<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999.
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. 8 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 10 /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
1701 Market Street
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)
___ on May 1, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
_X_ on May 1, 1999 pursuant to paragraph (a) of Rule 485
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<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND INC.
(Class A and Class B Shares)
Prospectus & Application -- May 1, 1999
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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.
The Fund offers shares through securities dealers and financial institutions
that act as shareholder servicing agents. You may also buy shares through the
Fund's Transfer Agent. This Prospectus describes Flag Investors Class A Shares
("Class A Shares") and Flag Investors Class B Shares ("Class B Shares") of the
Fund. These separate classes give you a choice as to sales charges and fund
expenses. (Refer to the section on sales charges and the attached Application.)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Summary................................................................................................2
Fees and Expenses of the Fund.....................................................................................4
Investment Program................................................................................................5
The Fund's Net Asset Value........................................................................................7
How to Buy Shares.................................................................................................7
How to Redeem Shares..............................................................................................9
Telephone Transactions...........................................................................................10
Sales Charges....................................................................................................10
How to Choose the Class That Is Right for You....................................................................14
Dividends and Taxes..............................................................................................15
Investment Advisor and Sub-Advisor...............................................................................16
Financial Highlights.............................................................................................18
Application.....................................................................................................A-1
</TABLE>
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor
disapproved these securities nor has it passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks total return primarily through investments in common
stocks of companies that are principally engaged in the real estate industry.
These common stocks include stocks of real estate operating companies and real
estate investment trusts ("REITs"). In selecting investments for the Fund, the
investment advisor and sub-advisor (collectively, the "Advisors") use a
combination of industry and company analysis. Industry analysis involves
assessing the stage of the business cycle for each sector and market. Company
analysis seeks to identify companies that the advisors believe have strong
managements, successful track records, good prospects for future growth, and
financial flexibility. Then, the Advisors attempt to purchase securities at
attractive relative valuations. The resulting portfolio is diversified by sector
and region.
Risk Summary
The Fund is suited for you if you are willing to accept the risks and
uncertainties of the real estate market in the hope of earning total return
while diversifying your investment portfolio.
The value of an investment in the Fund will vary from day to day based
on changes in the prices of the securities the Fund holds. Those prices, in
turn, reflect investor perceptions of the economy, the markets and the companies
represented in the Fund's portfolio. Investing in the securities of real
estate-related companies involves many of the risks of investing directly in
real estate. In addition, the Fund's investments in REITs entail special risks.
REITs depend on specialized management skills, may invest in a limited number of
properties, and may concentrate in a particular region or property type.
An investment in the Fund could lose money. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
2
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Class A Shares*
For years ended December 31,
1996 32.70%
1997 22.01%
1998 -21.15%
* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown. For the period from December 31, 1998 through March
31, 1999, the year-to-date return for Class A Shares was
------%.
During the 3-year period shown in the bar chart, the highest return for a
quarter was 17.77% (quarter ended 12/31/96) and the lowest return for a quarter
was -16.25% (quarter ended 9/30/98).
Average Annual Total Return (for periods ended December 31, 1998)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Wilshire
Real Estate
Class A Shares(1) Class B Shares(1) Securities Index(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Past One Year.......... -24.70% -25.69% -17.43%
- ---------------------------------------------------------------------------------------------
Since Inception........ 9.59% (1/3/95) 9.49% (1/3/95) 11.78%(3)
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Wilshire Real Estate Securities Index is an unmanaged market
capitalization weighted index of publicly traded real estate
securities, such as: Real Estate Investment Trusts (REITs), Real Estate
Operating Companies (REOCs) and partnerships. The Index is comprised of
companies whose charter is the equity ownership and operation of
commercial real estate. The Index is rebalanced monthly and returns are
calculated on a buy and hold basis. The Index has been constructed to
avoid survivor bias. The Index is a passive measure of real estate
stock performance. It does not factor in the costs of buying, selling
and holding securities -- costs which are reflected in the Fund's
results.
(3) For the period from 12/31/94 through 12/31/98.
3
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy
and hold shares of the Fund.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Initial Sales Deferred Sales
Shareholder Transaction Expenses: Charge Charge
(fees paid directly from your investment) Alternative Alternative
----------- -----------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage
of offering price)................................................. 4.50%* None
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, whichever is lower).......... 1.00%* 4.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends............ None None
Redemption Fee......................................................... None None
Exchange Fee........................................................... None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees........................................................ 0.65% 0.65%
Distribution and/or Service (12b-1) Fees............................... 0.25% 0.75%
Other Expenses (including a 0.25% shareholder servicing fee for Class
B Shares) .......................................................... 0.65% 0.90%
------ -----
Total Annual Fund Operating Expenses................................... 1.55% 2.30%
Less Fee Waivers and Expense Reimbursement............................. (0.30)%*** (0.30)%***
------- -------
Net Expenses........................................................... 1.25% 2.00%
====== =====
</TABLE>
- --------------
* You will pay no sales charge on purchases of $1 million or more of Class A
Shares but, unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem
your shares. (See "Sales Charges -- Redemption Price.")
** Contingent deferred sales charges decline over time and reach zero after
six years. At that time, Class B Shares convert automatically to Class A
Shares. (See "Sales Charges" and "How to Choose the Class that is Right for
You.")
*** The Advisor has contractually agreed to limit its fees and reimburse
expenses to the extent necessary so that the Fund's Total Annual 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. This
agreement will continue until at least April 30, 2000 and may be extended.
Example:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
4
<PAGE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares................................... $572* $890* $1,234* $2,211*
Class B Shares................................... $603* $1,178* $1,794* $3,605*
You would pay the following expenses if you did not redeem your shares:
Class A Shares................................... $572* $890* $1,234* $2,211*
Class B Shares................................... $203* $878* $1,594* $3,605*
</TABLE>
- ---------
* Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year 1 only.
Federal Regulations require that table above reflect the maximum sales
charge. However, you may qualify for reduced sales charges or no sales charge at
all. (Refer to the section on sales charges.) If you hold your shares for a long
time, the combination of the initial sales charge you paid and the recurring
12b-1 fees may exceed the maximum sales charges permitted by the Conduct Rules
of the National Association of Securities Dealers, Inc. ("NASD Rules").
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks total return primarily through investments in common
stocks of companies that are principally engaged in the real estate industry.
These common stocks include stocks of real estate operating companies and real
estate investment trusts ("REITs").
The Fund's investment advisor (the "Advisor") and the Fund's
sub-advisor (the "Sub-Advisor") are responsible for managing the Fund's
investments. (Refer to the section on Investment Advisor and Sub-Advisor.) In
selecting the Fund's investments, the Advisors use a selection process that
combines industry and company analyses. Industry analysis involves assessing the
stage of the business cycle for each sector and market. Company analysis seeks
to identify companies that the advisors believe have strong managements,
successful track records, good prospects for future growth, and financial
flexibility. Then, using their proprietary valuation model, they measure a
variety of factors including a company's expected return, intrinsic value, and
measures of growth versus value in an attempt to find those companies that are
attractively priced. The resulting portfolio is diversified by sector and
region.
The Advisors divide the portfolio's holdings into two groups: core
holdings and special situations. Core holdings comprise the bulk of the
portfolio and are defined as companies that satisfy or rank high on all or most
of the Advisors' selection criteria and are attractively priced. Special
situations are companies that the Advisors believe offer above-average total
return potential, but may not satisfy all of the investment criteria of a core
holding. They are usually
5
<PAGE>
added to the portfolio in anticipation of a specific event or revaluation, and
are typically sold when specific goals are realized.
The Fund will invest in the common stocks of REITs. REITs are companies
that manage a portfolio of real estate investments. These investment may be
either equity or debt investments. Equity REITs are companies that directly own
real estate and realize income primarily from renting properties and selling
them for capital gains. Mortgage REITs specialize in lending money to building
developers. They realize income by earning interest income on these loans.
Hybrid REITs have a mix of both types of investments.
An investment in the Fund involves risks. Over time common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be more volatile than other types of securities. Stock
prices are sensitive to developments affecting particular companies and to
general economic conditions that affect particular industry sectors or the
securities markets as a whole. In addition, common stocks of companies
principally engaged in the real estate industry have many of the same risks of
directly investing in real estate. These risks include declines in the value of
real estate, risks related to general and local economic conditions,
overbuilding, increased competition and increases in interest rates resulting in
increased financing costs. The Fund's investments in REITs are subject to
special risks. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs. Mortgage REITs may be affected by the
quality of the credit extended by the REIT. Hybrid REITs are affected by both
types of risk. REITs depend on specialized management skills, may invest in a
limited number of properties, and may concentrate in a particular region or
property type. REITs must also satisfy specific Internal Revenue Code provisions
to qualify in order to pass through income without paying taxes. When the Fund
invests in REITs, shareholders will bear a share of the operating expenses of
the REIT in addition to similar expenses of the Fund. There can be no guarantee
that the Fund will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in short-term money market instruments,
investments that would not ordinarily be consistent with the Fund's objectives.
While engaged in a temporary, defensive strategy, the Fund may not achieve its
investment objective. The Advisors would follow such a strategy only if they
believed the risk for loss outweighed the opportunity for gain.
