Fiscal Year Ended December 31,
------------------------------
1997 1996 1995
----------- ----------- -----------
Transactions Directed $41,151,108 $16,906,535 $11,298,553
Commissions Paid $73,026 $34,640 $25,703
For the period from September 1, 1997 through December 31, 1997, the
Fund paid commissions to BT Alex. Brown and its affiliates in the aggregate
amount of $3,630 which represented 10.76% of the Fund's aggregate brokerage
commissions and which were paid on transactions that represented 4.62% of the
aggregate dollar amount of transactions that incurred commissions paid by the
Fund. For the period from January 1, 1997 through August 31, 1997 and for the
fiscal year ended December 31, 1996, the Fund paid Alex. Brown brokerage
commissions in the aggregate amounts of $1,665 and $480, which represented 4.18%
and 1.39% of the Fund's aggregate brokerage commissions and which were paid on
transactions that represented 4.68% and 1.35% 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. As of December 31, 1997, the Fund held a 6.25%
repurchase agreement issued by Goldman Sachs & Co. valued at $1,225,000. Goldman
Sachs & Co. is a "regular broker or dealer" of the Fund.
ICC and ABKB/LaSalle each manage other investment accounts. It is
possible that, at times, identical securities will be acceptable for the Fund
and one or more of such other accounts; however, the position of each account in
the securities of the same issuer may vary and the length of time that each
account may choose to hold its investment in such securities may likewise vary.
The timing and amount of purchase by each account will also be determined by its
cash position. If the purchase or sale of securities consistent with the
investment policies of the Fund or one or more of these accounts is considered
at or about the same time, transactions in such securities will be allocated
among the accounts in a manner deemed equitable by ICC or ABKB/LaSalle. ICC and
ABKB/LaSalle may combine such transactions, in accordance with applicable laws
and regulations, in order to obtain the best net price and most favorable
execution. Such simultaneous transactions, however, could adversely affect the
ability of the Fund to obtain or dispose of the full amount of a security 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
-19-
<PAGE>
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 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
Bankers Trust Company ("Bankers Trust") serves as custodian of the
Fund's investments. Bankers Trust receives such compensation from the Fund for
its services as custodian as may be agreed to from time to time by Bankers Trust
and the Fund. For the period from September 22, 1997 to December 31, 1997,
Bankers Trust accrued $4,040 as compensation for providing custody services to
the Fund. Investment Company Capital Corp. 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 $15.62 per account per year plus reimbursement for out-of-pocket expenses
incurred in connection therewith. For the fiscal year ended December 31, 1997,
such fees totaled $33,405. As compensation for providing accounting services,
ICC receives an annual fee, calculated daily and paid monthly as shown below.
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 0.100%
$ 20,000,000 - $ 30,000,000 0.080%
$ 30,000,000 - $ 40,000,000 0.060%
$ 40,000,000 - $ 50,000,000 0.050%
$ 50,000,000 - $ 60,000,000 0.040%
$ 60,000,000 - $ 70,000,000 0.030%
$ 70,000,000 - $ 100,000,000 0.020%
$100,000,000 - $ 500,000,000 0.015%
$500,000,000 - $1,000,000,000 0.005%
over $1,000,000,000 0.001%
-20-
<PAGE>
In addition, the Fund reimburses ICC for certain out-of-pocket expenses
incurred in connection with ICC's provision of accounting services under the
Master Services Agreement.
As compensation for providing accounting services to the Fund for the
fiscal year ended December 31, 1997, ICC received fees of $36,237.
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers &
Lybrand L.L.P.
13. LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
14. PERFORMANCE INFORMATION
The Fund may compare its performance to other funds or to relevant
indices, such as the Wilshire Real Estate Index, the NAREIT Equity Index, the
S&P 500, the Russell 2000, the S&P Utilities Index and the Lehman Brothers Fixed
Income Index.
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices or averages in advertisements or in certain reports to
shareholders, performance will generally be stated both in terms of total return
and in terms of yield. However, the Fund may also from time to time state the
performance of the Fund solely in terms of total return.
Total Return Calculations
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
n
P(1 + T) = ERV
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 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 have been reinvested at net asset value as described
in the Prospectus on the reinvestment dates during the period. "T" in the
formula above is calculated by finding the average annual compounded rate of
return over the period that would equate an assumed initial payment of $1,000 to
the ending
-21-
<PAGE>
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.
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, 1997 were as follows:
<TABLE>
<CAPTION>
One-Year Period Ended Inception Through
December 31, 1997 December 31, 1997
------------------- ------------------
Ending Average Ending Average
Class Redeemable Annual Total Redeemable Annual Total
- ----- Value Return Value Return
----- ------ ----- ------
<S> <C> <C> <C> <C>
Class A $1,165.17 16.52% $1,827.87 22.34%
January 3, 1995 +
Class B $1,171.12 17.11% $1,842.10 22.65%
January 3, 1995 +
Institutional N/A N/A $1,188.39 18.84%
March 31, 1997
</TABLE>
+ Inception Date.
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 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, 1997 was 2.97% for the Class A Shares and 2.37%
for the Class B Shares.
-22-
<PAGE>
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 35% for the fiscal year ended December 31, 1997 and 23% for
the fiscal year ended December 31, 1996.
15. 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 17, 1998:
Name and Address % Ownership
---------------- -----------
T Rowe Price TR 6.75%
Alex Brown & Sons Inc., Plan 100460
Flag Investors Real Estate Sec.
Attn: Asset Recon
P.O. Box 17215
Baltimore, MD 21237-1215
----------
* As of such date, BT Alex. Brown owned beneficially less
than 1% of such shares.
Directors and officers as a group owned less than 1% of the Fund's
total outstanding Shares, as of April 23, 1998.
16. FINANCIAL STATEMENTS
See next page.
-23-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Net Assets December 31, 1997
<TABLE>
<CAPTION>
Market Percent Unrealized
Market Value of Net Gain/
Shares Security Price (Note 1) Assets (Loss)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCKS: 99.5%
Real Estate Investment Trusts: 89.5%
Apartments: 19.0%
43,000 Apartment Investment &
Management Company $36.75 $ 1,580,250 3.0% $ 178,110
48,400 Avalon Properties, Inc. 30.94 1,497,375 2.9 315,059
42,900 Bay Apartment
Communities, Inc. 39.00 1,673,100 3.2 386,320
9,800 Brandywine Realty Trust 25.13 246,225 0.5 35,840
35,050 Equity Residential
Properties Trust 50.56 1,772,216 3.4 454,325
29,300 Irvine Apartment
Communities, Inc. 31.81 932,106 1.8 277,120
19,900 Oasis Residential, Inc. 22.31 444,019 0.9 (3,833)
42,652 Post Properties, Inc. 40.63 1,732,758 3.3 241,809
---------- ---- ----------
9,878,049 19.0 1,884,750
Factory Outlets: 2.0%
27,200 Chelsea GCA Realty, Inc. 38.19 1,038,700 2.0 181,224
---------- ---- ----------
Hotels: 14.3%
38,300 American General
Hospitality Corp. 26.75 1,024,525 2.0 78,083
35,500 FelCor Suite Hotels, Inc. 35.50 1,260,250 2.4 129,589
83,701 Patriot American Hospitality, Inc. 28.81 2,411,635 4.6 840,465
47,200 Starwood Lodging Trust 57.88 2,731,700 5.3 1,035,079
---------- ---- ----------
7,428,110 14.3 2,083,216
Manufactured Housing: 1.8%
26,200 Sun Communities, Inc. 35.94 941,563 1.8 180,941
---------- ---- ----------
Office/Industrial: 36.5%
46,600 Boston Properties, Inc. 33.06 1,540,712 3.0 84,611
32,900 Commercial Net Lease Realty 17.87 588,087 1.1 89,064
51,600 Crescent Real Estate
Equities Company 39.38 2,031,750 3.9 148,933
97,500 Duke Realty Investments, Inc. 24.25 2,364,375 4.6 625,084
82,479 Equity Office Properties Trust 31.56 2,603,271 5.0 484,630
21,700 First Industrial Realty Trust, Inc. 36.12 783,912 1.5 59,132
11,300 Great Lakes REIT, Inc. 19.44 219,644 0.4 42,959
51,500 Highwoods Properties, Inc. 37.19 1,915,156 3.7 350,874
</TABLE>
-24-
<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 (concluded)
Real Estate Investment Trusts (concluded)
Office/Industrial (concluded)
50,300 Mack-Cali Realty Corporation $41.00 $ 2,062,300 4.0% $ 276,824
40,800 Reckson Associates Realty Corp. 25.38 1,035,300 2.0 62,575
60,000 Spieker Properties, Inc. 42.88 2,572,500 5.0 710,410
36,700 Weeks Corporation 32.00 1,174,400 2.3 118,210
----------- ---- ----------
18,891,408 36.5 3,053,307
Regional Malls: 3.7%
18,200 Macerich Company 28.50 518,700 1.0 24,865
31,068 Simon DeBartolo Group, Inc. 32.69 1,015,535 2.0 160,140
15,000 Trammel Crow Company 25.75 386,250 0.7 123,750
----------- ---- ----------
1,920,485 3.7 308,755
Retail/Neighborhood and Community Centers: 7.5%
25,900 Developers Diversified Realty
Corporation 38.25 990,675 1.9 149,956
34,200 Federal Realty Investment Trust 25.75 880,650 1.7 19,591
43,000 Vornado Realty Trust 46.94 2,018,313 3.9 970,030
----------- ---- ----------
3,889,638 7.5 1,139,577
Self-Storage: 4.7%
52,500 Public Storage, Inc. 29.37 1,542,187 3.0 186,256
23,100 Storage USA, Inc. 39.94 922,556 1.7 109,897
----------- ---- ----------
2,464,743 4.7 296,153
Real Estate Operating Companies: 10.0%
Diversified: 0.8%
35,500 Capital Trust - Class A* 11.25 399,375 0.8 9,362
----------- ---- ----------
Hotels: 5.7%
17,000 CapStar Hotel Company* 34.31 583,312 1.1 (5,313)
120,500 Host Marriott Corp.* 19.63 2,364,813 4.6 362,840
----------- ---- ----------
2,948,125 5.7 357,527
Office/Industrial: 2.6%
67,400 Catellus Development Corporation 20.00 1,348,000 2.6 90,082
----------- ---- ----------
Regional Malls: 0.9%
14,000 The Rouse Company 32.75 458,500 0.9 96,188
----------- ---- ----------
Total Common Stocks
(Cost $41,925,613) 51,606,695 99.5 9,681,082
----------- ---- ----------
</TABLE>
-25-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) December 31, 1997
Market Percent
Par Value of Net
(000) Security (Note 1) Assets
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 2.4%
$1,225 Goldman Sachs & Co., 6.25%
Dated 12/31/97, to be repurchased at
$1,225,425 on 1/2/98, collateralized by
U.S. Treasury Notes with a market
value of $1,249,772.
(Cost $1,225,000) $ 1,225,000 2.4%
----------- -----
Total Investment in Securities-- 101.9%
(Cost $43,150,613)** 52,831,695 101.9
Liabilities in Excess of Other Assets, Net (976,298) (1.9)
----------- -----
Net Assets $51,855,397 100.0%
=========== =====
Net Asset Value and Redemption Price Per:
Class A Share
($41,768,471 / 2,647,320 shares outstanding) $15.78
======
Class B Share
($9,798,616 / 623,533 shares outstanding) $15.71***
======
Institutional Share
($288,310 / 18,119 shares outstanding) $15.91
======
Maximum Offering Price Per:
Class A Share
($15.78 / 0.955) $16.52
======
Class B Share $15.71
======
Institutional Share $15.91
======
- --------
*Non-income producing security.
**Aggregate cost for federal tax purposes was $42,774,543.
***Redemption value is $15.09 following a maximum 4% contingent deferred sales
charge.
See Notes to Financial Statements.
-26-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statement of Operations
<TABLE>
<CAPTION>
For the
Year Ended
December 31,
------------
1997
- -----------------------------------------------------------------------------------
<S> <C>
Investment Income (Note 1):
Dividends $1,967,342
Interest 45,132
----------
Total income 2,012,474
----------
Expenses:
Investment advisory fee (Note 2) 255,425
Distribution fee (Note 2) 152,057
Legal 69,887
Accounting fee (Note 2) 36,237
Transfer agent fee (Note 2) 33,405
Registration fees 29,577
Printing and postage 28,799
Organizational expense (Note 1) 27,771
Audit 24,771
Custodian fee (Note 2) 13,846
Directors' fees 1,508
----------
Total expenses 673,283
Less: Fees waived (Note 2) (128,442)
----------
Net expenses 544,841
----------
Net investment income 1,467,633
----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 1,997,900
Change in unrealized appreciation or depreciation of investments 4,596,911
----------
Net gain on investments 6,594,811
----------
Net increase in net assets resulting from operations $8,062,444
==========
</TABLE>
See Notes to Financial Statements.