Year 2000 Issues
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 its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and has 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
6
<PAGE>
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.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
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 either
class of shares, the amount you receive may be reduced by a sales charge. Read
the section on sales charges for details on how and when these charges may or
may not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. 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.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem shares on any day 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.
The following sections describe how to buy and redeem shares.
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.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
7
<PAGE>
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.
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 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,
8
<PAGE>
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 either 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 you have an
account with the Fund that is in your name, 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.
Other Redemption Information
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.
9
<PAGE>
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. The Fund reserves the right to redeem shares in kind under certain
circumstances.
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.
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 but you may 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 when you
open your account and before you effect 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 telephone instructions that it reasonably believes 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.
SALES CHARGES
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:
10
<PAGE>
<TABLE>
<CAPTION>
Class A Sales
Charge as a % of
----------------------------------------
Offering Net Amount Class B
Amount of Purchase Price Invested Sales Charge
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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 pay a sales charge when you redeem your shares. Refer to the
section on redemption price for details. Your securities dealer may be paid a
commission at the time of your purchase.
The sales charges you pay on your current purchase of Class A Shares
may be reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares
of this Fund or Class A shares of any other Flag Investors fund or if you
already have investments in Class A shares, you may combine the value of your
purchases with the value of your existing investments to determine whether you
qualify for reduced sales charges. (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 Class A 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:
11
<PAGE>
1) If you are reinvesting some or all of the proceeds of a redemption of
Class A Shares made within the last 90 days.
2) 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).
3) If you are a current or retired Fund Director, a director, an employee
or a member of the immediate family of an employee of any of the
following (or their respective affiliates): the Fund's distributor, the
Advisors or a broker-dealer authorized to sell shares of the Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) 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.
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 Class 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 upon 60 days' 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.
12
<PAGE>
Redemption Price
The amount of any sales charge deducted from your redemption price will
be determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of the Dollar Amount Subject to Charge
- ----------------------------------------------------------------------------------------------------------------------
Class A Sales Charge (as % of Class B Sales Charge (as % of
Years Since Purchase Cost or Value) Cost or Value)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First ............................... 1.00%* 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
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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
million 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) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to the shares you have owned for the longest period of
time.
3) If you acquired your 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.
4) The sales charge is applied to the lesser of the cost of the shares or
their value at the time of your redemption.
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.
13
<PAGE>
3) If your redemption represents a distribution from a Systematic
Withdrawal Plan. This waiver applies only if the annual withdrawals
under your Plan are 12% or less of your share balance.
4) If shares are being redeemed in your account following your death or a
determination that you are 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 Minor Acts.
(ii) Either or your representative notifies your
securities dealer, servicing agent or the Transfer
Agent that such circumstances exist.
5) 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
Fund's 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.
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 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
14
<PAGE>
hold your shares for more than six years, your combined sales charges and
expenses are lower with Class B Shares.
Your securities dealer is paid a commission when you buy your shares
and is paid a servicing fee for as long as you hold your shares. Your securities
dealer or servicing agent may receive different levels of compensation depending
upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow the Fund to pay
your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its shares and for shareholder services. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Class B
Shares pay an annual distribution fee equal to 0.75% of the Class B Shares'
average daily net assets and an annual shareholder servicing fee equal to 0.25%
of the Class B Shares' average daily net assets. Because these fees are paid out
of net assets on an on-going basis, they will, over time, increase the cost of
your investment and may cost you more than paying other types of sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of monthly dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary income and capital gains
distributions are taxed at various rates based on how long the Fund held the
assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the shares. An exchange of shares of the Fund for shares of another fund is
a sale of Fund shares for tax purposes. More information on taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique and because the
tax laws are subject to change, you should consult your tax advisor about your
investment.
15
<PAGE>
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and ABKB/LaSalle Securities Limited Partnership
("ABKB/LaSalle" or the "Sub-Advisor") is the Fund's sub-advisor. ICC is also the
investment advisor to other mutual funds in the Flag Investors family of funds
and BT Alex. Brown Cash Reserve Fund, Inc. These funds, together with the Fund,
had approximately $___ billion of net assets as of March 31, 1999. ABKB/LaSalle
is a registered investment advisor with approximately $____ billion under
management as of March 31, 1999.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of ABKB/LaSalle. ABKB/LaSalle
is responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for the negotiation of commission rates.
As compensation for its services for the fiscal year ended December 31,
1998, ICC received from the Fund a fee equal to 0.35% (net of fee waivers) of
the Fund's average daily net assets. ICC compensates ABKB/LaSalle out of its
advisory fee. ICC has contractually agreed to limit its fees and reimburse
expenses to the extent necessary so that the Fund's total annual 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. This agreement will
continue until at least April 30, 2000 and may be extended.
The Advisor is a wholly owned subsidiary of Bankers Trust Corporation
("Bankers Trust"). Bankers Trust has entered into an Agreement and Plan of
Merger with Deutsche Bank AG ("Deutsche Bank"), dated as of November 30, 1998,
under which Bankers Trust would merge with and into a subsidiary of Deutsche
Bank. Deutsche Bank is a major global banking institution that is engaged in a
wide range of financial services, including retail and commercial banking,
investment banking and insurance. The transaction is contingent upon various
regulatory approvals, as well as the approval of the Fund's Board of Directors
and the Fund's shareholders. If the transaction is approved and completed,
Deutsche Bank, as the Advisor's new parent company, will control the operations
of the Advisor. Bankers Trust believes that, under this new arrangement, the
services provided to the Fund will be maintained at their current level.
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 since its inception. James A. Ulmer, III, has shared primary
responsibility for managing the Fund's assets since September, 1998.
Mr. Morrill, who is Managing Director of ABKB/LaSalle, has 19 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
16
<PAGE>
Mr. Pauley, Senior Vice President of ABKB/LaSalle, has over 13 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
Mr. Ulmer, a Principal of ABKB/LaSalle, has over 30 years of experience
in real estate and REIT investment, development and investment banking. Prior to
joining ABKB/LaSalle in April of 1997, Mr. Ulmer was a portfolio analyst and
strategist for AIRES Real Estate Services from 1993 to 1997. Prior to 1993, Mr.
Ulmer was President of the Parkway Companies, owners and developers of office
and industrial properties, and a bank and real estate securities analyst for T.
Rowe Price Associates.
17
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since it began operations. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information is part of the Fund's financial statements which have been audited
by PricewaterhouseCoopers LLP. These financial statements are included in the
Statement of Additional Information, which is available upon request.
<TABLE>
<CAPTION>
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares
-------------------------------------------- ---------------------------------------------
For the For the
Period Period
January 3, January 3,
1995(1) 1995(1)
For the through For the through
Year Ended December 31, December 31, Year Ended December 31, December 31,
---------------------------- ------------- ------------------------------ ------------
1998 1997 1996 1995 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value at beginning of
period ....................... $ 15.78 $ 13.89 $ 11.20 $10.00 $ 15.71 $ 13.84 $11.18 $10.00
------- ------- ------- ------ ------- ------- ------ ------
Income from Investment
Operations:
Net investment income ........... 0.58 0.52 0.61 0.56 0.47 0.42 0.52 0.50
Net realized and unrealized
gain/loss on investments ..... (3.79) 2.44 2.90 1.21 (3.77) 2.42 2.89 1.20
------- ------- ------- ------ ------- ------- ------ ------
Total from Investment Operations (3.21) 2.96 3.51 1.77 (3.30) 2.84 3.41 1.70
------- ------- ------- ------ ------- ------- ------ ------
Less Distributions:
Distributions from net investment
income ....................... (0.46) (0.60) (0.58) (0.49)(2) (0.34) (0.50) (0.51) (0.42)(2)
Distributions from net realized
capital gains ................ (0.43) (0.47) (0.22) (0.05) (0.43) (0.47) (0.22) (0.05)
Return of capital ............... (0.04) -- (0.02) (0.03)(2) (0.04) -- (0.02) (0.05)(2)
------- ------- ------- ------ ------- ------- ------ ------
Total distributions ............. (0.93) (1.07) (0.82) (0.57) (0.81) (0.97) (0.75) (0.52)
------- ------- ------- ------ ------- ------- ------ ------
Net asset value at end of period $ 11.64 $ 15.78 $ 13.89 $11.20 $ 11.60 $ 15.71 $13.84 $11.18
======= ======= ======= ====== ======= ======= ====== ======
Total Return(3) ................... (20.82)% 22.01% 32.70% 18.19% (21.39)% 21.11% 31.67% 17.40%
Ratios to Average Daily Net Assets:
Expenses(4) ..................... 1.25% 1.25% 1.25% 1.25%(6,7) 2.00% 2.00% 2.00% 2.00%(6,7)
Net investment income(5) ........ 4.28% 3.87% 5.29% 6.09%(6,7) 3.48% 3.12% 4.46% 5.39%(6,7)
Supplemental Data:
Net assets at end of period (000) $33,239 $41,773 $19,816 $7,171 $ 7,641 $ 9,799 $5,295 $3,106
Portfolio turnover rate ......... 24% 35% 23% 28% 24% 35% 23% 28%
</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 1.55%,
1.58%, 2.28% and 3.25% (annualized) for Class A Shares and 2.30%, 2.33%,
3.03% and 4.05% (annualized) for Class B Shares for the years ended
December 31, 1998, 1997, 1996 and the period ended December 31, 1995,
respectively.
18
<PAGE>
(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
3.98%, 3.54%, 4.26% and 3.89% (annualized) for Class A Shares and 3.18%,
2.79%, 3.43% and 3.09% (annualized) for Class B Shares for the years ended
December 31, 1998, 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.
19
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Make check payable to "Flag Investors Real Estate For assistance in completing this Application please call: 1-800-553-8080,
Securities Fund, Inc." and mail with this Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
Application to:
Flag Investors Funds To open an IRA account, please call 1-800-767-3524 for an IRA information kit.
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Communications Fund, Inc.
I wish to purchase the following class of shares of the Fund, in the amount indicated below.
(Please check the applicable box and indicate the 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 $
-----------------------------------------
[YOUR ACCOUNT REGISTRATION (PLEASE PRINT)]
Existing Account No., if any: ______________________
Individual or Joint Tenant Gifts to Minors
- ------------------------------------------------------------- ------------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- ------------------------------------------------------------- ------------------------------------------------------------
Social Security Number Minor's Name (only one)
- ------------------------------------------------------------- ------------------------------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth
(Mo./Day/Yr.)
under the ____________________ Uniform Gifts to Minors Act
(State of Residence)
Corporations, Trusts, Partnerships, etc. Mailing Address
- ------------------------------------------------------------- ------------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- ------------------------------------------------------------- ------------------------------------------------------------
Tax ID Number Date of Trust City State Zip
- ------------------------------------------------------------- ------------------------------------------------------------
Name of Trustees (if to be included in the Registration) Daytime Phone
- -------------------------------------------------------------
For the Benefit of
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[LETTER OF INTENT (OPTIONAL)]
|_| I intend to invest at least the amount indicated below in Class A Shares of Flag Investors Communications Fund, Inc. I
understand that if I satisfy the conditions described in the attached prospectus, this Letter of Intent entitles me to the
applicable level of reduced sales charges on my purchases.
|_|$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 you for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
<S> <C> <C> <C>
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________
[DISTRIBUTION OPTIONS]
Please check 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[AUTOMATIC INVESTING PLAN (OPTIONAL)]
/ / I authorize you as Agent for the Automatic Investing Plan to automatically invest $ 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
[PLEASE ATTACH A VOIDED CHECK]
Subsequent Investments (check one): / / Monthly ($100 minimum) / / Quarterly ($250 minimum)
_____________________________________________________ ______________________________________________________________________
Bank Name Depositor's Signature Date
_____________________________________________________ ______________________________________________________________________
Existing Flag Investors Fund Account No., if any Depositor's Signature (if joint acct., both must sign) Date
[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:_______________________________________
__________________________________________
[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 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.
- ------------------------------------------------------------------------------------------------------------------------------------
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.: _______________________________
</TABLE>
A-2
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ABKB/LASALLE SECURITIES ICC DISTRIBUTORS, INC.
LIMITED PARTNERSHIP Two Portland Square
100 East Pratt Street Portland, Maine 04101
Baltimore, Maryland 21202
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report,
a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund. You may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG, or your securities dealer or
servicing agent.
Investment Company Act File No. 811-8500
- --------------------------------------------------------------------------------
REPRS
<PAGE>
FLAG INVESTORS
REAL ESTATE SECURITIES FUND INC.
(Institutional Shares)
Prospectus & Application -- May 1, 1999
- --------------------------------------------------------------------------------
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.
The Fund offers shares through securities dealers and financial institutions
that act as shareholder servicing agents. You may also buy Institutional Shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Institutional Shares (the "Institutional Shares") of the Fund. Institutional
Shares may be purchased only by eligible institutions, certain qualified
retirement plans or by investment advisory affiliates of BT Alex. Brown
Incorporated on behalf of their clients.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Summary................................................................................................2
Fees and Expenses of the Institutional Shares.....................................................................4
Investment Program................................................................................................5
The Fund's Net Asset Value........................................................................................6
How to Buy Institutional Shares...................................................................................7
How to Redeem Institutional Shares................................................................................8
Telephone Transactions............................................................................................9
Dividends and Taxes...............................................................................................9
Investment Advisor and Sub-Advisor...............................................................................10
Financial Highlights.............................................................................................12
Application.....................................................................................................A-1
</TABLE>
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor
disapproved these securities nor has it passed upon the adequacy of
this Prospectus. Any representation to the contrary is a criminal offense.
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks total return primarily through investments in common
stocks of companies that are principally engaged in the real estate industry.
These common stocks include stocks of real estate operating companies and real
estate investment trusts ("REITs"). In selecting investments for the Fund, the
investment advisor and sub-advisor (collectively, the "Advisors") use a
combination of industry and company analysis. Industry analysis involves
assessing the stage of the business cycle for each sector and market. Company
analysis seeks to identify companies that the advisors believe have strong
managements, successful track records, good prospects for future growth, and
financial flexibility. Then, the Advisors attempt to purchase securities at
attractive relative valuations. The resulting portfolio is diversified by sector
and region.
Risk Summary
The Fund is suited for you if you are willing to accept the risks and
uncertainties of the real estate market in the hope of earning total return
while diversifying your investment portfolio.
The value of an investment in the Fund will vary from day to day based
on changes in the prices of the securities the Fund holds. Those prices, in
turn, reflect investor perceptions of the economy, the markets and the companies
represented in the Fund's portfolio. Investing in the securities of real
estate-related companies involves many of the risks of investing directly in
real estate. In addition, the Fund's investments in REITs entail special risks.
REITs depend on specialized management skills, may invest in a limited number of
properties, and may concentrate in a particular region or property type.
An investment in the Fund could lose money. An investment in the Fund
is not a bank deposit and is not guaranteed by the FDIC or any other government
agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
2
<PAGE>
Institutional Shares
For year ended December 31, 1998
-20.64%
* For the period from December 31, 1998 through March 31, 1999, the
year-to-date total return for Institutional Shares was ___%.
During the 1-year period shown in the bar chart, the highest return for
a quarter was 13.98% (quarter ended 9/30/97) and the lowest return for a quarter
was -16.13% (quarter ended 9/30/98).
Average Annual Total Return (for periods ended December 31, 1998)
<TABLE>
<CAPTION>
Institutional Shares(1) Wilshire Real Estate Securities Index(2)
---------------------- ---------------------------------------
<S> <C> <C>
Past One Year ....................... -20.64% -17.43%
Since Inception ..................... -3.52% (3/31/97) -1.57%(3)
</TABLE>
- ------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The Wilshire Real Estate Securities Index is an unmanaged market
capitalization weighted index of publicly traded real estate securities,
such as: Real Estate Investment Trusts (REITs), Real Estate Operating
Companies (REOCs) and partnerships. The Index is comprised of companies
whose charter is the equity ownership and operation of commercial real
estate. The Index is rebalanced monthly and returns are calculated on a buy
and hold basis. The Index has been constructed to avoid survivor bias. The
Index is a passive measure of real estate stock performance. It does not
factor in the costs of buying, selling and holding securities -- costs which
are reflected in the Fund's results.
(3) For the period 3/31/97 through 12/31/98.
3
<PAGE>
FEES AND EXPENSES OF THE INSTITUTIONAL SHARES
This table describes the fees and expenses that you may pay if you buy
and hold Institutional Shares.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses (fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases...............................................................None
Maximum Deferred Sales Charge (Load)...........................................................................None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends....................................................None
Redemption Fee.................................................................................................None
Exchange Fee...................................................................................................None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets):
Management Fees................................................................................................0.65%
Distribution and/or Service (12b-1) Fees.......................................................................None
Other Expenses.................................................................................................0.65%
Total Annual Fund Operating Expenses...........................................................................1.30%
Less Fee Waivers and Expense Reimbursement....................................................................(0.30)%*
----
Net Expenses...................................................................................................1.00%
====
</TABLE>
- --------------
* The Advisor has contractually agreed to limit its fees and reimburse expenses
to the extent necessary so that the Fund's Total Annual Fund Operating
Expenses do not exceed 1.00% of the Institutional Shares' average daily net
assets. This agreement will continue until at least April 30, 2000 and may be
extended.
Example:
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in Institutional Shares
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Shares................................ $102* $373* $661* $1,461*
</TABLE>
- ----------
* Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year 1 only.
4
<PAGE>
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks total return primarily through investments in common
stocks of companies that are principally engaged in the real estate industry.
These common stocks include stocks of real estate operating companies and real
estate investment trusts ("REITs").
The Fund's investment advisor (the "Advisor") and the Fund's
sub-advisor (the "Sub-Advisor") are responsible for managing the Fund's
investments. (Refer to the section on Investment Advisor and Sub-Advisor.) In
selecting the Fund's investments, the Advisors use a selection process that
combines industry and company analyses. Industry analysis involves assessing the
stage of the business cycle for each sector and market. Company analysis seeks
to identify companies that the advisors believe have strong managements,
successful track records, good prospects for future growth, and financial
flexibility. Then, using their proprietary valuation model, they measure a
variety of factors including a company's expected return, intrinsic value, and
measures of growth versus value in an attempt to find those companies that are
attractively priced. The resulting portfolio is diversified by sector and
region.