-27-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended December 31,
- -------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 1,467,633 $ 832,831
Net realized gain from security transactions 1,997,900 489,391
Change in unrealized appreciation or
depreciation of investments 4,596,911 4,266,134
----------- -----------
Net increase in net assets resulting from operations 8,062,444 5,588,356
----------- -----------
Distributions to Shareholders from:
Net investment income:
Class A Shares (1,271,684) (600,459)
Class B Shares (238,106) (158,265)
Institutional Shares (1,925) --
Net realized capital gains:
Class A Shares (1,205,375) (314,488)
Class B Shares (274,879) (82,650)
Institutional Shares (8,516) --
Return of capital:
Class A Shares -- (21,539)
Class B Shares -- (5,650)
Institutional Shares -- --
----------- -----------
Total distributions (3,000,485) (1,183,051)
----------- -----------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 22,600,633 10,892,733
Value of shares issued in reinvestment of dividends 2,621,448 974,878
Cost of shares repurchased (3,539,713) (1,349,523)
----------- -----------
Increase in net assets derived from
capital share transactions 21,682,368 10,518,088
----------- -----------
Total increase in net assets 26,744,327 14,923,393
Net Assets:
Beginning of year 25,111,070 10,187,677
----------- -----------
End of year $51,855,397 $25,111,070
=========== ===========
</TABLE>
See Notes to Financial Statements.
-28-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Year January 3, 1995(1)
Ended through
December 31, December 31,
- -----------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 13.89 $ 11.20 $10.00
------- ------- ------
Income from Investment Operations:
Net investment income 0.52 0.61 0.56
Net realized and unrealized gain
on investments 2.44 2.90 1.21
------- ------- ------
Total from Investment Operations 2.96 3.51 1.77
------- ------- ------
Less Distributions:
Distributions from net investment
income (0.60) (0.58) (0.49)(2)
Distributions from net realized
capital gains (0.47) (0.22) (0.05)
Return of capital -- (0.02) (0.03)(2)
------- ------- ------
Total distributions (1.07) (0.82) (0.57)
------- ------- ------
Net asset value at end of period $ 15.78 $ 13.89 $11.20
======= ======= ======
Total Return(3) 22.01% 32.70% 18.19%
Ratios to Average Daily Net Assets:
Expenses(4) 1.25% 1.25% 1.25%(6,7)
Net investment income(5) 3.87% 5.29% 6.09%(6,7)
Supplemental Data:
Net assets at end of period (000) $41,773 $19,816 $7,171
Portfolio turnover rate 35% 23% 28%
Average commissions per share(8) $0.0479 $0.0475 --
</TABLE>
- -------
(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 1.58%,
2.28% and 3.25% (annualized) for the years ended December 31, 1997 and 1996
and the period ended December 31, 1995, respectively.
(5) 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 3.54%, 4.26% and 3.89% (annualized) for the years ended December 31,
1997 and 1996 and the period ended December 31, 1995, respectively.
(6) Annualized.
(7) Effective January 1, 1996, the Fund's expense and net investment income
ratios are 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% for the period ended December 31,
1995.
(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.
-29-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Year January 3, 1995(1)
Ended through
December 31, December 31,
- -----------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 13.84 $ 11.18 $10.00
------- ------- ------
Income from Investment Operations:
Net investment income 0.42 0.52 0.50
Net realized and unrealized gain
on investments 2.42 2.89 1.20
------- ------- ------
Total from Investment Operations 2.84 3.41 1.70
------- ------- ------
Less Distributions:
Distributions from net investment
income (0.50) (0.51) (0.42)(2)
Distributions from net realized
capital gains (0.47) (0.22) (0.05)
Return of capital -- (0.02) (0.05)(2)
------- ------- ------
Total distributions (0.97) (0.75) (0.52)
------- ------- ------
Net asset value at end of period $ 15.71 $ 13.84 $11.18
======= ======= ======
Total Return(3) 21.11% 31.67% 17.40%
Ratios to Average Daily Net Assets:
Expenses(4) 2.00% 2.00% 2.00%(6,7)
Net investment income(5) 3.12% 4.46% 5.39%(6,7)
Supplemental Data:
Net assets at end of period (000) $ 9,799 $ 5,295 $3,016
Portfolio turnover rate 35% 23% 28%
Average commissions per share(8) $0.0479 $0.0475 --
</TABLE>
- -------
(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 (Note 2), the ratio of expenses to
average daily net assets would have been 2.33%, 3.03% and 4.05% (annualized)
for the years ended December 31, 1997 and 1996 and the period ended December
31, 1995, respectively.
(5) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 2.79%, 3.43% and 3.09%
(annualized) for the years ended December 31, 1997 and 1996 and the period
ended December 31, 1995, respectively.
(6) Annualized.
(7) Effective January 1, 1996, the Fund's expense and net investment income
ratios are 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% for the period ended December 31,
1995.
(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.
-30-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Financial Highlights--Institutional Shares
(For a share outstanding throughout the period)
For the Period
March 31, 1997(1)
through December 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $14.19
------
Income from Investment Operations:
Net investment income 0.47
Net realized and unrealized gain
on investments 2.14
------
Total from Investment Operations 2.61
------
Less Distributions:
Distributions from net investment income (0.42)
Distributions from net realized
capital gains (0.47)
------
Total distributions (0.89)
------
Net asset value at end of period $15.91
======
Total Return 18.84%
Ratios to Average Daily Net Assets:
Expenses(2) 1.00%(4)
Net investment income(3) 4.30%(4)
Supplemental Data:
Net assets at end of period (000) $ 288
Portfolio turnover rate 35%(4)
Average commissions per share $ 0.0479
- -------
(1) Commencement of operations.
(2) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.39% (annualized) for the period
ended December 31, 1997.
(3) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 3.91% (annualized) for
the period ended December 31, 1997.
(4) Annualized.
See Notes to Financial Statements.
-31-
<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"), which was
organized as a Maryland Corporation on May 2, 1994 and commenced operations
January 3, 1995, is registered under the Investment Company Act of 1940 as a
non-diversified open-end investment management company. Its objective is to seek
total return primarily through investments in equity securities of companies
that are principally engaged in the real estate industry.
The Fund consists of three share classes: Class A Shares and Class B
Shares, which both commenced January 3, 1995, and Institutional Shares, which
commenced March 31, 1997.
The Class A and Class B Shares are subject to different sales charges. The
Class A Shares have a 4.50% maximum front-end sales charge and the Class B
Shares have a 4.00% maximum contingent deferred sales charge. In addition, each
class has a different distribution fee. The Institutional Shares do not have a
sales charge or a distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. SECURITY VALUATION--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported
for the day. If there are no sales or the security is not traded on a
listed exchange, the Fund values the security at its last bid price in
the over-the-counter market. When a market quotation is unavailable, the
Investment Advisor determines a fair value using procedures that the
Board of Directors establishes and monitors. The Fund values short-term
obligations with maturities of 60 days or less at amortized cost. As of
December 31, 1997, there were no Board valued securities.
B. REPURCHASE AGREEMENTS-- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a
-32-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
separate account until the repurchase agreement matures. The agreement
ensures that the collateral's market value, including any accrued
interest, is sufficient if the broker defaults. The Fund's access to the
collateral may be delayed or limited if the broker defaults and the
value of the collateral declines or if the broker enters into an
insolvency proceeding.
C. FEDERAL INCOME TAX -- The Fund determines its distributions according to
income tax regulations, which may be different from generally accepted
accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as it
maintains this status and distributes to its shareholders substantially
all of its taxable net investment income and net realized capital gains,
it will be exempt from most, if not all, federal income and excise
taxes. As a result, the Fund has made no provisions for federal income
taxes.
D. SECURITIES TRANSACTIONS, INVESTMENT INCOME, DISTRIBUTIONS AND OTHER --
The Fund uses the trade date to account for security transactions and
the specific identification method for financial reporting and income
tax purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes the pro
rata amortization of premiums and accretion of discounts when
appropriate. Income and common expenses are allocated to each class
based on its respective average net assets. Class specific expenses are
charged directly to each class. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. The Fund has deferred
the costs incurred by its organization and the initial public offering
of shares. These costs are being amortized on the straight-line method
over a five-year period, which began when the Fund commenced operations.
Real Estate Investment Trusts ("REITs") provide the majority of the
dividend income that the Fund records. For income tax purposes, a
portion of these dividends consists of capital gains and return of
capital. For financial reporting purposes, the Fund records these
dividends as dividend income and records the investment in the REIT at
market value.
-33-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Bankers Trust New
York Corporation, is the Fund's investment advisor and ABKB/LaSalle Securities
Limited Partnership ("ABKB/LaSalle") is the Fund's subadvisor. As compensation
for its advisory services, the Fund pays ICC an annual fee based on the Fund's
average daily net assets. This fee is calculated daily and paid monthly at the
following annual rates: 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 the amount over $300
million.
As compensation for its subadvisory services, ICC pays ABKB/LaSalle a fee
from its advisory fee based on the Fund's average daily net assets. This fee is
calculated daily and paid monthly at the following annual rates: 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 the amount over $300 million.
ICC has voluntarily agreed to waive its aggregate fees so that ordinary
Fund expenses for any fiscal year do not exceed 1.25% of the Class A Shares'
average daily net assets, 2.00% of the Class B Shares' average daily net assets
and 1.00% of the Institutional Shares' average daily net assets. For the year
ended December 31, 1997, ICC waived fees of $128,442.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or subadvisor.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $36,237 for accounting services for the year ended
December 31, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $33,405 for
transfer agent services for the year ended December 31, 1997.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997, PNC Bank served as the Fund's custodian.
From September 22, 1997 to December 31, 1997, the Fund accrued $4,040 in custody
expenses.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors"), which is not related to ICC, an annual
-34-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to 0.25% of the Class A Shares' average daily net assets and 1.00%
(including a 0.25% shareholder servicing fee) of the Class B Shares' average
daily net assets. For the year ended December 31, 1997, distribution fees
aggregated $152,057, of which $80,482 was attributable to the Class A Shares and
$71,575 was attributable to the Class B Shares. Prior to September 1, 1997,
Alex. Brown & Sons Incorporated served as the Fund's distributor for the same
compensation and on substantially the same terms as ICC Distributors and earned
$32,382 for Class A Shares and $29,256 for Class B Shares.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
December 31, 1997 was $609, and the accrued liability was $1,090.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 15 million shares of $.001 par
value capital stock (7 million Class A, 2 million Class B, 5 million
Institutional and 1 million undesignated). Transactions in shares of the Fund
were as follows:
Class A Shares
----------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
Shares sold 1,256,866 807,325
Shares issued to shareholders on
reinvestment of dividends 146,244 63,818
Shares redeemed (182,922) (84,104)
----------- -----------
Net increase in shares outstanding 1,220,188 787,039
=========== ===========
Proceeds from sale of shares $18,297,796 $ 9,428,874
Value of reinvested dividends 2,192,511 787,477
Cost of shares redeemed (2,675,100) (1,047,300)
----------- -----------
Net increase from capital share transactions $17,815,207 $ 9,169,051
=========== ===========
-35-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTE 3--concluded
Class B Shares
----------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996
------------- -------------
Shares sold 272,248 124,181
Shares issued to shareholders on
reinvestment of dividends 28,690 15,254
Shares redeemed (60,099) (26,509)
---------- ----------
Net increase in shares outstanding 240,839 112,926
========== ==========
Proceeds from sale of shares $4,002,637 $1,463,859
Value of reinvested dividends 428,928 187,401
Cost of shares redeemed (864,613) (302,223)
---------- ----------
Net increase from capital share transactions $3,566,952 $1,349,037
========== ==========
Institutional Shares
For the Period
March 31, 1997(1)
to Dec. 31, 1997
--------------------
Shares sold 18,118
Shares issued to shareholders on
reinvestment of dividends 1
Shares redeemed 0
--------
Net increase in shares outstanding 18,119
========
Proceeds from sale of shares $300,200
Value of reinvested dividends 9
Cost of shares redeemed 0
--------
Net increase from capital share transactions $300,209
========
- -------
(1) Commencement of operations.
On December 31, 1997, one shareholder held 6% of the Fund's shares
outstanding.
-36-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $33,724,551 and sales of investment securities aggregated $13,379,969
for the year ended December 31, 1997.
On December 31, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $10,066,289,
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $9,146.
NOTE 5--Net Assets
On December 31, 1997, net assets consisted of:
Paid-in capital:
Class A Shares $33,508,319
Class B Shares 7,625,255
Institutional Shares 300,209
Undistributed net investment income 376,070
Accumulated net realized gain from security transactions 364,462
Unrealized appreciation of investments 9,681,082
-----------
$51,855,397
===========
NOTE 6--Shareholder Meeting
Alex. Brown Incorporated, which was the parent corporation of the Fund's
investment advisor, merged into a subsidiary of Bankers Trust New York
Corporation on September 1, 1997. Due to the change in control of Alex. Brown
Incorporated, the Flag Investors Real Estate Securities Fund held a special
meeting for its shareholders on August 14, 1997. During the meeting,
shareholders approved a new Investment Advisory Agreement between the Fund and
ICC and a new Sub-Advisory Agreement among the Fund, ICC and ABKB/LaSalle. The
new agreements are substantially the same as the former agreements. In addition,
shareholders elected the following Directors: James J. Cunnane, Richard T. Hale,
John F. Kroeger, Louis E. Levy, Eugene J. McDonald, Rebecca W. Rimel, Truman T.
Semans and Carl W. Vogt.
-37-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Board of 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., (the "Fund"), as of December 31, 1997 and the
related statement of operations for the year then ended, the statements 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 audits 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, 1997, 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 audits provide 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, 1997 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 presented in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND, L.L.P.
Philadelphia, Pennsylvania
January 29, 1998
-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 "extremely strong" safety characteristics. Those rated
A-1 reflect an "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 - AAA - Highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for bonds in this category than in higher rated categories.
Moody's- Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt-edged." Interest payments
A-1
<PAGE>
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.
Aa - 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 Aaa securities.
A - 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.
Baa - 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-2
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
List all financial statements and exhibits filed as part of the
Registration Statement.
<TABLE>
<CAPTION>
<S> <C>
(a) Financial statements:
(1) Included in Parts A and B of the Registration Statement:
- Financial Highlights for the Flag Investors Class A Shares and
the Flag Investors Class B Shares for the
fiscal years ended December 31, 1997,
December 31, 1996 and the period January 5,
1995 (commencement of operations) through
December 31, 1995
- Financial Highlights for the Flag Investors
Institutional Shares for the period January
20, 1997 (commencement of operations)
through December 31, 1997
- Statement of Net Assets at December 31, 1997
- Statement of Changes in Net Assets for the fiscal years ended
December 31, 1997 and December 31, 1996
- Statement of Operations for the fiscal year ended December
31, 1997
- Notes to Financial Statements
- Report of Independent Accountants
(2) All required financial statements are included in
Parts A and B hereof. All other financial
statements and schedules are inapplicable.
(b) Exhibits
(1)(a) Articles of Incorporation, dated April 29, 1994.1
(1)(b) Articles Supplementary to Articles of Incorporation, dated
December 5, 1994.(1)
(1)(c) Articles Supplementary to Articles of Incorporation, dated
December 19, 1996.(2)
(2) By-Laws, as amended through December 18, 1996.(2)
(3) Not Applicable.
(4) Specimen Securities for Flag Investors Shares.(3)
(5)(a) Investment Advisory Agreement dated as of
September 1, 1997 between the Registrant
and Investment Company Capital Corp.,
filed herewith.
(5)(b) Investment Sub-Advisory Agreement dated as of September 1,
1997 among the Registrant, Investment Company Capital Corp.
and ABKB/LaSalle Securities Limited Partnership, filed herewith.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(6)(a) Distribution Agreement dated as of August
31, 1997 between Registrant and ICC
Distributors, Inc., filed herewith.
(6)(b) Form of Sub-Distribution Agreement between ICC Distributors, Inc.
and Participating Dealers, filed herewith.
(6)(c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents, filed herewith.
(7) Not Applicable.
(8)(a) Form of Custodian Agreement between
Registrant and Bankers Trust Company,
filed herewith.
(8)(b) Master Services Agreement between Registrant and Investment
Company Capital Corp.(1)
(9) Not Applicable.
(10) Opinion of Counsel.(1)
(11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement.(1)
(14) Not Applicable.
(15)(a) Distribution Plan (Flag Investors Class A Shares).(1)
(15)(b) Distribution Plan (Flag Investors Class B Shares).(1)
(15)(c) Amended Distribution Plan (Flag Investors Class A Shares), filed
herewith.
(15)(d) Amended Distribution Plan (Flag Investors Class B Shares), filed
herewith.
(16) Schedule of Computation of Performance Quotations (unaudited).(4)
(18)(a) Rule 18f-3 Plan.(5)
(18)(b) Amended Rule 18f-3 Plan, filed herewith.
(24) Powers of Attorney, filed herewith.
(27) Financial Data Schedule, filed herewith.
</TABLE>
C-2
<PAGE>
- -----------------------
(1) 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.
(2) Incorporated by reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR on April 28, 1997.
(3) Incorporated by reference to Exhibit 1 (Articles of Incorporation), as
amended to date, to Post-Effective Amendment Nos. 4 and 6 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-78648), filed
with the Securities and Exchange Commission via EDGAR on April 26, 1996 and
April 28, 1997, respectively, and Exhibit 2 (By-Laws) as amended to date,
to Post-Effective Amendment No. 6 to such Registration Statement, filed
with the Securities and Exchange Commission via EDGAR on April 28, 1997.
(4) 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.
(5) 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 17, 1998.
Title of Class Number of Record Holders
--------------------------------------------------------------------------
Flag Investors Real Estate Securities Fund Class A Shares 1,591
Flag Investors Real Estate Securities Fund Class B Shares 725
Flag Investors Real Estate Securities Fund Institutional Shares 5
Item 27. Indemnification.
C-3
<PAGE>
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation
Law, no director or officer of the Corporation shall have any liability to
the Corporation or its shareholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.
Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses to
its officers to the same extent as to its directors and to such further
extent as is consistent with law. The Board of Directors of the
Corporation may make further provision for indemnification of directors,
officers, employees and agents in the By-Laws of the Corporation or by
resolution or agreement to the fullest extent permitted by the Maryland
General Corporation Law.
Section 3. No provision of this Article VIII shall be effective to protect
or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII based on any
event, omission or proceeding prior to such amendment.
Sections 1, 2, 3, 4 and 5 of Article XIII of Registrant's By-Laws,
included as Exhibit 2 to this Registration Statement and incorporated herein by
reference, provide as follows:
Section 1. Indemnification. The Corporation shall indemnify its Directors
to the fullest extent that indemnification of Directors is permitted by
the Maryland General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its Directors and to such further extent as
is consistent with law. The Corporation shall indemnify its Directors and
officers who while serving as Directors or officers also serve at the
request of the Corporation as a Director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to the fullest
extent consistent with law. This Article XIII shall not protect any such
person against any liability to the Corporation or any shareholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
C-4
<PAGE>
Section 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article XIII
shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to
which he is a party in the manner and to the full extent permissible under
the Maryland General Corporation Law, the Securities Act of 1933 (the
"1933 Act") and the 1940 Act, as such statutes are now or hereafter in
force.
Section 3. Procedure. On the request of any current or former Director or
officer requesting indemnification or an advance under this Article XIII,
the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, the 1933 Act
and the 1940 Act, as such statutes are now or hereafter in force, whether
the standards required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article XIII
shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification
may be entitled under any insurance or other agreement, vote of
shareholders or disinterested Directors or otherwise, both as to action by
a Director or officer of the Corporation in his official capacity and as
to action by such person in another capacity while holding such office or
position, and shall continue as to a person who has ceased to be a
Director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation
Law in this Article XIII are to such law as from time to time amended.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1940 Act and
is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed by
the final adjudication of such issue. In the absence of a determination by a
court of competent jurisdiction, the determinations that indemnification against
such liabilities is proper, and advances can be made, are made by a majority of
a quorum of the disinterested, non-party directors of the Fund, or an
independent legal counsel in a written opinion, based on review of readily
available facts.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
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,
C-5
<PAGE>
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) ICC Distributors, Inc. acts as distributor for BT 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):
(b)
Name and Principal Position and Offices Position and
Business Address with Principal Officers with
- ---------------- Underwriter Registrant
----------- ----------
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Richard C. Butt Vice President None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
C-6
<PAGE>
Name and Principal Position and Offices Position and
Business Address with Principal Officers with
- ---------------- Underwriter Registrant
----------- ----------
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance None
Officer
- -----------------------
* Two Portland Square
Portland, Maine 04101
(c) Not Applicable.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a- 3] promulgated thereunder, furnish the name and
address of each person maintaining physical possession of each such account,
book or other document.
Investment Company Capital Corp., Registrant's investment
advisor, transfer agent, dividend disbursing agent and accounting
services provider, One South Street, Baltimore, Maryland 21202, and
ABKB/LaSalle Securities Limited Partnership, 100 East Pratt Street,
Baltimore, Maryland 21202, Registrant's sub-advisor, maintain physical
possession of each such account, book or other document of the Fund,
except for those maintained by the Registrant's custodian, Bankers
Trust Company, 130 Liberty Street, New York, New York, 10006.
In particular, with respect to the records required by Rule
31a-1(b)(1), ICC and ABKB/LaSalle each maintains physical possession of
all journals containing itemized daily records of all purchases and
sales of securities, including sales and redemptions of Fund
securities, and Bankers Trust Company maintains physical possession of
all receipts and deliveries of securities (including certificate
numbers if such detail is not recorded by the transfer agent), all
receipts and disbursements of cash, and all other debts and credits.
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.
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<PAGE>
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-8
<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 amendment 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 27th day of April, 1998.
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:
* Chairman and Director April 27, 1998
- -------------------- --------------
Richard T. Hale Date
* Director April 27, 1998
- -------------------- --------------
James J. Cunnane Date
* Director April 27, 1998
- -------------------- --------------
John F. Kroeger Date
* Director April 27, 1998
- -------------------- --------------
Louis E. Levy Date
* Director April 27, 1998
- -------------------- --------------
Eugene J. McDonald Date
* Director April 27, 1998
- -------------------- --------------
Rebecca W. Rimel Date
* Director April 27, 1998
- -------------------- --------------
Truman T. Semans Date
* Director April 27, 1998
- -------------------- --------------
Carl W. Vogt Date
/s/ William K. Morrill, Jr. President April 27, 1998
- -------------------------- --------------
William K. Morrill, Jr. Date
/s/ Joseph A. Finelli Chief Financial April 27, 1998
- -------------------------- and Accounting --------------
Joseph A. Finelli Officer Date
* By: /s/Amy M. Olmert
--------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Edgar
Exhibit Exhibit Page
Number Number Document Number
- ------ ------- -------- ------
Exhibits
(1)(a) Articles of Incorporation, dated April 29, 1994.(1)
(1)(b) Articles Supplementary to Articles of Incorporation, dated
December 5, 1994.(1)
(1)(c) Articles Supplementary to Articles of Incorporation, dated
December 19, 1996.(2)
(2) By-Laws, as amended through December 18, 1996.(2)
(3) Not Applicable.
(4)(a) Specimen Securities for Flag Investors Shares.(3)
EX-99.B (5)(a) Investment Advisory Agreement dated as of September 1, 1997
between the Registrant and Investment Company Capital Corp.,
filed herewith.
EX-99.B (5)(b) Investment Sub-Advisory Agreement dated as of September 1,
1997 among the Registrant, Investment Company Capital Corp.
and ABKB/LaSalle Securities Limited Partnership, filed herewith.
EX-99.B (6)(a) Distribution Agreement dated as of August 31, 1997 between
Registrant and ICC Distributors, Inc., filed herewith.
EX-99.B (6)(b) Form of Sub-Distribution Agreement between ICC Distributors, Inc.
and Participating Dealers, filed herewith.
EX-99.B (6)(c) Form of Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents, filed herewith.
(7) Not Applicable.
EX-99.B (8)(a) Form of Custodian Agreement between Registrant and Bankers
Trust Company, filed herewith.
(8)(b) Master Services Agreement between Registrant and Investment
Company Capital Corp.(1)
(9) Not Applicable.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(10) Opinion of Counsel.(1)
EX-99.B (11) Consent of Independent Accountants, filed herewith.
(12) Not Applicable.
(13) Subscription Agreement.(1)
(14) Not Applicable.
(15)(a) Distribution Plan (Flag Investors Class A Shares).(1)
(15)(b) Distribution Plan (Flag Investors Class B Shares).(1)
EX-99.B (15)(c) Amended Distribution Plan (Flag Investors Class A Shares), filed
herewith.
EX-99.B (15)(d) Amended Distribution Plan (Flag Investors Class B Shares), filed
herewith.
(16) Schedule of Computation of Performance Quotations (unaudited).(4)
(18)(a) Rule 18f-3 Plan.(5)
EX-99.B (18)(b) Amended Rule 18f-3 Plan, 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. 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.
(2) Incorporated by reference to Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (File No. 33-78648),
filed with the Securities and Exchange Commission via EDGAR on April 28,
1997.
(3) Incorporated by reference to Exhibit 1 (Articles of Incorporation), as
amended to date, to Post-Effective Amendment Nos. 4 and 6 to Registrant's
Registration Statement on Form N- 1A (Registration No. 33-78648), filed
with the Securities and Exchange Commission via EDGAR on April 26, 1996
and April 28, 1997, respectively, and Exhibit 2 (By-Laws) as amended to
date, to Post-Effective Amendment No. 6 to such Registration Statement,
filed with the Securities and Exchange Commission via EDGAR on April 28,
1997.
(4) 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.
(5) 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>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day of
September, 1997 by and between FLAG INVESTORS REAL ESTATE SECURITIES FUND,
INC., a Maryland corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP.,
a Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under the
Investment Advisors Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an agreement under
which the Advisor will provide investment advisory and administrative services
for the Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints the
Advisor to act as the Fund's investment advisor. The Advisor shall manage the
Fund's affairs and shall supervise all aspects of the Fund's operations (except
as otherwise set forth herein), including the investment and reinvestment of the
cash, securities or other properties comprising the Fund's assets, subject at
all times to the policies and control of the Fund's Board of Directors. The
Advisor shall give the Fund the benefit of its best judgment, efforts and
facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on May 2, 1994
and all amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein called the
"Articles of Incorporation");
-1-
<PAGE>
(b) The Fund's By-laws and all amendments thereto (such By-laws, as
presently in effect and as they shall from time to time be amended, are herein
called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of the Advisor and approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant to Section 8(a)
of the Investment Company Act of 1940 on Form N-8A under the 1940 Act as filed
with the Securities and Exchange Commission (the "SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the Securities Act
of 1933, as amended (the "1933 Act") (File No. 33-78648) and under the 1940 Act
as filed with the SEC on May 5, 1994 relating to the shares of the Fund, and all
amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. In carrying out its obligations under
Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's operations, except for
distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Fund;
(c) provide the Fund with such executive, administrative and clerical
services as are deemed advisable by the Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate office space and all
necessary office equipment and services, including telephone service, utilities,
stationery, supplies and similar items for the Fund's
principal office;
(e) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign or
otherwise, whether affecting the economy generally or the Fund, and whether
-2-
<PAGE>
concerning the individual issuers whose securities are included in the Fund's
portfolio or the activities in which they engage, or with respect to securities
which the Advisor considers desirable for inclusion in the Fund's portfolio;
(f) determine which issuers and securities shall be represented in the
Fund's portfolio and regularly report thereon to the Fund's Board of Directors;
(g) take all actions necessary to carry into effect the Fund's purchase and
sale programs;
(h) supervise the operations of the Fund's custodian, sub- advisor,
transfer and dividend disbursing agent;
(i) provide the Fund with such administrative and clerical services for the
maintenance of certain shareholder records, as are deemed advisable by the
Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy material, tax returns, reports to the Fund's
shareholders and reports to and filings with the SEC.