The Advisors divide the portfolio's holdings into two groups: core
holdings and special situations. Core holdings comprise the bulk of the
portfolio and are defined as companies that satisfy or rank high on all or most
of the Advisors' selection criteria and are attractively priced. Special
situations are companies that the Advisors believe offer above-average total
return potential, but may not satisfy all of the investment criteria of a core
holding. They are usually added to the portfolio in anticipation of a specific
event or revaluation, and are typically sold when specific goals are realized.
The Fund will invest in the common stocks of REITs. REITs are
companies that manage a portfolio of real estate investments. These investments
may be either equity or debt investments. Equity REITs are companies that
directly own real estate and realize income primarily from renting properties
and selling them for capital gains. Mortgage REITs specialize in lending money
to building developers. They realize income by earning interest income on these
loans. Hybrid REITs have a mix of both types of investments.
An investment in the Fund involves risks. Over time common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be more volatile than other types of securities. Stock
prices are sensitive to developments affecting particular companies and to
general economic conditions that affect particular industry sectors or the
securities markets as a whole. In addition, common stocks of companies
principally engaged in the real estate industry have many of the same risks of
directly investing in real estate. These risks include declines in the value of
real estate, risks related to general and local economic conditions,
overbuilding, increased competition and increases in interest rates resulting in
5
<PAGE>
increased financing costs. The Fund's investments in REITs are subject to
special risks. Equity REITs may be affected by changes in the value of the
underlying property owned by the REITs. Mortgage REITs may be affected by the
quality of the credit extended by the REIT. Hybrid REITs are affected by both
types of risk. REITs depend on specialized management skills, may invest in a
limited number of properties, and may concentrate in a particular region or
property type. REITs must also satisfy specific Internal Revenue Code provisions
to qualify in order to pass through income without paying taxes. When the Fund
invests in REITs, shareholders will bear a share of the operating expenses of
the REIT in addition to similar expenses of the Fund. There can be no guarantee
that the Fund will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in short-term money market instruments,
investments that would not ordinarily be consistent with the Fund's objectives.
While engaged in a temporary, defensive strategy, the Fund may not achieve its
investment objective. The Advisors would follow such a strategy only if they
believed the risk for loss outweighed the opportunity for gain.
Year 2000 Issues
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 its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and has 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.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. The net asset value per share
of the Fund is determined at the close of regular trading on the New York Stock
Exchange (ordinarily 4:00 p.m. Eastern Time) on each day the Exchange is open
for business. It is calculated by subtracting the liabilities attributable to
the Institutional Shares from their proportionate share of the Fund's assets and
dividing the result by the outstanding Institutional Shares.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
6
<PAGE>
You may buy or redeem Institutional Shares on any day 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.
The following sections describe how to buy and redeem Institutional
Shares.
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 or a
qualified retirement plan other than a defined
contribution plan).
o A defined contribution plan with assets of at least $75
million.
o An investment advisory affiliate of BT Alex. Brown
Incorporated 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
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 $500,000.
The following are exceptions to this minimum:
o There is no minimum initial investment for investment
advisory affiliates of BT Alex. Brown Incorporated
purchasing shares for the accounts of their investment
advisory clients.
7
<PAGE>
o There is no minimum initial investment for defined
contribution plans with assets of at least $75 million.
o The minimum initial investment for all other qualified
retirement plans is $1 million.
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. The Fund may modify or
terminate this offer of exchange upon 60 days' 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.
HOW TO REDEEM INSTITUTIONAL SHARES
You may redeem Institutional 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 $500,000) by telephone. You will be paid for
redeemed shares by wire transfer of funds to your 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 Institutional Shares by
that time, the dividend will be remitted by wire to your securities dealer,
servicing agent or bank.
If you redeem sufficient Institutional Shares to reduce your investment
to $500 or less, the Fund has the power to redeem the remaining Institutional
Shares after giving you 60 days' notice. The Fund reserves the right to redeem
Institutional Shares in kind under certain circumstances.
8
<PAGE>
TELEPHONE TRANSACTIONS
If your Institutional 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 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 but
you may 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 when you
open your account and before you effect 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 telephone instructions that it reasonably believes 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.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of monthly dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary income and capital gains
distributions are taxed at various rates based on how long the Fund held the
assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the shares. An exchange of shares
9
<PAGE>
of the Fund for shares of another fund is a sale of Fund shares for tax
purposes. More information on taxes is in the Statement of Additional
Information.
Because each investor's tax circumstances are unique and because the
laws are subject to change, you should contact your tax advisor about your
investment.
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 also the
investment advisor to other mutual funds in the Flag Investors family of funds
and BT Alex. Brown Cash Reserve Fund, Inc. These funds, together with the Fund,
had approximately $___ billion of net assets as of March 31, 1999. ABKB/LaSalle
is a registered investment advisor with approximately $____ billion under
management as of March 31, 1999.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of ABKB/LaSalle. ABKB/LaSalle
is responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for the negotiation of commission rates.
As compensation for its services for the fiscal year ended December 31,
1998, ICC received from the Fund a fee equal to 0.35% (net of fee waivers) of
the Fund's average daily net assets. ICC compensates ABKB/LaSalle out of its
advisory fee. ICC has contractually agreed to waive its fees and reimburse
expenses to the extent necessary so that the Fund's total annual operating
expenses do not exceed 1.00% of the average daily net assets. This agreement
will continue until at least April 30, 2000 and may be extended.
The Advisor is a wholly owned subsidiary of Bankers Trust Corporation
("Bankers Trust"). Bankers Trust has entered into an Agreement and Plan of
Merger with Deutsche Bank AG ("Deutsche Bank"), dated as of November 30, 1998,
under which Bankers Trust would merge with and into a subsidiary of Deutsche
Bank. Deutsche Bank is a major global banking institution that is engaged in a
wide range of financial services, including retail and commercial banking,
investment banking and insurance. The transaction is contingent upon various
regulatory approvals, as well as the approval of the Fund's Board of Directors
and the Fund's shareholders. If the transaction is approved and completed,
Deutsche Bank, as the Advisor's new parent company, will control the operations
of the Advisor. Bankers Trust believes that, under this new arrangement, the
services provided to the Fund will be maintained at their current level.
10
<PAGE>
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 since its inception. James A. Ulmer, III, has shared primary
responsibility for managing the Fund's assets since September, 1998.
Mr. Morrill, who is Managing Director of ABKB/LaSalle, has 19 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 13 years of
investment experience and has been a portfolio manager with ABKB/LaSalle or its
predecessors since 1986.
Mr. Ulmer, a Principal of ABKB/LaSalle, has over 30 years of experience
in real estate and REIT investment, development and investment banking. Prior to
joining ABKB/LaSalle in April of 1997, Mr. Ulmer was a portfolio analyst and
strategist for AIRES Real Estate Services from 1993 to 1997. Prior to 1993, Mr.
Ulmer was President of the Parkway Companies, owners and developers of office
and industrial properties, and a bank and real estate securities analyst for T.
Rowe Price Associates.
11
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance since it began operations. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information is part of the Fund's financial statements which have been audited
by PricewaterhouseCoopers LLP. These financial statements are included in the
Statement of Additional Information, which is available upon request.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For the Period
For the Year Ended March 31, 1997(1) through
December 31, 1998 December 31, 1997
---------------------- --------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period..................... $15.91 $14.19
------ ------
Income from Investment Operations:
Net investment income...................................... 0.58 0.47
Net realized and unrealized gain/loss on investments...... (3.78) 2.14
------ ----
Total from Investment Operations........................... (3.20) 2.61
------ ----
Less Distributions:
Dividends from net investment income....................... (0.50) (0.42)
Distributions from net realized capital gains.............. (0.43) (0.47)
------ ----
Return of Capital.......................................... (0.04) ---
------ ----
Total distributions........................................ (0.97) (0.89)
------ ----
Net asset value at end of period........................... $11.74 $15.91
====== =====
Total Return................................................... (20.64)% $18.84%
Ratios to Average Daily Net Assets:
Expenses(2)................................................ 1.00% 1.00%(4)
Net investment income(3)................................... 4.72% 4.30%(4)
Supplemental Data:
Net assets at end of period (000).......................... $582 $ 288
Portfolio turnover rate.................................... 24% 35%(4)
</TABLE>
- -----------------
(1) Commencement of operations.
(2) Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 1.28% and 1.39% (annualized) for the year ended
December 31, 1998 and for the period ended December 31, 1997, respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 4.45% and 3.73% for the year ended
December 31, 1998 and for the period ended December 31, 1997, respectively.
(4) Annualized.
12
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Send completed Application by overnight carrier to: For assistance in completing this application please call: 1-800-553-8080,
Flag Investors Funds Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
330 West Ninth Street, First Floor
Kansas City, MO 64105
Attn: Flag Investors Real Estate Securities Fund, Inc.
If you are paying by check, make check payable to "Flag Investors Real Estate Securities Fund, Inc." and mail with this Application.
If you are paying by wire, see instructions below.
[YOUR ACCOUNT REGISTRATION (PLEASE PRINT)]
Name on Account Mailing Address
- -------------------------------------------------------------- ------------------------------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive Correspondence
- -------------------------------------------------------------- ------------------------------------------------------------
Tax ID Number Street
|_| Corporation |_| Partnership |_|Trust ------------------------------------------------------------
|_| Non-Profit or Charitable Organization |_|Other _________ City State Zip
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]
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
----------------- ----------------------- ----------------------
Wire Instructions Name of Bank Wire Control Number
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
[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.
<S> <C>
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
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[ACKNOWLEDGEMENT 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 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.
__________________________________________________________________________________________________________________________________
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's name 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
[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 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 the general partners/trustees of the investor and that they have done the following under the
authority of the investor's partnership agreement/trust agreement: (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
</TABLE>
A-2
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ABKB/LASALLE SECURITIES ICC DISTRIBUTORS, INC.
LIMITED PARTNERSHIP Two Portland Square
100 East Pratt Street Portland, Maine 04101
Baltimore, Maryland 21202
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report, a
discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund. You may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-8500
- --------------------------------------------------------------------------------
REIPRS
<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 SECURITIES DEALER OR SHAREHOLDER SERVICING AGENT
OR BY WRITING OR CALLING THE FUND, ONE SOUTH STREET, BALTIMORE,
MARYLAND 21202, (800) 767- FLAG.
Statement of Additional Information Dated: May 1, 1999
relating to Prospectuses Dated:
May 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. General Information and History..................................................................... 1
2. Investment Objective and Policies...................................................................... 1
3. Valuation of Shares and Redemption..................................................................... 7
4. Federal Tax Treatment of Dividends and
Distributions........................................................................................ 8
5. Management of the Fund................................................................................. 11
6. Investment Advisory and Other Services................................................................. 15
7. Distribution of Fund Shares............................................................................ 17
8. Brokerage.............................................................................................. 20
9. Capital Stock.......................................................................................... 22
10. Semi-Annual Reports.................................................................................... 22
11. Custodian, Transfer Agent, and Accounting Services .................................................... 22
12. Independent Accountants ............................................................................... 23
13. Legal Matters...........................................................................................23
14. Performance Information................................................................................ 23
15. Control Persons and Principal Holders of
Securities........................................................................................... 25
16. Financial Statements................................................................................... 26
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. 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")(collectively, the "Shares"). As used herein, the "Fund"
refers to Flag Investors Real Estate Securities Fund, Inc. and specific
references to any class of the Fund's shares will be made using the name of such
class.
Important information concerning the Fund is included in the Fund's
current Prospectuses which may be obtained without charge from the Fund's
distributor (the "Distributor") or from Participating Dealers that offer Shares
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, as amended (the "Securities Act"). The Fund
began 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 & Sons Incorporated (predecessor to BT Alex. Brown Incorporated),
Alex. Brown & Sons Incorporated licenses to the Fund the "Flag Investors" name
and logo but retains the rights to the name and logo, including the right to
permit other investment companies to use them.
2. INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is total return primarily through
investments in equity securities of companies that are principally engaged in
the real estate industry. Equity securities include common 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.
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. The Fund may invest up to 10% of
its total assets in securities of foreign real estate companies.
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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.
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 Advisors believe 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
Advisors. While classified as "investment grade," securities rated Baa by
Moody's or BBB by S&P have speculative characteristics. (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 Advisors 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 Advisors' investment criteria.
The Fund may invest up to 5% of its net assets in zero coupon or other
original issue discount securities. These securities 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.
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The value of the Fund's investments in debt securities will change as
interest rates fluctuate. When interest rates decline, the values of such
securities generally can be expected to increase and when interest rates rise,
the values of such securities can generally be expected to decrease. The lower
rated and comparable unrated debt securities described above are subject to
greater risks of loss of income and principal than are higher rated fixed-income
securities. The market value of lower rated securities generally tends to
reflect the market's perception of the creditworthiness of the issuer and
short-term market developments to a greater extent than more highly rated
securities, which primarily reflect 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, 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.
Risks of Investments in Foreign Securities
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."
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Money Market Securities
From time to time the Fund may purchase high-quality short-term debt
securities, commonly known as money market securities. These securities include
direct obligations of the U.S. Government which consist of bills, notes and
bonds issued by the U.S. Treasury. Obligations issued by agencies of the U.S.
Government, while not direct obligations of the U.S. Government, are either
backed by the full faith and credit of the U.S. or are guaranteed by the U.S.
Treasury or supported by the issuing agencies' right to borrow from the U.S.
Treasury.
The obligations of U.S. commercial banks include certificates of
deposit, time deposits and bankers' acceptances. Certificates of deposit are
negotiable interest-bearing instruments with a specific maturity. Certificates
of deposit are issued by banks and savings and loan institutions in exchange for
the deposit of funds and normally can be traded in the secondary market, prior
to maturity. Time deposits are non-negotiable receipts issued by a bank in
exchange for the deposit of funds. Time deposits earn a specified rate of
interest over a definite period of time; however time deposits cannot be traded
in the secondary market. Bankers' acceptances are bills of exchange or time
drafts drawn on and accepted by a commercial bank. Bankers' acceptances are used
by corporations to finance the shipment and storage of goods and furnish dollar
exchange. Maturities are generally six months or less.
The commercial paper that may be purchased includes variable amount
master demand notes, which may or may not be backed by bank letters of credit.
These notes permit the investment of 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 Advisors, be equivalent to the ratings
applicable to permitted investments for the Fund. The Advisors 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
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operator within the meaning and intent of the Commodity Exchange Act and the
regulations promulgated thereunder.
Typically, an investment in a futures contract requires the Fund to
deposit with the applicable exchange or other specified financial intermediary
as security for its obligations an amount of cash or other specified debt
securities that initially is 1% to 5% of the face amount of the contract and
which thereafter fluctuates on a periodic basis as the value of the contract
fluctuates. A purchase of an option involves payment of a premium for the option
without any further obligation on the part of the Fund.
Regulations of the CFTC applicable to the Fund currently require that
all of the Fund's futures and options on futures transactions are (1) for bona
fide hedging purposes, or (2) for other purposes to the extent that the
aggregate initial margin deposits and premiums do not exceed 5% of the
liquidation value of the Fund's net assets (after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into).
Margins and premiums on bona fide hedging positions are excluded from this 5%
limit. The Advisor reserves the right to comply with such different standard as
may be established by CFTC rules and regulations with respect to the purchase or
sale of futures contracts or options thereon.
The variable degree of correlation between price movements of futures
contracts and price movements in the position being hedged creates the
possibility that losses on the hedge may be greater than gains in the value of
the Fund's position. In addition, futures and futures option markets may not be
liquid in all circumstances. As a result, in volatile markets, the Fund may not
be able to close out a 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 domestic banks or broker-dealers deemed to be creditworthy by the Fund's
Board of Directors under criteria established with the guidance of the Advisors.
A repurchase agreement is a short-term investment in which 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 Fund'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
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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. The Fund may purchase 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 Fund 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.
Temporary Investments. 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 Advisors 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. The Fund 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.
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. The vote of
a majority of the outstanding Shares of the Fund means the lesser of: (i) 67% or
more of the Shares present at a shareholder meeting at which the holders of more
than 50% of the Shares are present or represented or (ii) more than 50% of the
outstanding Shares of the Fund. 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
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3. Borrow money, except as a temporary measure to facilitate settlements
and for extraordinary or emergency purposes and then only from banks and in an
amount not exceeding 10% of the value of the total assets of the Fund at the
time of such borrowing, provided that, while borrowings by the Fund equaling 5%
or more of the Fund's total assets are outstanding, the Fund will not purchase
securities for investment.
4. 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.
5. Purchase or sell commodities or commodities contracts, provided that
the Fund may invest in financial futures and options on such futures.
6. 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.
7. Issue senior securities, provided that the Fund may invest in
financial futures and options on such futures.
8. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies.
9. Effect short sales of securities.
10. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions).
11. 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.
2. Invest more than 10% of the Fund's net assets in illiquid securities,
including repurchase agreements with maturities of greater than seven days.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The Fund's net asset value per Share is determined daily as of the close
of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time)
each day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays (or the days on which they are observed): New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
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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 net asset value
computed at the close of business that day. These "late day" agreements are
intended to permit shareholders placing orders with third parties 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, as described in the Prospectuses. However, if the Board of
Directors determines that it would be in the best interests of the remaining
shareholders, the Fund will make payment of the redemption price in whole or in
part by a distribution of readily marketable securities from the portfolio of
the Fund in lieu of cash, in conformity with applicable rules of the SEC. If
Shares are redeemed in kind, the redeeming Shareholder will incur brokerage
costs in later converting the assets into cash. The method of valuing portfolio
securities is described under "Valuation of Shares" and such valuation will be
made as of the same time the redemption price is determined. The Fund has
elected to be governed by Rule 18f-1 under the Investment Company Act pursuant
to which the Fund is obligated to redeem Shares solely in cash up to the lesser
of $250,000 or 1% of the net asset value of the Fund during any 90-day period
for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectuses is not intended as a substitute
for careful tax planning. For example, under certain specified circumstances,
state income tax laws may exempt from taxation distributions of a regulated
investment company to the extent that such distributions are derived from
interest on federal obligations. Investors are urged to consult with their tax
advisor regarding whether such exemption is available.