4. Broker-Dealer Relationships. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Fund, broker-dealer
selection, and negotiation of its brokerage commission rates, the Advisor's
primary consideration in effecting securities transactions will be to obtain the
best price and execution on an overall basis. In performing this function the
Advisor shall comply with applicable policies established by the Board of
Directors and shall provide the Board of Directors with such reports as the
Board of Directors may require in order to monitor the Fund's portfolio
transaction activities. In certain instances the Advisor may make purchases of
underwritten issues at prices which include underwriting fees. In selecting a
broker-dealer to execute each particular transaction, the Advisor will take the
following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to
-3-
<PAGE>
the value of the brokerage and research services provided by such broker-dealer,
viewed in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to the Fund. The Advisor is further authorized to
allocate the orders placed by it on behalf of the Fund to such broker-dealers
other than Alex. Brown & Sons Incorporated ("Alex. Brown") who also provide
research or statistical material or other services to the Fund or the Advisor.
Such allocation shall be in such amounts and proportions as the Advisor shall
determine and the Advisor will report on said allocation regularly to the Board
of Directors of the Fund, indicating the broker-dealers to whom such allocations
have been made and the basis therefor.
Consistent with the 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 Directors may determine, the Advisor
may consider services in connection with the sale of shares of the Fund as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Fund.
Subject to the policies established by the Board of Directors in compliance
with applicable law, the Advisor may direct Alex. Brown to execute portfolio
transactions for the Fund on an agency basis. The commissions paid to Alex.
Brown must be, as required by Rule 17e-1 under the 1940 Act, "reasonable and
fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." If the purchase or sale
of securities consistent with the investment policies of the Fund or one or more
other account of the Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. Alex. Brown and the Advisor may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any transaction
in which the Advisor or Alex. Brown acts as a principal with respect to any part
of the Fund's order. If Alex. Brown is participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with policies established by the Board of Directors in compliance
with the rules of the SEC.
5. Control by Board of Directors. Any management or supervisory
activities undertaken by the Advisor pursuant to this Agreement, as well as any
other activities undertaken by the Advisor on behalf of the Fund pursuant
thereto, shall at all times be subject to any applicable directives of the Board
of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
-4-
<PAGE>
(a) all applicable provisions of the 1940 Act and any rules and regulations
adopted thereunder;
(b) the provisions of the Registration Statement of the Fund under the 1933
Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with applicable banking
regulations, furnish, at its expense and without cost to the Fund, the services
of one or more officers of the Fund, to the extent that such officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Fund assumes and shall pay or cause to be paid all other expenses
of the Fund, including, without limitation: payments to the Fund's distributor
under the Fund's plan of distribution, the charges and expenses of any
registrar, any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any transfer, dividend
or accounting agent or agents appointed by the Fund; brokers' commissions,
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to Federal, State or other governmental
agencies; the costs and the expenses of the engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with registration and maintenance of registration of the Fund and its
shares with the SEC and various states and other jurisdictions (including filing
fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of Fund shares; charges and
expenses of legal counsel, including counsel to the Directors of the Fund who
are not "interested persons" (as defined in the 1940 Act) of the Fund and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on
-5-
<PAGE>
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.
-6-
<PAGE>
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors including a majority
of the Fund's Directors who are not "interested persons" (as defined in the 1940
Act) of the Fund, and of the shareholders of the Fund, the Advisor may delegate
to a sub-advisor its duties enumerated in Section 3, hereof. The Advisor shall
continue to supervise the performance of any such sub-advisor and shall report
regularly thereon to the Fund's Board of Directors, but shall not be responsible
for the sub-advisor's performance under the sub-advisory agreement.
(b) The Advisor may, but shall not be under any duty to, perform services
on behalf of the Fund which are not required by this Agreement upon the request
of the Fund's Board of Directors. Such services will be performed on behalf of
the Fund and the Advisor's charge in rendering such services may be billed
monthly to the Fund, subject to examination by the Fund's independent
accountants. Payment or assumption by the Advisor of any Fund expense that the
Advisor is not required to pay or assume under this Agreement shall not relieve
the Advisor of any of its obligations to the Fund nor obligate the Advisor to
pay or assume any similar Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by the Advisor, the Fund shall pay to the Advisor monthly compensation
at an annual rate of .65% of the first $100 million of the Fund's average daily
net assets, .55% of the Fund's average daily net assets exceeding $100 million
but not exceeding $200 million, .50% of the Fund's average daily net assets
exceeding $200 million but not exceeding $300 million and .45% of the Fund's
average daily net assets exceeding $300 million.
Except as hereinafter set forth, compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for the
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculation of the fees as set forth above. Payment of the
Advisor's compensation for the preceding month shall be made as promptly as
possible.
10. Non-Exclusivity. The services of the Advisor to the Fund are
not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted by law; and that the officers and directors of
the Advisor are not prohibited from engaging in any other
-7-
<PAGE>
business activity or from rendering services to any other person, or from
serving as partners, officers, trustees or directors of any other firm, trust or
corporation, including other investment companies.
11. Term and Renewal. This Agreement shall become effective as of
the date hereof and shall continue in force and effect, subject to Section 12
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect from
year to year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a majority
of the outstanding voting securities (as defined in the 1940 Act) of the Fund;
and
(b) by the affirmative vote of a majority of the Directors who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of a party to this Agreement (other than as Directors of the Fund) by votes cast
in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated, without the
payment of any penalty, by the Fund upon vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act) or by the Advisor, upon sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
13. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits to ensure
the accuracy of all services performed under this Agreement, but the Advisor
shall not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under the Agreement.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund and
of the Advisor for this purpose shall be One South Street, Baltimore, Maryland
21202.
15. 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
-8-
<PAGE>
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.
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
Attest: /s/ Amy M. Olmert By: /s/William K. Morrill, Jr.
----------------- --------------------------
Name: William K. Morrill, Jr.
Title: President
INVESTMENT COMPANY CAPITAL CORP.
Attest: /s/ Amy M. Olmert By: /s/ Edward J. Veilleux
----------------- ----------------------
Name: Edward J. Veilleux
Title: Executive Vice President
-9-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 1st day of September, 1997 by
and among FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland
corporation (the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation (the "Advisor"), and ABKB/LASALLE SECURITIES LIMITED PARTNERSHIP, a
Maryland limited partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub-Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on May
2, 1994 and all amendments thereto (such Articles of Incorporation, as
presently in effect and as they shall from time to time be amended are
herein called the "Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
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(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the Investment Company Act of 1940 on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-78648)
and under the 1940 Act as filed with the SEC on May 5, 1994 relating to
the shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are
herein called "Prospectus").
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(c) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund; and
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
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overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. In selecting a
broker-dealer to execute each particular transaction, the Sub-Advisor will take
the following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Sub-Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such allocations
have been made and the basis therefor.
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 Directors may determine, the
Sub-Advisor may consider services in connection with the sale of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other accounts of the
Sub-Advisor is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Sub-Advisor. Alex. Brown and the Sub-Advisor may combine such transactions,
in accordance with applicable laws and regulations, in order to obtain the best
net price and most favorable execution.
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<PAGE>
The Fund will not deal with the Sub-Advisor or Alex. Brown in
any transaction in which the Sub-Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall furnish, at its expense and
without cost to the Fund, the services of the President and certain
Vice Presidents of the Fund, to the extent that such officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense
and without cost to the Fund, a trading function in order to carry out
its obligations under Section 3 hereof to place orders for the purchase
and sale of portfolio securities for the Fund.
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<PAGE>
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Advisor under the Investment Advisory Agreement between
the Fund and the Advisor; payments to the Fund's distributor under the
Fund's plan of distribution; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping
of its cash, portfolio securities and other property, and any transfer,
agent or agents appointed by the Fund; brokers' commission chargeable
to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and fees payable by the Fund to Federal, state or other
governmental agencies; the costs and expenses of engraving or printing
of certificates representing shares of the Fund; all costs and expenses
in connection with the registration and maintenance of registration of
the Fund and its shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting,
and distributing prospectuses and statements of additional information
of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in shares
or in cash; charges and expenses of any outside service used for
pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not "interested
persons" (as defined in the 1940 Act) of the Fund and of independent
certified public accountants, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on
Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: .40% of the first $100 million of
the Fund's average daily net assets, .35% of the Fund's average daily net assets
in excess of $100 million but not exceeding $200 million, .30% of the Fund's
average daily net assets in excess of $200 million but not exceeding $300
million, and .25% of the Fund's average daily net assets in excess of $300
million. Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Payment of the
Sub-Advisor's compensation for the preceding month shall be made as promptly as
possible.
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<PAGE>
9. Additional Responsibilities. The Sub-Advisor may, but shall
not be under any duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to examination by the Fund's independent certified public accountants. Payment
or assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is not
required to pay or assume under this Agreement shall not relieve the Sub-Advisor
of any of its obligations to the Fund nor obligate the Sub-Advisor to pay or
assume any similar Fund expenses on any subsequent occasions.
10. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 12
hereof, for two years from the date hereof.
11. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the Fund
(as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Sub-Advisor on sixty (60) days'
written notice to the Fund and the Advisor. The notice provided for herein may
be waived by any person to whom such notice is required. This Agreement shall
automatically terminate in the event of its assignment (as defined in Section
2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers or Directors of the Sub-Advisor may serve as
officers or Directors of the Fund, and that officers or Directors of the Fund
may serve as officers or Directors of the Sub-Advisor to the extent permitted by
law; and that the officers and Directors of the Sub-Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm, trust or corporation, including other investment companies.
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<PAGE>
14. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Sub-Advisor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor for this purpose shall be 100 East Pratt Street, Baltimore, Maryland
21202, and the address of the Advisor and the Fund shall be One South Street,
Baltimore, Maryland 21202.
16. Questions and Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS REAL ESTATE SECURITIES
FUND, INC.
/s/ Amy M. Olmert By: /s/ William K. Morrill, Jr.
- ---------------------------- ------------------------------
Name: William K. Morrill, Jr.
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
/s/ Amy M. Olmert By: /s/ Edward J. Veilleux
- ---------------------------- ------------------------------
Name: Edward J. Veilleux
Title: Executive Vice President
Attest: ABKB/LASALLE SECURITIES LIMITED
PARTNERSHIP
/s/ Amy M. Olmert By: /s/ William K. Morrill, Jr.
- ---------------------------- ------------------------------
Name: William K. Morrill, Jr.
Title: Managing Director
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<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 31st day of August, 1997, by and between Flag
Investors Real Estate Securities Fund, Inc., with its principal office and place
of business at One South Street, Baltimore, Maryland 21202 (the "Fund"), and ICC
Distributors, Inc., a Delaware corporation with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Distributor").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
may issue its shares of common stock (the "Shares") in separate series and
classes and continuously offers for sale its Shares to the public; and
WHEREAS, the Distributor is registered under the Securities Exchange
Act of 1934, as amended ("1934 Act"), as a broker-dealer and is engaged in the
business of selling shares of registered investment companies either directly to
purchasers or through other securities dealers;
WHEREAS, the Fund offers Shares in one or more series as listed in
Appendix A hereto (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Section 16, being herein referred to as a "Series," and collectively as the
"Series") and the Fund offers shares of one or more classes (each such class
together with all other classes subsequently established by a Series being
herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Fund desires that the Distributor offer the Shares of each
Series and Class thereof to the public and the Distributor is willing to provide
those services on the terms and conditions set forth in this Agreement in order
to promote the growth of the Fund and facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Fund and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Fund has delivered to the Distributor properly certified or
authenticated copies of its Articles of Incorporation and Bylaws (collectively,
as amended from time to time, "Organic Documents"), the Fund's Notification of
Registration filed with the U.S. Securities and Exchange Commission ("SEC")
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, the
Fund's Registration Statement and all amendments thereto filed with the SEC
pursuant to the
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<PAGE>
Securities Act of 1933, as amended (the "Securities Act"), or the 1940 Act (the
"Registration Statement") and its current Prospectuses and Statements of
Additional Information (collectively, as currently in effect and as amended or
supplemented, the "Prospectus") and shall promptly furnish the Distributor with
all amendments of or supplements to the foregoing, each properly certified or
authenticated. In addition, the Fund shall furnish the Distributor with properly
certified or authenticated copies of all documents, notices and reports filed
with the SEC.
(b) The Fund has delivered to the Distributor certified copies of the
resolutions of the Board of Directors (the "Board") authorizing the appointment
of the Distributor as distributor and approving this Agreement.