The following general discussion of certain 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.
Qualification as a Regulated Investment Company
The Fund intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things, (a) derive at least 90% of its
gross income each taxable year from dividends,
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interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, and certain other
related income, including, generally, certain gains from options, futures and
forward contracts; and (b) diversify its holdings so that, at the end of each
fiscal quarter of the Fund's taxable year, (i) at least 50% of the market value
of the Fund's total assets is represented by cash and cash items, United States
Government securities, securities of other RICs, and other securities, with such
other securities limited, in respect to any one issuer, to an amount not greater
than 5% of the value of the Fund's total assets or 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities (other than United States Government
securities or securities of other RICs) of any one issuer or two or more issuers
that the Fund controls and which are engaged in the same, similar, or related
trades or business. For purposes of the 90% gross income requirement described
above, investments in REITs are stock or securities.
In addition to the requirements described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (that
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net short-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate income tax rates without any deduction for distributions to
shareholders, and such distributions generally will be taxable to shareholders
as ordinary dividends to the extent of the Fund's current and accumulated
earnings and profits. In this event, such distributions generally will be
eligible for the dividends-received deduction for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be taxable to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in additional Shares. The Fund anticipates that
it will distribute substantially all of its investment company taxable income
for each taxable year.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders that are individuals at a maximum rate of 20%,
regardless of the length of time the shareholder has held Shares. If any such
gains are retained, the Fund will pay federal income tax thereon, and, if the
Fund makes an election, the shareholders will include such undistributed gains
in their income, will increase their basis in Fund shares by the difference
between the amount of such includable gains and the tax deemed paid by such
shareholder and will be able to claim their share of the tax paid by the Fund as
a refundable credit.
In the case of corporate shareholders, Fund distributions (other than
capital gains distributions) generally qualify for the dividends-received
deduction to the extent of the gross amount of qualifying dividends received by
the Fund for the year. Generally, and subject to
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certain limitations, a dividend will be treated as a qualifying dividend if it
has been received from a domestic corporation. Because REIT distributions do not
qualify for the dividends-received deduction, it is not expected that the Fund
distributions will qualify for the corporate dividends-received deduction.
Ordinarily, investors should include all dividends as income in the year
of payment. However, 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 received by the shareholder and paid by the Fund
in the year in which the dividends were declared.
Investors should consider the tax implications of purchasing Shares just
prior to the ex-dividend date of any ordinary income dividend or capital gains
distribution. Those investors will be taxable on the entire amount of the
dividend or distribution received, even though some or all of it may have been
realized by the Fund prior to the investor's purchase.
The Fund will provide an annual statement to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
Sale or Exchange of Fund Shares
The sale or exchange of a share is a taxable event for the shareholder.
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss that will be long-term if the Share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a rate of 20% and short-term capital gains are
currently taxed at ordinary income tax rates. However, if a shareholder realizes
a loss on the sale, exchange or redemption of a Share held for six months or
less and has previously received a capital gains distribution with respect to
the Share (or any undistributed net capital gains of the Fund with respect to
such Share are included in determining the shareholder's long-term capital
gains), the shareholder must treat the loss as a long-term capital loss to the
extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund that have been included in
determining such shareholder's long-term capital gains). In addition, any loss
realized on a sale or other disposition of Shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) Shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the Shares). This loss disallowance rule
will apply to Shares received through the reinvestment of dividends during the
61-day period.
In certain cases, the Fund will be required to withhold and remit to the
United States Treasury 31% of distributions payable to any shareholder who (1)
has failed to provide a correct tax identification number, (2) is subject to
backup withholding by the Internal Revenue Service for failure to properly
report receipt of interest or dividends, or (3) has failed to certify to the
Fund that such shareholder is not subject to backup withholding.
Federal Excise Tax; Miscellaneous Considerations; Effect of Future Legislation
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending on October 31 of that year (and any retained
amount from the prior calendar year), the Fund will be subject to a
nondeductible 4% Federal excise tax on the undistributed amounts. The Fund
intends to make
-10-
<PAGE>
sufficient distributions to avoid imposition of this tax, or to retain, at most,
its net capital gains and pay tax thereon.
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 regulated investment company 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 regulated investment companies. As a result, the
Fund intends to limit its investments in partnership units of master limited
partnerships.
State and Local Tax Considerations
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies 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.
5. MANAGEMENT OF THE FUND
Directors and Officers
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 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)
Vice Chairman, Brown Investment Advisory & Trust Company (formerly,
Alex. Brown Capital Advisory & Trust Company); Director, Investment
Company Capital Corp. (registered investment advisor) and Virginia Hot
Springs, Inc. (property management); Formerly, Vice Chairman and
Managing Director, Alex. Brown & Sons Incorporated (now BT Alex. Brown
Incorporated).
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103. Managing Director,
CBC Capital (merchant banking), 1993-Present and Director, Net.World
(telecommunications), 1998-present; Formerly, Senior Vice President and
Chief Financial Officer, General Dynamics Corporation (defense)(1989-
1993) and Director, The Arch Fund (registered investment company).
-11-
<PAGE>
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, The Nevis Fund (registered
investment company) and Circon Corp. (medical instruments). Formerly,
President and Chief Executive Officer, The National Association of
Securities Dealers, Inc. and The NASDAQ Stock Market, Inc., 1987-1997;
Chief Operating Officer of Alex. Brown & Sons Incorporated (now BT Alex.
Brown Incorporated) 1985-1987; General Partner, Alex. Brown & Sons
Incorporated (now BT Alex. Brown Incorporated) 1976-1985.
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); Executive Vice Chairman and Director, Central
Carolina Bank & Trust (banking) and Director, Victory Funds (registered
investment companies); Formerly, Director, AMBAC Treasurers Trust
(registered investment company) and D.P. Mann Holdings (insurance).
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 (9/27/61)
Managing Director, ABKB/LaSalle Securities Limited Partnership, 100 East
Pratt Street, Baltimore, Maryland 21202. Portfolio Manager with
ABKB/LaSalle or its predecessors since 1986.
JAMES A. ULMER III, Executive Vice President (8/30/39)
Principal, ABKB/LaSalle Securities Limited Partnership, 100 East Pratt
Street, Baltimore, Maryland 21202, 1997-Present; Member, National
Association of Real Estate Investment Trusts and past Chair of the Real
Estate Analysts Group of the New York Society of Securities Analysts.
Formerly, Portfolio analyst and strategist, AIRES Real Estate Services,
1993-1997.
-12-
<PAGE>
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Vice President,
Investment Company Capital Corp. (registered investment advisor),
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, 1997-Present. Formerly,
Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP), 1988 -1997.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, 1996-Present;
Formerly, Manager and Foreign Markets Specialist, Putnam Investments
Inc. (registered investment companies), 1994- 1996; Supervisor, Brown
Brothers Harriman & Co. (domestic and global custody), 1991-1994.
- --------------
* 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 12 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 three funds and as a Director of seven funds in the Fund Complex.
Mr. Semans serves as Chairman of five funds and as a Director of five funds in
the Fund Complex. Messrs. Cunnane, Hardiman, Levy, McDonald and Vogt serve as
Directors of each fund in the Fund Complex. Ms. Rimel serves as Director 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 Chairmen
of the Fund Complex's Audit Committee and Executive Committee receive 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, 1998, Independent
Directors' fees attributable to the assets of the Fund totaled approximately
$2,230.
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, 1998.
-13-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
Aggregate Compensation Total Compensation From the
From the Fund Payable to Pension or Fund and Fund Complex
Directors for the Retirement Benefits Payable to Directors for the
Name of Person, Fiscal Year Ended Accrued as Part Fiscal Year Ended
Position December 31, 1998 of Fund Expenses December 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard T. Hale, Chairman(1) $0 $0 $0
Truman T. Semans, Director(1) $0 $0 $0
James J. Cunnane, Director $240(2) (3) $39,000 for service on 13(4)
Boards in the Fund Complex
Joseph R. Hardiman, Director(5) $113(2) (3) $19,500 for service on 11(6)
Boards in the Fund Complex
John F. Kroeger, Director(7) $302 (3) $49,000 for service on 13(4)
Boards in the Fund Complex
Louis E. Levy, Director $268(2) (3) $44,000 for service on 13(4)
Boards in the Fund Complex
Eugene J. McDonald, Director $240(2) (3) $39,000 for service on 13(4)
Boards in the Fund Complex
Rebecca W. Rimel, Director $244(2) (3) $39,000 for service on 12(4,6)
Boards in the Fund Complex
Carl W. Vogt, Esq., Director $246(2) (3) $39,000 for service on 13(4,6)
Boards in the Fund Complex
</TABLE>
- ----------------
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) None of the amounts payable to Messrs. Cunnane, Levy, McDonald, Vogt, and
to Ms. Rimel was deferred pursuant to the deferred compensation plan.
(3) The Fund Complex has adopted a Retirement Plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the year ended December 31, 1998 was approximately $407.
(4) One of these funds ceased operations on July 29, 1998.
(5) Elected to the Fund's board on September 27, 1998.