(b) The Fund hereby appoints the Distributor as its principal
underwriter and distributor to sell its Shares to the public and hereby agrees
during the term of this Agreement to sell its Shares to the Distributor upon the
terms and conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as its principal underwriter and distributor except that the rights given
under this Agreement to the Distributor shall not apply to Shares issued in
connection with the merger, consolidation or reorganization of any other
investment company with the Fund; the Fund's acquisition by purchase or
otherwise of all or substantially all of the assets or stock of any other
investment company; or the reinvestment in Shares by the Fund's shareholders of
dividends or other distributions or any other offering by the Fund of securities
to its shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Fund the
Shares needed to fill unconditional orders for unsold Shares of the Fund as
shall then be effectively registered under the Securities Act placed with the
Distributor by investors or securities dealers or depository institutions or
other financial intermediaries acting as agent for their customers or on their
own behalf. Alternatively, the Distributor may act as the Fund's agent, to
offer, and to solicit offers to subscribe to, unsold Shares of the Fund as shall
then be effectively registered under the Securities Act. The Distributor will
promptly forward all orders and subscriptions for Shares of the Fund. The price
which the Distributor shall pay for Shares purchased by it from the Fund shall
be the net asset value, determined as set forth in Section 3(c) hereof, used in
determining the public offering price on which the orders are based. The price
at which the Distributor shall offer and sell Shares to investors shall be the
public offering price, as set forth in Section 3(b) hereof. The Distributor may
sell Shares to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with the Distributor pursuant to Section 9 hereof or acting on their
own behalf. The Fund reserves the right to sell its Shares directly to investors
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<PAGE>
through subscriptions received by the Fund, but no such direct sales shall
affect the sales charges due to the Distributor hereunder.
(b) The public offering price of the Shares of the Fund, i.e., the
price per Share at which the Distributor or selected dealers or selected agents
(each as defined in Section 11 hereof) may sell Shares to the public or to those
persons eligible to invest in Shares as described in the Fund's Prospectus,
shall be the public offering price determined in accordance with the then
currently effective Prospectus of the Fund or Class thereof under the Securities
Act, relating to such Shares, but not to exceed the net asset value at which the
Distributor, when acting as principal, is to purchase such Shares, plus, in the
case of Shares for which an initial sales charge is assessed, an initial charge
equal to a specified percentage or percentages of the public offering price of
the Shares as set forth in the current Prospectus relating to the Shares. In the
case of Shares for which an initial sales charge may be assessed, Shares may be
sold to certain classes of persons at reduced sales charges or without any sales
charge as from time to time set forth in the current Prospectus relating to the
Shares. The Fund will advise the Distributor of the net asset value per Share at
each time as the net asset value per Share shall have been determined by the
Fund.
(c) The net asset value per Share of each Series or Class thereof shall
be determined by the Fund, or an agent of the Fund, as of the close of the New
York Stock Exchange or such other time as set forth in the applicable Prospectus
on the Fund business day in accordance with the method set forth in the
Prospectus and guidelines established by the Board.
(d) The Fund reserves the right to suspend the offering of Shares of
any Class at any time in the absolute discretion of the Board, and upon notice
of such suspension the Distributor shall cease to offer Shares of the Fund or
Classes thereof specified in the notice.
(e) The Fund, or any agent of the Fund designated in writing to the
Distributor by the Fund, shall be promptly advised by the Distributor of all
purchase orders for Shares received by the Distributor and all subscriptions for
Shares obtained by the Distributor as agent shall be directed to the Fund for
acceptance and shall not be binding until accepted by the Fund. Any order or
subscription may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or confirm orders
or subscriptions for the purchase of Shares. The Fund (or its agent) will
confirm orders and subscriptions upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment thereof, will
issue such Shares in certificated or uncertificated form pursuant to the
instructions of the Distributor. The Distributor agrees to cause such payment
and such instructions to be delivered promptly to the Fund (or its agent).
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<PAGE>
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Fund may be tendered for
redemption at any time, and the Fund agrees to redeem or repurchase the Shares
so tendered in accordance with its obligations as set forth in the Fund's
Organic Documents and the Prospectus relating to the Shares. The price to be
paid to redeem or repurchase the Shares of the Fund shall be equal to the net
asset value calculated in accordance with the provisions of Section 3(b) hereof
less, in the case of Shares for which a deferred sales charge is assessed, a
deferred sales charge equal to a specified percentage or percentages of the net
asset value of those Shares as from time to time set forth in the Prospectus
relating to those Shares or their cost, whichever is less. Shares for which a
deferred sales charge may be assessed and that have been outstanding for a
specified period of time may be redeemed without payment of a deferred sales
charge as from time to time set forth in the Prospectus relating to those
Shares.
(b) The Fund or its designated agent shall pay (i) the total amount of
the redemption price consisting of the redemption price less any applicable
deferred sales charge to the redeeming shareholder or its agent and (ii) except
as may be otherwise required by the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. (the "NASD") and any interpretations
thereof, any applicable deferred sales charges to the Distributor in accordance
with the Distributor's instructions on or before the third business day
subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at times
when the New York Stock Exchange is closed for any reason other than its
customary weekend or holiday closings, when trading thereon is restricted, when
an emergency exists as a result of which disposal by the Fund of securities
owned by the Fund is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or
during any other period when the SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of the
Fund upon the terms and conditions contained herein and in the then current
Prospectus. The Distributor shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of the Distributor to the Fund hereunder are not to be
deemed exclusive, and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long as
the performance of its obligations hereunder is not impaired thereby.
(b) In selling Shares of the Fund, the Distributor shall use its best
efforts in all material respects duly to conform with the requirements of all
federal and state laws relating to the sale of the
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<PAGE>
Shares. None of the Distributor, any selected dealer, any selected agent or any
other person is authorized by the Fund to give any information or to make any
representations other than as is contained in the Fund's Prospectus or any
advertising materials or sales literature specifically approved in writing by
the Fund or its agents.
(c) The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers or selected agents, the
collection of amounts payable by investors and selected dealers or selected
agents on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the NASD and any other applicable
self-regulatory organization.
(d) The Distributor will perform its duties hereunder under the
supervision of and in accordance with the directives of the Board. The
Distributor will perform its duties hereunder in accordance with the Fund's
Organic Documents and Prospectuses and with the instructions and directions of
the Board and will conform to and comply with the requirements of the 1940 Act,
the Securities Act and other applicable laws.
(e) The Distributor shall provide the Board with a written report of
the amounts expended in connection with this Agreement as requested by the
Board.
(f) The Distributor represents and warrants to the Fund that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware and it is duly
qualified to carry on its business in the State of Maine;
(ii) It is empowered under applicable laws and by its Articles of
Incorporation to enter into and perform this Agreement;
(iii) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iv) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(v) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Distributor, enforceable
against the Distributor in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the rights and remedies of
creditors and secured parties;
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<PAGE>
(vi) It is registered under the 1934 Act with the SEC as a
broker-dealer, it is a member in good standing of the NASD, it will
abide by the rules and regulations of the NASD, and it will notify
the Fund if its membership in the NASD is terminated or suspended;
and
(vii) The performance by the Distributor of its obligations
hereunder does not and will not contravene any provision of its
Articles of Incorporation.
(g) Notwithstanding anything in this Agreement, including the
Appendices, to the contrary, the Distributor makes no warranty or representation
as to the number of selected dealers or selected agents with which it has
entered into agreements in accordance with Section 11 hereof, as to the
availability of any Shares to be sold through any selected dealer, selected
agent or other intermediary or as to any other matter not specifically set forth
herein.
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Fund shall furnish to the Distributor copies of all financial
statements and other documents to be delivered to shareholders or investors at
least two Fund business days prior to such delivery and shall furnish the
Distributor copies of all other financial statements, documents and other papers
or information which the Distributor may reasonably request for use in
connection with the distribution of Shares. The Fund shall make available to the
Distributor the number of copies of its Prospectuses as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, subject to the approval of
its Board and any required approval of its shareholders, all action necessary to
fix the number of authorized Shares (if such number is not limited) and to
register the Shares under the Securities Act, to the end that there will be
available for sale the number of Shares as reasonably may be expected to be sold
pursuant to this Agreement.
(c) The Fund shall register or qualify its Shares for sale under the
securities laws of the various states of the United States and other
jurisdictions ("States") as the Fund, in its sole discretion shall determine.
Any registration or qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such registration or qualification.
(d) The Fund represents and warrants to the Distributor that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland;
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<PAGE>
(ii) It is empowered under applicable laws and by its Organic
Documents to enter into and perform this Agreement;
(iii) All proceedings required by the Organic Documents have been
taken to authorize it to enter into and perform its duties under
this Agreement;
(iv) It is registered as an open-end management investment company
with the SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully paid
and non-assessable;
(vi) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Fund, enforceable
against the Fund in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the rights and remedies of
creditors and secured parties;
(vii) The performance by the Fund of its obligations hereunder does
not and will not contravene any provision of its Articles of
Incorporation.
(viii) The Fund's Registration Statement is currently effective and
will remain effective with respect to all Shares of the Fund's
Series and Classes thereof being offered for sale;
(ix) It will use its best efforts to ensure that its Registration
Statement and Prospectuses have been or will be, as the case may
be, carefully prepared in conformity with the requirements of the
Securities Act and the rules and regulations thereunder;
(x) It will use its best efforts to ensure that (A) its
Registration Statement and Prospectuses contain or will contain all
statements required to be stated therein in accordance with the
Securities Act and the rules and regulations thereunder, (B) all
statements of fact contained or to be contained in the Registration
Statement or Prospectuses are or will be true and correct at the
time indicated or on the effective date as the case may be and (C)
neither the Registration Statement nor any Prospectus, when they
shall become effective or be authorized for use, will include an
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading to a purchaser of Shares;
(xi) It will from time to time file such amendment or amendments to
its Registration Statement and Prospectuses as, in the light of
then-current and then-prospective developments, shall, in the
opinion of its counsel, be necessary in order to have the
Registration Statement and Prospectuses at all times contain all
material facts required to be
-7-
<PAGE>
stated therein or necessary to make any statements therein not
misleading to a purchaser of Shares ("Required Amendments");
(xii) It shall not file any amendment to its Registration Statement
or Prospectuses without giving the Distributor reasonable advance
notice thereof (which shall be at least three Fund business days);
provided, however, that nothing contained in this Agreement shall
in any way limit the Fund's right to file at any time such
amendments to its Registration Statement or Prospectuses, of
whatever character, as the Fund may deem advisable, such right
being in all respects absolute and unconditional; and
(xiii) It will use its best efforts to ensure that (A) any
amendment to its Registration Statement or Prospectuses hereafter
filed will, when it becomes effective, contain all statements
required to be stated therein in accordance with the 1940 Act and
the rules and regulations thereunder, (B) all statements of fact
contained in the Registration Statement or Prospectuses will, when
it becomes effective, be true and correct at the time indicated or
on the effective date as the case may be and (C) no such amendment,
when it becomes effective, will include an untrue statement of a
material fact or will omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading to a purchaser of the Shares.
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in
rendering services to the Fund under this Agreement but shall be under no duty
to take any action except as specifically set forth herein or as may be
specifically agreed to by the Distributor in writing. The Distributor shall not
be liable to the Fund or any of the Fund's shareholders for any error of
judgment or mistake of law, for any loss arising out of any investment, or for
any action or inaction of the Distributor in the absence of bad faith, willful
misfeasance or gross negligence in the performance of the Distributor's duties
or obligations under this Agreement or by reason of the Distributor's reckless
disregard of its duties and obligations under this Agreement
(b) The Distributor shall not be liable to the Fund for any action
taken or failure to act in good faith reliance upon:
(i) the advice of the Fund or of counsel, who may be counsel to the
Fund or counsel to the Distributor;
(ii) any oral instruction which the Distributor receives and which
it reasonably believes in good faith was transmitted by the person
or persons authorized by the Board to give such oral instruction
(the Distributor shall have no duty or obligation to make any
inquiry or effort of certification of such oral instruction);
-8-
<PAGE>
(iii) any written instruction or certified copy of any resolution
of the Board, and the Distributor may rely upon the genuineness of
any such document or copy thereof reasonably believed in good faith
by the Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report,
notice, consent, order, or other document reasonably believed in
good faith by the Distributor to be genuine and to have been signed
or presented by the Fund or other proper party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which the Distributor reasonably believes in
good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure
or delay in performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its reasonable
control including, without limitation, acts of civil or military authority,
national emergencies, labor difficulties (other than those related to the
Distributor's employees), fire, mechanical breakdowns, flood or catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply. In addition, to the extent the Distributor's
obligations hereunder are to oversee or monitor the activities of third parties,
the Distributor shall not be liable for any failure or delay in the performance
of the Distributor's duties caused, directly or indirectly, by the failure or
delay of such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with the Distributor.
-9-
<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Fund will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls the
Distributor within the meaning of section 15 of the Securities Act or section 20
of the 1934 Act ("Distributor Indemnitees") free and harmless from and against
any and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable counsel fees
incurred in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, under the securities laws of the various States or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Fund's Registration Statement or
Prospectuses, arising out of or based upon any alleged omission to state a
material fact required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, or arising out of or based upon
any filing made with the regulatory authorities of any State unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Fund in connection with the preparation
of the Registration Statement, exhibits to the Registration Statement or filings
made with the regulatory authorities of any State by or on behalf of the
Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Fund shall indemnify and hold each Distributor Indemnitee free and
harmless from and against any Distributor Claim; provided, that the term
Distributor Claim for purposes of this sentence shall mean any Distributor Claim
related to the matters for which the Distributor has requested amendment to the
Fund's Registration Statement and for which the Fund has not filed a Required
Amendment, regardless of with respect to such matters whether any statement in
or omission from the Registration Statement was made in reliance upon, or in
conformity with, information furnished to the Fund by or on behalf of the
Distributor.
(b) The Fund may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Fund and
approved by the Distributor, which approval shall not be withheld unreasonably.
The Fund shall advise the Distributor that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Fund assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Fund does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Fund or has been advised
that it may have available defenses or claims that are not available to or
conflict with those available to the Fund, the Fund will reimburse any
Distributor Indemnitee named as defendant in such suit for the reasonable fees
and expenses of any counsel that person retains. A Distributor Indemnitee shall
not settle or confess any claim without the prior written consent of the Fund,
which consent shall not be unreasonably withheld or delayed.
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<PAGE>
(c) The Distributor will indemnify, defend and hold the Fund and its
several officers and directors (collectively, the "Fund Indemnitees"), free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees
and other expenses of every nature and character (including the cost of
investigating or defending such claims, demands, actions, suits or liabilities
and any reasonable counsel fees incurred in connection therewith), but only to
the extent that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses
result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in
the Fund's Registration Statement or Prospectus or any alleged
omission of a material fact required to be stated or necessary to
make the statements therein not misleading, if such statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Fund in writing in connection with the
preparation of the Registration Statement or Prospectus by or on
behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set
forth in Section 7 of this Agreement (collectively, "Fund Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Fund Claim and may retain counsel of good standing chosen by the
Distributor and approved by the Fund, which approval shall not be withheld
unreasonably. The Distributor shall advise the Fund that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Distributor assumes the defense of any such suit and
retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Distributor does not assume the
defense of any such suit, or if the Fund does not approve of counsel chosen by
the Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to the
Distributor, the Distributor will reimburse any Fund Indemnitee named as
defendant in such suit for the reasonable fees and expenses of any counsel that
person retains. A Fund Indemnitee shall not settle or confess any claim without
the prior written consent of the Distributor, which consent shall not be
unreasonably withheld or delayed.
(e) The Fund's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Fund or the
Distributor receiving notice of any action brought against a Distributor
Indemnitee or Fund Indemnitee, respectively, by the person against whom such
action is brought within twenty (20) days after the summons or other first legal
process is served. Such notice shall refer to the person or persons against whom
the action is brought. The failure to provide such notice shall not relieve the
party entitled to such notice of any liability that it may have to any
Distributor Indemnitee or Fund Indemnitee except to the extent that the ability
of the party
-11-
<PAGE>
entitled to such notice to defend such action has been materially adversely
affected by the failure to provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Fund Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Fund Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) The Distributor agrees promptly to notify the Fund of the
commencement of any litigation or proceeding of which it becomes aware arising
out of or in any way connected with the issuance or sale of Shares. The Fund
agrees promptly to notify the Distributor of the commencement of any litigation
or proceeding of which it becomes aware arising out of or in any way connected
with the issuance or sale of its Shares.
(h) Nothing contained herein shall require the Fund to take any action
contrary to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws or any applicable statute
or regulation; provided, however, that neither the Fund nor the Distributor may
amend their Organic Documents or Articles of Incorporation and Bylaws,
respectively, in any manner that would result in a violation of a representation
or warranty made in this Agreement, except if required by any applicable statute
or regulation.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Fund or the security holders of the
Fund to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
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<PAGE>
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Fund shall advise the Distributor immediately: (i) of any request
by the SEC for amendments to the Fund's Registration Statement or Prospectus or
for additional information; (ii) in the event of the issuance by the SEC of any
stop order suspending the effectiveness of the Fund's Registration Statement or
any Prospectus or the initiation of any proceedings for that purpose; (iii) of
the happening of any material event which makes untrue any statement made in the
Fund's then current Registration Statement or Prospectus or which requires the
making of a change in either thereof in order to make the statements therein not
misleading; and (iv) of all action of the SEC with respect to any amendments to
the Fund's Registration Statement or Prospectus which may from time to time be
filed with the Commission under the 1940 Act or the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with
the distribution of Shares of the Fund and each Class thereof, the Distributor
shall receive: (i) any applicable sales charge assessed upon investors in
connection with the purchase of Shares; (ii) from the Fund, any applicable
contingent deferred sales charge ("CDSC") assessed upon investors in connection
with the redemption of Shares; (iii) from the Fund, the distribution service
fees with respect to the Shares of those Classes as designated in Appendix A for
which a plan under Rule 12b-1 under the 1940 Act (a "Plan") is effective (the
"Distribution Fee"); and (iv) from the Fund, the shareholder service fees with
respect to the Shares of those Classes as designated in Appendix A (the "Service
Fee"). The Distribution Fee and Service Fee shall be accrued daily by each
applicable Fund or Class thereof and shall be paid monthly as promptly as
possible after the last day of each calendar month but in any event on or before
the fifth (5th) Fund business day after month-end, at the rate or in the amounts
set forth in Appendix A and, as applicable, the Plan(s). The Fund grants and
transfers to the Distributor a general unperfected lien and security interest in
any and all securities and other assets of the Fund now or hereafter maintained
in an account at the Fund's custodian on behalf of the Fund to secure any
Distribution Fees and Service Fees owed the Distributor by the Fund under this
Agreement.
(b) The Fund shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Series
and the Classes thereof, all CDSCs properly payable by the shareholders in
accordance with the terms of the applicable Prospectus and shall cause the
Transfer Agent to pay such amounts over to the Distributor as promptly as
possible after each month end.
(c) Except as specified in Sections 8 and 10(a), the Distributor shall
be entitled to no compensation or reimbursement of expenses for the services
provided by the Distributor pursuant to this Agreement. The Distributor may
receive compensation from the Fund's investment advisors, other service
providers or their respective affiliates (collectively, the "Advisor") for its
services
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<PAGE>
hereunder or for additional services all as may be agreed to between the Advisor
and the Distributor. Notwithstanding anything in this Agreement to the contrary,
to the extent the Distributor receives compensation from the Advisor that is
disclosed to the Board, the Fund will indemnify, defend and hold each
Distributor Indemnitees free and harmless from and against any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) related in any way to such payment.
(d) The Fund shall be responsible and assumes the obligation for
payment of all its expenses, including fees and disbursements of its counsel and
auditors, in connection with the preparation and filing of the Registration
Statement and Prospectuses (including but not limited to the expense of setting
in type the Registration Statement and Prospectuses and printing sufficient
quantities for internal compliance, regulatory purposes and for distribution to
current shareholders).
(e) The Fund shall bear the cost and expenses (i) of the registration
of its Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Fund, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Fund; and (iv) payable to each State for continuing registration or
qualification therein until the Fund decides to discontinue registration or
qualification. The Distributor shall pay all expenses relating to the
Distributor's broker-dealer qualification.
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into sub-distribution
agreements with securities dealers of its choice ("selected dealers") and with
depository institutions and other financial intermediaries of its choice
("selected agents") for the sale of Shares and to fix therein the portion of the
sales charge, if any, that may be allocated to the selected dealers or selected
agents; provided, that all such agreements shall be in substantially the form of
agreement as set forth in Appendix B hereto. Shares of each Series or Class
thereof shall be resold by selected dealers or selected agents only at the
public offering price(s) set forth in the Prospectus relating to the Shares. The
Distributor shall offer and sell Shares of the Fund only to such selected
dealers as are members in good standing of the NASD. The Distributor shall have
the right to enter into shareholder servicing agreements with financial
intermediaries of its choice; provided, that all such agreements shall be in
substantially the form of agreement as set forth in Appendix C hereto.
(b) The Distributor will supervise the Fund's relationship with
selected dealers and agents and may make payments to those selected dealers and
agents in such amounts as the Distributor may determine from time to time in its
sole discretion. The amount of payments to selected dealers and
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<PAGE>
agents by the Distributor may be reviewed by the Board from time to time;
provided, however, that no payment by the Distributor to any selected dealer or
agent with respect to a Share shall exceed the amount of payments made to the
Distributor hereunder with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information
related to the Fund as proprietary information of the Fund and, on behalf of
itself and its employees, to keep confidential all such information, except that
the Distributor may:
(i) prepare or assist in the preparation of periodic reports to
shareholders and regulatory bodies such as the SEC;
(ii) provide information typically supplied in the investment
company industry to companies that track or report price,
performance or other information regarding investment companies;
and
(iii) release such other information as approved in writing by the
Fund, which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Fund without the consent of the Fund if the Distributor reasonably believes
that it may be exposed to civil or criminal legal proceedings for failure to
comply, when requested to release any information by duly constituted
authorities or when so requested by the Fund.
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series
or class listed in Appendix A on the later of (i) August 31, 1997 or (ii) the
date on which the Fund's Registration Statement relating to Shares of the Fund
becomes effective. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Fund.
(b) This Agreement shall continue in effect with respect to a Series
Fund for a period of one year from its effectiveness and thereafter shall
continue in effect with respect to the Series until terminated; provided, that
continuance is specifically approved at least annually (i) by the Board or by a
vote of a majority of the outstanding voting securities of the Fund and (ii) by
a vote of a majority of Directors of the Fund (I) who are not parties to this
Agreement or interested persons of any such party (other than as Directors of
the Fund) and (II) with respect to each Class of a Series for which there is an
effective Plan, who do not have any direct or indirect financial interest in any
-15-
<PAGE>
such Plan applicable to the Class or in any agreements related to the Plan, cast
in person at a meeting called for the purpose of voting on such approval.
(c) This Agreement may be terminated at any time with respect to a
Series, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Series or, with respect to
each Class for which there is an effective Plan, a majority of Directors of the
Fund who do not have any direct or indirect financial interest in any such Plan
or in any agreements related to the Plan, on 60 days' written notice to the
Distributor or (ii) by the Distributor on 60 days' written notice to the Fund.
(d) This Agreement shall automatically terminate upon its assignment
and upon the termination of the Distributor's membership in the NASD.
(e) If the Fund does not file a Required Amendment within fifteen days
following receipt of a written request from the Distributor to do so, the
Distributor may, at its option, terminate this Agreement immediately.
(f) The obligations of Sections 5(e), 6(d), 8, 9 and 10 shall survive
any termination of this Agreement with respect to a Series or Class thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the
Distributor to the Fund or the Fund to the Distributor shall be deemed
sufficiently given if personally delivered or sent by telegram, facsimile or
registered, certified or overnight mail, postage prepaid, addressed by the party
giving such notice to the other party at the last address furnished by the other
party to the party giving such notice, and unless and until changed pursuant to
the foregoing provisions hereof each such notice shall be addressed to the Fund
or the Distributor, as the case may be, at their respective principal places of
business.
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's obligations
hereunder, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of the Distributor's employees, agents, officers or
directors who may also be a director, officer or employee of the Fund, or
affiliated persons of the Fund to engage in any other business or to devote time
and attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other corporation, trust, firm, individual or association.
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<PAGE>
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Fund establishes one or more series of Shares or
one or more classes of Shares after the effectiveness of this Agreement, such
series of Shares or classes of Shares, as the case may be, shall become Series
and Classes under this Agreement upon approval of this Agreement by the Fund
with respect to the series of Shares or class of Shares and the execution of an
amended Appendix A reflecting the applicable names and terms. The Distributor
may elect not to make any such series or classes subject to this
Agreement.
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Fund and the Fund shall
not be liable to the Distributor for consequential damages under any provision
of this Agreement except that Distributor Claims, as that term is used in
Section 8(a), shall include consequential damages related to, arising out of or
based upon any filing made with the regulatory authorities of any State.
(b) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Distributor and the Fund.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Maryland.
(d) This Agreement constitutes the entire agreement between the
Distributor and the Fund and supersedes any prior agreement with respect to the
subject matter hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number
of counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Fund shall be liable to the Distributor only with respect to
those Series and Classes of the Fund and the Distributor shall look solely to
the Fund to satisfy any liability of a Series or Class thereof to the
Distributor.
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<PAGE>
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
By: /s/ Amy M. Olmert
-----------------
Name: Amy M. Olmert
Secretary
ICC DISTRIBUTORS, INC.
By: /s/ John Y. Keffer
------------------
John Y. Keffer
President
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<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
DISTRIBUTION AGREEMENT
Appendix A
as of August 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Distribution Service
Series Class Fee Fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flag Investors Real Estate Securities Fund, Class A 0.25% ----
Inc. Class B 0.75% 0.25%
Institutional Class ---- ----
- ---------------------------------------------------------------------------------------------------
</TABLE>
- A1 -
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) 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" as used herein refers to each
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
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<PAGE>
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 the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family 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 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 Conduct Rules (formerly
- B2 -
<PAGE>
the Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares 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 relevant 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 make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund 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 provisions 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 such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of
- B3 -
<PAGE>
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 other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
- B4 -
<PAGE>
Clears Through:
Phone No.:
- B5 -
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
----------
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (v) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii)
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<PAGE>
providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations. You
will provide to Customers a schedule of any fees that you may charge directly to
them for such services. You hereby represent that such fees are not unreasonable
or excessive. Shares purchased by you on behalf of Customers will be registered
with our transfer agent in your name or in the name of your nominee. The
Customer will be the beneficial owner of Shares purchased and held by you in
accordance with the Customer's instructions ("Customers' Shares") and the
Customer may exercise all rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
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<PAGE>
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
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<PAGE>
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: ___________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:
By:
Name:
Address:
Date:
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<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS FUNDS
FORM OF SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) 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" as used herein refers to each
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
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
1
<PAGE>
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 $25,000 in the fund family 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 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 Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares 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 relevant 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 make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund 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.