(6) Mr. Hardiman and Ms. Rimel receive and Mr. Vogt received proportionately
higher compensation from each fund for which they serve as a director.
(7) Retired effective September 27, 1998.
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. The Fund has one Participant, a Director who retired on
December 31, 1996 who qualified for the Retirement Plan by serving fourteen
years as a Director in the Fund Complex and who will be paid a quarterly fee of
$4,875 by the Fund Complex for the rest of his life. 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, 1998 are as follows: for Mr. Cunnane, 4 years; for Mr. Levy, 4
years; for Mr. McDonald, 6 years; for Ms. Rimel, 3 years; for Mr. Vogt, 3 years;
and for Mr. Hardiman, 0 years.
-14-
<PAGE>
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairmen of Audit and Other Participants
--------------------- ------------------
Executive Committees
--------------------
<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 50%
to 100% 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 Funds, BT Alex. Brown Cash Reserve Fund, Inc.
and BT International Equity Fund 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 Advisors' 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 any 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 or Sub-Advisor, as appropriate, would be exempt from this
"blackout period" provided that (1) the market capitalization of a particular
security exceeds $2 billion; and (2) orders of such entity 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.
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
-15-
<PAGE>
business of Alex. Brown Kleinwort Benson Realty Advisors Corporation. [ (See
Investment Advisor and Sub-Advisor in the Prospectus).]
Under the Investment Advisory Agreement, ICC has agreed to obtain and
evaluate economic, statistical and financial information and to formulate and
implement investment policies for the Fund. ICC has delegated this latter
responsibility to ABKB/LaSalle. Any investment program undertaken by ICC or
ABKB/LaSalle will at all times be subject to policies and control of the Fund's
Board of Directors. ICC will provide the Fund with office space for managing its
affairs, with the services of required executive personnel and with certain
clerical and bookkeeping services and facilities. These services are provided by
ICC without reimbursement by the Fund for any costs. Neither ICC nor
ABKB/LaSalle shall be liable to the Fund or its shareholders for any act or
omission by ICC or ABKB/LaSalle or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. The services of ICC and ABKB/LaSalle
to the Fund are not exclusive and ICC and ABKB/LaSalle are free to render
similar services to others.
As compensation for its services, ICC is entitled to receive a fee from
the Fund, calculated daily and paid monthly, at the following annual rates based
upon the Fund's average daily net assets: 0.65% of the first $100 million, 0.55%
of the next $100 million, 0.50% of the next $100 million and 0.45% of that
portion exceeding $300 million. ICC has contractually agreed to reduce its
annual fee, if necessary, or to make payments to the Fund to the extent so that
the Fund's annual expenses 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. This agreement will
continue until at least April 30, 2000 and may be extended. 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 29, 1998. 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 for the last three fiscal years
were as follows:
- --------------------------------------------------------------------------------
Advisory Fees For the Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Contractual Fee $315,817 $255,425 $167,868
- --------------------------------------------------------------------------------
Less amount waived ($144,382) ($128,442) ($167,868)
- --------------------------------------------------------------------------------
Fee after waivers $171,435* $126,983* $0*
- --------------------------------------------------------------------------------
- ---------------
* Absent fee waivers for the fiscal years ended December 31, 1998,
December 31, 1997 and December 31, 1996, the Fund's Total Operating
Expenses would have been 1.55%, 1.58% and 2.28%, respectively, of
the Flag Investors Class A Shares' average daily net assets, 2.30%,
2.33% and 3.03%, respectively, of the Flag Investors Class B Shares'
average daily net assets, and 1.28% and 1.39%, respectively, of the
Institutional Shares' average daily net assets.
-16-
<PAGE>
Sub-Advisory fees paid by ICC to ABKB/LaSalle for the last three fiscal
years were as follows:
Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
ABKB/LaSalle $105,311(1) $80,292(1) $3,163(1)
- --------------------------------------------------------------------------------
- ----------------
(1) Net of fee waivers.
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.
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 September 29, 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
-17-
<PAGE>
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 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 0.25% 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 0.75% 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 0.25% 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:
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31,
- --------------------------------------------------------------------------------
Fee 1998 1997 1996
- --------------------------------------------------------------------------------
12b-1 Fee $166,311(1) $134,163(2) $59,251(3,4)
- --------------------------------------------------------------------------------
Class B Shareholder Servicing Fee $23,251(1) $ 17,894(3) $ 9,232(4,5)
- --------------------------------------------------------------------------------
- -------------
(1) Fees received by ICC Distributors, the Fund's distributor.
(2) 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.
(3) 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.
(4) Fees received by Alex. Brown, the Fund's distributor.
(5) For the period from January 3, 1995 (commencement of offering of Class B
Shares) 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.
-18-
<PAGE>
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 materially increase the fee to be paid pursuant to
the related Distribution Agreement without the approval of the shareholders of
the class. The Plans may be terminated at any time 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 1998 1997 1996
-----------------------------------------------------------------------------------------------------
Received Retained Received Retained Received Retained
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A $147,191(1) $ 0 $264,345(2) $124,308(4) $224,818(6) $152,214(6)
Commissions
- ---------------------------------------------------------------------------------------------------------------------
Class B $ 38,866(1) $ 0 $168,550(3) $ 61,341(5) $137,648(6,7) $124,915(6,7)
Contingent
Deferred
Sales Charge
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) By ICC Distributors, the Fund's distributor.
(2) 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.
(3) 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.
(4) By Alex. Brown.
(5) By Alex. Brown.
(6) By Alex. Brown, the Fund's distributor.
(7) For the period from January 3, 1995 (commencement of offering of Class B
Shares) through December 31, 1996.
General Information
The Fund pays all costs associated with its organization and
registration under the Securities Act 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
-19-
<PAGE>
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing Shares; all costs and
expenses in connection with the registration and maintenance of registration of
the Fund and its Shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Directors and Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside 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
affiliates of the Advisors in any transaction in which such an affiliate acts as
a principal.
If 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 the Advisors 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 the Advisors through
placement of portfolio transactions of other clients may be of value to them in
fulfilling their obligations to the Fund. No specific value can be determined
for research and statistical services furnished without cost to the Advisors 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 the Advisors' 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
-20-
<PAGE>
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 affiliates of the Advisors. At the time of such authorization the Board
adopted certain policies and procedures incorporating the standards of Rule
17e-1 under the Investment Company Act which requires that the commissions paid
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 the
Advisors to furnish reports and to maintain records in connection with such
reviews.
The Advisors directed transactions to broker-dealers and paid related
commissions because of research services in the following amounts:
----------------------------------------
Fiscal Year Ended December 31,
----------------------------------------
1998 1997 1996
----------------------------------------
Transactions Directed $21,012,909 $41,151,108 $16,906,535
- ---------------------------------------------------------------------
Commissions Paid $ 40,363 $73,026 $34,640
- ---------------------------------------------------------------------
For the fiscal year ended December 31, 1998 the Fund paid $290,267 in
brokerage commissions to BT Alex. Brown and its affiliates. 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, 1998, the Fund held a 4.50% repurchase agreement issued
by Goldman Sachs & Co. valued at $972,509. 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 the Advisors. The Advisors
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.
-21-
<PAGE>
9. CAPITAL STOCK
The Fund is authorized to issue 30 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 four classes of
Shares: "Flag Investors Real Estate Securities Fund Class A Shares," "Flag
Investors Real Estate Securities Fund Class B Shares", "Flag Investors Real
Estate Securities Fund Class C Shares" and "Flag Investors Real Estate
Securities Fund Institutional Shares." The Flag Investors Real Estate Securities
Fund Class C Shares have not been offered prior to the date of this Statement of
Additional Information. 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. 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 fiscal year ended December 31, 1998, Bankers Trust was
paid $15,719 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, 1998,
ICC received transfer agency fees of $49,118.
As compensation for providing accounting services, ICC receives an
annual fee, calculated daily and paid monthly as shown below.
-22-
<PAGE>
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%
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, 1998, ICC received fees of $41,142.
12. INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 250 West Pratt Street, Baltimore, Maryland
21201, are independent accountants to the Fund.
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:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-,
5-, or 10-year periods (or fractional portion
thereof) of a hypothetical $1,000 payment made at
the beginning of the 1-, 5- or 10-year periods.
-23-
<PAGE>
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 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, 1998 were as follows:
One-Year Period Ended Inception Through
December 31, 1998 December 31, 1998
- --------------------------------------------------------------------------------
Ending Total Return Ending Average
Class Redeemable Redeemable Annual Total
Value Value Return
- --------------------------------------------------------------------------------
Class A $753 -24.7% $1,441 9.59%
January 3, 1995 +
- --------------------------------------------------------------------------------
Class B $743 -25.7% $1,436 9.49%
January 3, 1995 +
- --------------------------------------------------------------------------------
Institutional $790 -20.98% $939 -3.52%
March 31, 1997
- --------------------------------------------------------------------------------
+ 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.
-24-
<PAGE>
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, 1998 was 3.54% for the Class A Shares, 2.97%
for the Class B Shares, and 3.96% for the Institutional Shares.
Except as noted below, for the purpose of determining net investment
income earned during the period, interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation based
on the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, based on the purchase price (plus actual
accrued interest), dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date.