2
<PAGE>
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 provisions 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 such
phrase is 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 other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
3
<PAGE>
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
Clears Through:
Phone No.:
4
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS FAMILY OF FUNDS
FORM OF SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (v) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii) providing such other
similar services as we may reasonably request to the extent you are permitted to
do so under applicable statutes, rules or regulations. You will provide to
Customers a schedule of any fees that you may charge directly to them for such
services. You hereby represent that such fees are not unreasonable or excessive.
Shares purchased by you on behalf of Customers will be registered with our
transfer agent in your name or in the name of your nominee. The Customer will be
the beneficial owner of Shares purchased and held by you in accordance with the
Customer's instructions ("Customers' Shares") and the Customer may exercise all
rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any
1
<PAGE>
personnel employed by you) as may be reasonably necessary or beneficial in order
to provide the aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
2
<PAGE>
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: ___________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:
By:
Name:
Address:
Date:
3
<PAGE>
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT dated as of________, 199__ between BANKERS TRUST COMPANY (the
"Custodian") and __________________________________ (the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desire to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
noncash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instruction to settle Securities transactions in any country
shall be deemed to authorize the holding of such Securities and Cash in that
country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the account of such Portfolio. Upon
delivery by the Customer to the Custodian of any Property belonging to a
Portfolio, the Customer shall, by Instructions (as herein defined in Section
14), specifically indicate which
1
<PAGE>
Portfolio such Property belongs or if such Property belongs to more than one
Portfolio shall allocate such Property to the appropriate Portfolio. The
Custodian shall allocate such Property to the Accounts in accordance with the
Instructions; provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept any Property that is not in proper form for
deposit for any reason. The Customer on behalf of each Portfolio, acknowledges
its responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement warrants its authority to
deposit in the appropriate Account any Property received therefor by the
Custodian or a Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Custodian may deliver securities of the same
class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the appropriate
Account;
(b) present for payment all Securities held in an Account which
are called, redeemed or otherwise become payable and all
coupons and other income items which call for payment upon
presentation to the extent that the Custodian or Subcustodian
is actually aware of such opportunities and hold the cash
received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
an Account, endeavor to receive Instructions, provided that if
such Instructions are not received in time for the Custodian
to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for an Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby authorizes the
Custodian to make) such rights entitlement or fractional
interest and credit the Account with the net proceeds of such
sale:
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(e) execute in the Customer's name for an Account whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any
governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.,
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System collectively, Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions: provided further that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any Subcustodian or
Securities System has been proper under the 1940 Act or any rule or regulation
thereunder.
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Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement Subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities as may reasonably be requested by the
Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5 requires
the Customer's Board of Trustees to directly approve its foreign custody
arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the nominal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account which is
maintained by the Custodian in the custody of a Subcustodian employed pursuant
to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such
Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities are not
subject to any right, charge, security interest, lien or claim
of any kind in favor of such Subcustodian or its creditors
except a claim for payment in accordance with such agreement
for their safe custody or administration and expenses related
thereto, (iii) beneficial ownership of such Securities be
freely transferable without the payment of money or value
other than for safe custody or administration and expenses
related
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thereto, (iv) adequate records will be maintained identifying
the Property held pursuant to such Agreement as belonging to
the Custodian, on behalf of its customers and (v) to the
extent permitted by applicable law, officers of or auditors
employed by, or other representatives of or designated by, the
Custodian, including the independent public accountants of or
designated by, the Customer be given access to the books and
records of such Subcustodian relating to its actions under its
agreement pertaining to any Property held by it thereunder or
confirmation of or pertinent information contained in such
books and records be furnished to such persons designated by
the Custodian.
6. Use of Securities System. With respect to Property in the Account(s)
which are maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books
such Property as being held for the account of the Custodian
or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of
the Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the
case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a
Subcustodian or in a Securities System as authorized herein,
shall be clearly recorded on the Custodian's books as
belonging to the appropriate Account and not for the
Custodian's own interest. The Custodian
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shall keep accurate and detailed accounts of all investments,
receipts, disbursements and other transactions for each
Account. All accounts, books and records of the Custodian
relating thereto shall be open to inspection and audit at all
reasonable times during normal business hours by any person
designated by the Customer. All such accounts shall be
maintained and preserved in the form reasonably requested by
the Customer. The Custodian will supply to the Customer from
time to time, as mutually agreed upon, a statement in respect
to any Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with the
Custodian by the Customer of exceptions or objections to any
such statement within sixty (60) days of the mailing thereof,
the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of
any such statement, such statement shall be presumed to be for
all purposes correct with respect to all information set forth
therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions
from the Customer's independent certified public accountants
with respect to the Custodian's activities hereunder in
connection with the preparation of the Customer's Form N1-A
and the Customer's Form N-SAR or other periodic reports to the
SEC and with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's
independent certified public accountants with respect to the
services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for
safeguarding Cash and Securities, including Cash and
Securities deposited and/or maintained in a securities system
or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required
by the Customer and as may reasonably be obtained by the
Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the
Custodian which can provide the Customer, on a daily basis,
with the ability to view on-line or to print on hard copy
various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such
service shall include market values of Securities in an
Account, the Customer hereby acknowledges that the Custodian
now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be
reliable and the Customer agrees that the Custodian (i) does
not verify or represent or warrant either the reliability of
such service nor the accuracy or completeness of any such
information furnished or obtained by or through such service
and (ii) shall be without liability in selecting and utilizing
such service or furnishing any information derived therefrom.
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<PAGE>
9. Holding of Securities, Nominees, etc. Securities in an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the Jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
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<PAGE>
purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Global Guide provided to the Customer by the Custodian, the Custodian may,
at its sole option, reverse such credits or debits to the appropriate Account in
the event that the transaction does not settle, or the income is not received in
a timely manner, and the Customer agrees to hold the Custodian harmless from any
losses which may result therefrom.
13. Conditional Credits.
--------------------
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any
Instructions to settle the purchase of any securities for the
Account, unless there are sufficient immediately available
funds in the relevant currency in the Account, provided that
if, after all expenses, debits and withdrawals of Cash in th
relevant currency ("Debits") applicable to the Account have
been made and if after all Conditional Credits, as defined
below, applicable to the Account have been made final entries
as set forth in (c) below, the amount of immediately available
funds of the relevant currency in such Account is at least
equal to the aggregate purchase price of all securities for
which the Custodian has received Instructions to settle on
that date ("Settlement Date"), the Custodian, upon settlement,
shall credit the Securities to the Account by making a final
entry on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable
to the Account have been made, there remains outstanding any
Conditional Credit (as defined below) applicable to the
Account or the amount of immediately available funds in a
given currency in such Account are less than the aggregate
purchase price in such currency of all securities for which
the Custodian has received Instructions to settle on the
Settlement Date, the Custodian, upon settlement, may credit
the securities to the Account by making a conditional entry on
its books and records ("Conditional Credit"), pending receipt
of sufficient immediately available funds in the relevant
currency in the Account.
(c) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have
been made, immediately available funds in the relevant
currency at least equal to the aggregate purchase price in
such currency of all securities subject to a Conditional
Credit on a Settlement Date are deposited into the Account,
the Custodian shall make the Conditional Credit a final entry
on its books and records. In such case, the Customer shall be
liable to the Custodian only for late
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<PAGE>
charges at a rate which the Custodian customary charges for
similar extensions of credit.
(d) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have
been made, immediately available funds in the relevant
currency at least equal to the aggregate purchase price in
such currency of all securities subject to a Conditional
Credit on a Settlement Date are not deposited into the
Account, the Customer authorizes the Custodian, as agent, to
sell the securities and credit the Account with the proceeds
of such sale. In such case, the Customer shall be liable to
the Custodian for any deficiencies, out-of-pocket costs and
expenses associated with the sale of the securities, including
but not limited to, shortfalls in the sales proceeds and the
Custodian is hereby authorized to sell such other securities
to the extent necessary to satisfy such shortfalls with the
net proceeds of such sales.
(e) The Customer agrees that it will not use the Account to
facilitate the purchase of securities without sufficient funds
in the Account (which funds shall not include the expected
proceeds of the sale of the purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance with Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or
readjustment.
(d) Upon conversion of Securities pursuant to their terms into
other securities.
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed.
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(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect
any restrictions applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of
the Customer against delivery of the shares to be redeemed to
the Custodian, a Subcustodian or the Customer's transfer
agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the
Custodian, a Subcustodian or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any
agreement among the Customer, on behalf of a Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association
of Securities Dealers, Inc., relating to compliance with the
rules of The Options Clearing Corporation, the Commodities
Futures Trading Commission and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be
released only upon payment to the Custodian of monies for the
premium due and a receipt for the Securities which are to be
held in escrow. Upon exercise of the option, or at expiration,
the Custodian will receive the Securities previously deposited
from broker. The Custodian will act strictly in accordance
with Instructions in the delivery of Securities to be held in
escrow and will have no responsibility or liability for any
such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to
facilitate security trading or receipt of income from
Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section
20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 22 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose
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name and (if applicable) signature and office address have been filed with the
Custodian, or (ii) which have been transmitted electronically through an
electronic on-line service and communications system offered by the Custodian or
other electronic instruction system acceptable to the Custodian, or (iii) a
telephonic or oral communication by one or more persons as the Customer shall
have from time to time authorized to give the particular class of Instructions
in question and whose name has been filed with the Custodian; or (iv) upon
receipt of such other form of instructions as the Customer may from time to time
authorize in writing and which the Custodian has agreed in writing to accept.
Instructions in the form of oral communications shall be confirmed by the
Customer by tested telex or writing in the manner set forth in clause (i) above,
but the lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific transactions
or to types or classes of transactions, and may be in the form of standing
instructions.
The Custodian shall have the night to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be
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counsel for the Customer) on all matters and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution, strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
12
<PAGE>
18. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in an Account and also agrees to hold the Custodian, its
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in such Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable Account for any amount payable to the Custodian under
this Agreement, including but not limited to amounts payable pursuant to Section
13 and pursuant to indemnities granted by the Customer under this Agreement. The
provisions of this Section shall survive the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
21. Termination.
(a) Termination of Entire Agreement. This Agreement may be
terminated by the Customer or the Custodian by ninety (90)
days' written notice to the other; provided that notice by the
Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in each Account and to
whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall,
within ninety (90) days following the giving of such notice,
deliver to the Custodian a written notice specifying the names
of the persons to whom the Custodian shall deliver the
Securities in each Account and to whom the Cash in such
Account shall be paid. In either case, the Custodian will
deliver such Securities and Cash to the persons so specified,
after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 13, 18, and 24. In
addition, the Custodian may in its discretion withhold from
such delivery such Cash and Securities as may be necessary
13
<PAGE>
to settle transactions pending at the time of such delivery.
The Customer grants to the Custodian a lien and right of
setoff against the Account and all Property held therein from
time to time in the full amount of the foregoing obligations.
If within ninety (90) days following the giving of a notice of
termination by the Custodian, the Custodian does not receive
from the Customer a written notice specifying the names of the
persons to whom the Custodian shall deliver the Securities in
each Account and to whom the Cash in such Account shall be
paid, the Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of
pursuant to the provisions of this Agreement, or may continue
to hold such Securities and Cash until a written notice as
aforesaid is delivered to the Custodian, provided that the
Custodian's obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may
be terminated by the Customer or the Custodian as to one or
more Portfolios (but less than all of the Portfolios) by
delivery of an amended Exhibit A deleting such Portfolios, in
which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery,
or such earlier time as mutually agreed. The execution and
delivery of an amended Exhibit A which deletes one or more
Portfolios shall constitute a termination of this Agreement
only with respect to such deleted Portfolio(s), shall be
governed by the preceding provisions of Section 21 as to the
identification of a successor custodian and the delivery of
Cash and Securities of the Portfolio(s) so deleted to such
successor custodian and shall not affect the obligations of
the Custodian and the Customer hereunder with respect to the
other Portfolios set forth in Exhibit A, as amended from time
to time.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answerback.
23. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
24. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations;
14
<PAGE>
provided that, if there is more than one Account and the obligations secured
pursuant to this Section can be allocated to a specific Account or the Portfolio
related to such Account, such security interest and right of setoff will be
limited to Property held for that Account only and its related Portfolio. Should
the Customer fail to pay promptly any amounts owed hereunder, Custodian shall be
entitled to use available Cash in the Account or applicable Account, as the case
may be, and to dispose of Securities in the Account or such applicable Account
as is necessary. In any such case and without limiting the foregoing, Custodian
shall be entitled to take such other action(s) or exercise such other options,
powers and rights as Custodian now or hereafter has as a secured creditor under
the New York Uniform Commercial Code or any other applicable law.
25. Representations and Warranties.
-------------------------------
(a) The Customer hereby represents and warrants to the Custodian
that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian a duly
executed Secretary's Certificate in the form of Exhibit E hereto or such other
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any
obligation by which the Custodian is bound, whether
arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by
appropriate action and when executed and delivered
will be binding upon the Custodian in accordance with
its terms;
(iii) the Custodian will deliver to the Customer such
evidence of such authorization as the Customer may
reasonably require, whether by way of a certified
resolution or otherwise; and
15
<PAGE>
(iv) Custodian is qualified as a custodian under Section
26(a) of the 1940 Act and warrants that it will
remain so qualified or upon ceasing to be so
qualified shall promptly notify the Customer in
writing.
26. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
27. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 22 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
28. Representative Capacity and Binding Obligation. A copy of the
Articles of Incorporation of the Customer is on file with The Secretary of the
State of Maryland, and notice is hereby given that this Agreement is not
executed on behalf of the Directors of the Customer as individuals, and the
obligations of this Agreement are not binding upon any of the Directors,
officers or shareholders of the Customer individually but are binding only upon
the assets and property of the Portfolios.
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
29. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the
16
<PAGE>
parties hereto, by judicial or administrative process or otherwise by applicable
law or regulation. The provisions of this Section shall survive the termination
of this Agreement.
31. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
32. Entire Agreement. This Agreement together with any exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
33. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
34. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
17
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of ______________,199__ between Bankers
Trust Company and _______________________________.
LIST OF PORTFOLIOS
------------------
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Dated as of:
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
A-1
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of ________________, 199__ between
Bankers Trust Company and ______________________________.
PROXY SERVICE
-------------
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the Global Guide]. For the United
States and Canada, the term "corporate communications" means the proxy
statements or meeting agenda, proxy cards, annual reports and any other meeting
materials received by the Custodian. For countries other then the United States
and Canada, the term "corporate communications" means the meeting agenda only
and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless
requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
B-1
<PAGE>
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian wall not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
Global Guide. The Custodian will notify the Customer as
B-2
<PAGE>
to the inclusion of additional countries or deletion of existing countries after
their inclusion or deletion and this Exhibit B will be deemed to be
automatically amended to include or delete such countries as the case may be.
Dated as of ___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
B-3
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and _____________________________________.
CUSTODY FEE SCHEDULE
--------------------
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
C-1
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ________________________________.
TAX RECLAIMS
------------
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When Withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian,
D-1
<PAGE>
counsel or other professional tax advisers and shall be without liability to the
Customer for any action reasonably taken or omitted pursuant to information
contained in such services or such advice.
Dated as of ___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
BANKERS TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
D-2
<PAGE>
EXHIBIT E
[Name of Entity]
Certificate of the Secretary
----------------------------
I, [Name of Secretary], hereby certify that I am the Secretary of
_____________________ an open-end investment company organized under the laws of
the State of Maryland (the "Company"), and as such I am duly authorized to, and
do hereby, certify that:
1. Organizational Documents. The Company's organizational documents,
and all amendments thereto, have been filed with the appropriate governmental
officials of Maryland, the Company continues to be in existence and is in good
standing, and no action has been taken to repeal such organizational documents,
the same being in full force and effect on the date hereof.
2. By-Laws. The Company's By-Laws have been duly adopted and no action
has been taken to repeal such By-Laws, the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf of the
Company, which resolutions (i) have not in any way been revoked or rescinded,
(ii) have been in full force and effect since their adoption, to and including
the date hereof, and are now in full force and effect, and (iii) are the only
corporate proceedings of the Company now in force relating to or affecting the
matters referred to therein, including, without limitation, confirming that the
Company is duly authorized to enter into a certain custody agreement with
Bankers Trust Company (the "Agreement"), and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
execute said Agreement on behalf of the Company, in conformity with the
requirements of the Company's organizational documents, Bylaws, and other
pertinent documents to which the Company may be bound.
4. Incumbency. The following named individuals are duly elected (or
appointed), qualified, and acting officers of the Company holding those offices
set forth opposite their respective names as of the date hereof, each having
full authority, acting individually, to bind the Company as a legal matter, with
respect to all matters pertaining to the Agreement, and to execute and deliver
said Agreement on behalf of the Company, and the signatures set forth opposite
the respective names and titles of said officers are their true, authentic
signatures:
Name Title Signature
[Name] [Position] -------------------------------------
[Name] [Position] -------------------------------------
[Name] [Position] -------------------------------------
E-1
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
[Date], 19__.
By:________________________________
Name:______________________________
Title: Secretary
I, [Name of Confirming Officer], [Title] of the Company, hereby certify
that on this ___ day of [Date], 19__, [Name of Secretary] is the duly elected
Secretary of the Company and that the signature above is his genuine signature.
By:________________________________
Name:______________________________
Title:_____________________________
E-2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
Flag Investors Real Estate Securities Fund, Inc.
We consent to the inclusion of our report dated January 29, 1998 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. 7 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
"General Information" and "Financial Highlights" 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, 1998
<PAGE>
Amended
August 4, 1997
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS CLASS A SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class A Shares (the "Shares")
of Flag Investors Real Estate Securities Fund, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement which is an annual fee, calculated
on an average daily net basis and paid monthly, equal to .25% of the average
daily net assets of the Shares of the Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's Advisor and Sub-Advisor and the Distributor; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund,
and supplements thereto, to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors or Director members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or redemption,
whether in shares or in cash; charges and expenses of any outside service used
for pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not
- 1 -
<PAGE>
interested persons (as defined in the 1940 Act) of the Fund and of independent
certified public accountants, in connection with any matter relating to the
Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
(a) This Plan has been approved by a vote of the Board
of Directors of the Fund and of a majority of the Directors who are not
interested persons (as defined in the 1940 Act), cast in person at a meeting
called for the purpose of voting on this Plan. This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a
vote of a majority of the Directors who are not interested persons (as defined
in the 1940 Act) or by the vote of the holders of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase
materially the amount of payments to be made without the approval by a vote of
the holders of at least a majority of the Fund's outstanding voting securities
(as defined in the 1940 Act), and all amendments must be approved by the Board
of Directors in the manner set forth under (a) above.
- 2 -
<PAGE>
Amended
August 4, 1997
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors Real Estate Securities Fund, Inc. (the "Fund"). Other
capitalized terms herein have the meaning given to them in the Fund's
prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any
amount, provided that the total amount of all payments made during a fiscal year
of the Fund do not exceed, in any fiscal year of the Fund, the amount paid to
the Distributor the Distribution Agreement with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .75% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's investment advisor and the Distributor; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all expenses incident to
the payment of any dividend, distribution, withdrawal or redemption, whether in
1
<PAGE>
shares or in cash; charges and expenses of any outside service used for pricing
of the Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not interested persons (as defined in the
1940 Act) of the Fund and of independent certified public accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a)
This Plan has been approved by a vote of the Board of Directors of the Fund and
of a majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on this
Plan. This Plan shall, unless terminated as hereinafter provided, continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the vote of the Fund's Board of Directors and by
the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act), cast in person at a meeting called for the
purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a
vote of a majority of the Directors who are not interested persons (as defined
in the 1940 Act) or by the vote of the holders of a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase
materially the amount of payments to be made without the approval by a vote of
the holders of at least a majority of the Fund's outstanding voting securities
(as defined in the 1940 Act), and all amendments must be approved by the Board
of Directors in the manner set forth under (a) above.
2
<PAGE>
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
With exhibits through August 4, 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. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors. Before any material amendment of the
Plan, the Fund is required to obtain a finding by a majority of the Board, and a
majority of the Independent Directors, that the Plan as proposed to be amended,
including the expense allocations, is in the best interests of each class
individually and the Fund as a whole.
II. Attributes of Share Classes
<PAGE>
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>
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.
Approved: December 18, 1996
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
-------------------------------------------
<PAGE>
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.
Approved: August 4, 1997
Approval of Distribution Agreements for
All Classes of Real Estate Securities Fund, Inc.
------------------------------------------------
RESOLVED, that ICC Distributors, Inc. ("ICC ") be, and it
hereby is, appointed distributor for all classes of Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Flag
Investors Short-Intermediate Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc. and Flag Investors Equity
Partners Fund, Inc., and for the Flag Investors classes of each of Managed
Municipal Fund, Inc. and Total Return U.S. Treasury Fund, Inc., such appointment
to be effective upon the consummation of the merger of Alex. Brown Incorporated
with and into a subsidiary of Bankers
<PAGE>
Trust New York Corporation (the "Merger"), or at such other time as the proper
officers of the Fund shall determine;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc. and ICC Distributors, Inc. with
respect to all shares except the Flag Investors Shares be, and the same hereby
is, approved in substantially the form presented to this meeting and that the
appropriate officers of the Fund be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel 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 Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Total Return U.S. Treasury Fund, Inc. (for Flag Investors
Shares), Managed Municipal Fund, Inc. (for the Flag Investors Shares), Flag
Investors Short-Intermediate Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc., and Flag Investors Equity
Partner Fund, Inc., and ICC Distributors, Inc. be, and the same hereby is,
approved in substantially the form presented to this meeting and that the
appropriate officers of the Funds be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body.
Approved: August 4, 1997
Approval of Plans of Distribution for Flag Investors Class A Shares
-------------------------------------------------------------------
and Flag Investors Class B Shares
---------------------------------
RESOLVED, that the Plan of Distribution for the Flag Investors
Class A Shares of Flag Investors Real Estate Securities Fund, Inc. be, and
hereby is, amended to reflect the change in distributor approved at this
meeting, such amendment to be effective upon the consummation of the Merger, or
such other time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to
be reasonably likely to benefit such class and its shareholders; and that based
on information reasonably available to the Directors, expenditures contemplated
by such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved;
<PAGE>
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class B Shares of said Fund be, and hereby is, amended to reflect the
change in distributor approved at this meeting, such amendment to be effective
upon the consummation of the Merger, or such other time as the proper officers
of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans; and
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
Approved: March 27, 1998
Approval of Restated Distribution Agreement and
-----------------------------------------------
Forms of Sub-Distribution and Shareholder Servicing Agreements
--------------------------------------------------------------
RESOLVED, that the proposed Restated Distribution Agreement
between Flag Investors Real Estate Securities Fund, Inc. and ICC Distributors,
Inc. for each class of the Fund's shares, be, and the same hereby is, approved
in substantially the form presented to this meeting 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 proper officers of Flag Investors
Real Estate Securities Fund, Inc. be, and they hereby are, authorized and
directed in the name and on behalf of the Fund, to take all necessary or
appropriate actions to effect the purposes of the foregoing resolutions.
<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 are herein incorporated
by reference.
2. Articles Supplementary establishing the Institutional Shares filed as Exhibit
(1)(c) to Post-Effective Amendment No. 9 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 000095-116-97-000798) on April 29, 1997, are
herein incorporated by reference.
3. By-Laws as amended through December 18, 1996 filed as Exhibit (2) to
Post-Effective Amendment No. 9 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 000095-116-97-000798) on April 29, 1997, are
herein incorporated by reference.
4. Distribution Agreement between Registrant and ICC Distributors, Inc. with
respect to Flag Investors Shares filed as Exhibit (6)(a) to this Post-Effective
Amendment to Registrant's Registration Statement on Form N-1A (Registration No.
33-78648) is herein incorporated by reference.
5. Distribution Plan with respect to Class A Shares filed as Exhibit (15)(c) to
this Post-Effective Amendment to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648) is herein incorporated by reference.
6. Distribution Plan with respect to Class B Shares filed as Exhibit (15)(d) to
this Post-Effective Amendment to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648) is herein incorporated by reference.
7. Form of Sub-Distribution Agreement between ICC Distributors, Inc. and
Participating Dealers filed as Exhibit (6)(b) to this Post-Effective Amendment
to Registrant's
<PAGE>
Registration Statement on Form N-1A (Registration No. 33-78648) is herein
incorporated by reference.
8. Prospectus relating to its Class A and Class B Shares, as amended from time
to time, filed as part of this Registration Statement on Form N-1A (Registration
No. 33- 78648) is herein incorporated by reference.
9. Prospectus relating to its Institutional Class, as amended from time to time,
filed as part of this Registration on Form N-1A (Registration No. 33-78648) is
herein incorporated by reference.
<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 Amy M. Olmert, 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: April 27, 1998
<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 Amy M. Olmert, 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 Chairman and 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: April 27, 1998
<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 Amy M. Olmert, 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: April 27, 1998
<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 Amy M. Olmert, 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: April 27, 1998
<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 Amy M. Olmert, 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: April 27, 1998
<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 Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Real Estate Securities Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Carl W. Vogt
---------------
Carl W. Vogt
Date: April 27, 1998
<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 Amy M. Olmert, 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: April 27, 1998
<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 Amy M. Olmert, 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: April 27, 1998
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<TABLE> <S> <C>
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<NAME> FLAG INVESTORS
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<PAID-IN-CAPITAL-COMMON> 7,625,255
<SHARES-COMMON-STOCK> 623,533
<SHARES-COMMON-PRIOR> 382,694
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<APPREC-INCREASE-CURRENT> 4,596,911
<NET-CHANGE-FROM-OPS> 8,062,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 238,106
<DISTRIBUTIONS-OF-GAINS> 274,879
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 272,248
<NUMBER-OF-SHARES-REDEEMED> 60,099
<SHARES-REINVESTED> 28,690
<NET-CHANGE-IN-ASSETS> 26,744,327
<ACCUMULATED-NII-PRIOR> 275,484
<ACCUMULATED-GAINS-PRIOR> 0
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<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
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<NAME> FLAC INVESTORS
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