Undeclared earned income will be subtracted from the net asset value
per share. Undeclared earned income is net investment income that, at the end of
the base period, has not been declared as a dividend, but is reasonably expected
to be and is declared as a dividend shortly thereafter.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. The Fund's portfolio
turnover rate was 24% for the fiscal year ended December 31, 1998 and 35% for
the fiscal year ended December 31, 1997.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following shareholders owned of record or beneficially 5% or more
of the outstanding shares of a class of the Fund, as of February 1, 1999:
-25-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Owned of Beneficially
Name and Address Record Owned Percentage Owned
---------------- ------ ----- ----------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Bankers Trust Corp & Affil 401K Savings X 12.89% of Class A Shares
Plan
The Partnershare Plan of Bankers Trust
NY Corp & Affil
100 Plaza One
Jersey City, NJ 07311-3999
- ---------------------------------------------------------------------------------------------------------------------
BT Alex. Brown Incorporated X 12.94% of Institutional Shares
FBO 250-10788-16
P.O. Box 1346
Baltimore, MD 21203-1346
- ---------------------------------------------------------------------------------------------------------------------
BT Alex. Brown Incorporated X 87.03% of Institutional Shares
FBO 259-88338-18
P.O. Box 1346
Baltimore, MD 21203-1346
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* 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 February 1, 1999.
16. FINANCIAL STATEMENTS
See next page.
-26-
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- ----------------------------------------------------------------------------------------------------
STATEMENT OF NET ASSETS DECEMBER 31, 1998
PERCENT UNREALIZED
MARKET MARKET OF NET GAIN/
SHARES SECURITY PRICE VALUE ASSETS (LOSS)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK - 97.4%
REAL ESTATE OPERATING CO. -
HEALTHCARE: 0.4%
12,050 Crestline Capital Corp. $14.62 $ 176,231 0.4% $ (7,908)
----------- ---- -----------
REAL ESTATE OPERATING CO. - HOTELS AND
HOSPITALITY: 8.4%
130,983 Host Marriott Corp.* 13.81 1,809,210 4.4 (313,263)
108,800 Sunterra Corporation* 15.00 1,632,000 3.9 (144,205)
20,500 Meristar Hotels & Resorts, Inc.* 2.62 53,812 0.1 (69,018)
----------- ---- -----------
3,495,022 8.4 (526,486)
REAL ESTATE OPERATING CO. - OTHER: 6.0%
38,500 Capital Trust - Class A 6.00 231,000 0.6 (192,164)
25,200 Corrections Corp. of America* 17.63 444,150 1.1 (125,526)
32,016 Reckson Service Industries, Inc. 4.13 132,066 0.3 (88,810)
48,600 Vornado Realty Trust 33.75 1,640,250 4.0 381,791
----------- ---- -----------
2,447,466 6.0 (24,709)
REIT APARTMENTS: 18.2%
43,000 Apartment Investment &
Management Co. 37.19 1,599,062 3.9 196,922
77,085 AvalonBay Communities, Inc. 34.25 2,640,161 6.4 233,042
16,104 Camden Property Trust 26.00 418,704 1.0 (55,323)
30,750 Equity Residential Properties Trust 40.44 1,243,453 3.0 43,735
9,600 Irvine Apartment Communities 31.88 306,000 0.7 50,698
34,652 Post Properties, Inc. 38.44 1,331,955 3.2 82,882
----------- ---- -----------
7,539,335 18.2 551,956
REIT DIVERSIFIED/OTHER: 11.8%
50,000 Beacon Capital Partners+ 15.88 793,750 1.9 (206,250)
97,400 Catellus Development Corp.* 14.31 1,394,038 3.4 (414,608)
35,400 Crescent Real Estate Equities Co. 23.00 814,200 2.0 (464,163)
118,744 Northstar Capital Partners*+ 15.88 1,885,061 4.5 (500,819)
2,430 Vornado Operating Inc. 8.06 19,592 0.0 4,538
----------- ---- -----------
4,906,641 11.8 (1,581,302)
REIT HOTELS: 7.2%
36,348 Meristar Hospitality Corp 18.56 674,710 1.6 (374,467)
104,401 Patriot American Hospitality, Inc. 6.00 626,406 1.5 (1,492,618)
75,600 Starwood Lodging Trust 22.69 1,715,175 4.1 (1,454,257)
----------- ---- -----------
3,016,291 7.2 (3,321,342)
-27-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS(CONCLUDED) DECEMBER 31, 1998
PERCENT UNREALIZED
MARKET MARKET OF NET GAIN/
SHARES SECURITY PRICE VALUE ASSETS (LOSS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REIT INDUSTRIAL: 2.5%
36,700 Weeks Corp. $28.19 $1,034,481 2.5% $ (21,709)
----------- ---- -----------
REIT MANUFACTURED HOUSING: 1.4%
16,800 Commercial Assets Inc. 6.06 101,850 0.2 (14,490)
14,200 Sun Communities, Inc. 38.41 494,338 1.2 30,007
----------- ---- -----------
596,188 1.4 15,517
REIT OFFICE/INDUSTRIAL: 26.9%
44,900 Boston Properties, Inc. 30.50 1,369,450 3.3 (121,407)
63,200 Duke Realty Investments Inc. 23.25 1,469,400 3.6 229,206
96,679 Equity Office Properties Trust 24.00 2,320,317 5.6 (200,563)
57,300 Mack-Cali Realty Corp. 30.88 1,769,138 4.3 (287,766)
11,000 PS Business Parks Inc. 23.88 262,625 0.6 (5,500)
66,700 Reckson Associates 22.19 1,479,906 3.6 55,808
18,000 Sl Green Realty Corp. 21.63 389,250 0.9 (13,493)
60,000 Spieker Properties, Inc. 34.63 2,077,500 5.0 215,410
----------- ---- -----------
11,137,586 26.9 (128,305)
REIT RETAIL FACTORY OUTLETS: 2.3%
27,200 Chelsea GCA Realty, Inc. 35.63 969,000 2.3 111,524
----------- ---- -----------
REIT RETAIL FREESTANDING: 1.1%
32,900 Commercial Net Lease Realty 13.25 435,925 1.1 (63,098)
----------- ---- -----------
REIT RETAIL/NEIGHBORHOOD AND
COMMUNITY CENTERS: 2.2%
51,800 Developers Diversified Realty 17.75 919,450 2.2 78,731
----------- ---- -----------
REIT RETAIL REGIONAL MALLS: 2.3%
15,400 Macerich Company 25.63 394,625 1.0 (26,969)
20,000 Rouse Company 27.50 550,000 1.3 (16,476)
----------- ---- -----------
944,625 2.3 (43,445)
REIT SELF STORAGE: 6.7%
52,500 Public Storage, Inc. 27.06 1,420,781 3.4 64,849
41,600 Storage USA, Inc. 32.31 1,344,200 3.3 (83,347)
----------- ---- -----------
2,764,981 6.7 (18,498)
-28-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
PERCENT UNREALIZED
MARKET MARKET OF NET GAIN/
SHARES SECURITY PRICE VALUE ASSETS (LOSS)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL COMMON STOCK
(Cost $45,362,296) $40,383,222 97.4% $(4,979,074)
----------- ---- -----------
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.3%
- --------------------------------------------------------------------------------
$ 953 Goldman Sachs & Co.,
4.50% dated 12/31/98,
to be repurchased on 1/4/99,
collateralized by U.S. Treasury Bond
with a market value of $972,509
(Cost $953,000) 953,000 2.3
----------- -----
TOTAL INVESTMENTS--99.7%
(Cost $46,315,296)** 41,336,222 99.7
OTHER ASSETS IN EXCESS OF LIABILITIES--0.3% 125,712 0.3
----------- -----
TOTAL NET ASSETS--100.0% $41,461,934 100.0%
=========== =====
NET ASSET VALUE AND REDEMPTION PRICE PER:
CLASS A SHARE
($33,239,325 / 2,856,524 shares outstanding) $11.64
======
CLASS B SHARE
($7,640,726 / 658,457 shares outstanding) $11.60***
======
INSTITUTIONAL SHARE
($581,883 / 49,564 shares outstanding) $11.74
======
MAXIMUM OFFERING PRICE PER:
CLASS A SHARE
($11.64 / 0.955) $12.19
======
CLASS B SHARE $11.60
======
INSTITUTIONAL SHARE $11.74
======
</TABLE>
- ------------------
*Non-income producing security.
** Aggregate cost for federal tax purposes was $45,647,506.
***Redemption value is $11.14 following a maximum 4% contingent deferred sales
charge.
+Securities are fair valued by management see Note 1.
SEE NOTES TO FINANCIAL STATEMENTS.
-29-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the
Year Ended
December 31,
- --------------------------------------------------------------------------------
1998
Investment Income:
Dividends ................................................... $ 2,647,020
Interest .................................................... 36,463
------------
Total income ........................................... 2,683,483
------------
Expenses:
Investment advisory fee ..................................... 315,817
Distribution fee ............................................ 189,562
Professional fees ........................................... 102,740
Transfer agent fee .......................................... 49,118
Registration fees ........................................... 45,755
Accounting fee .............................................. 41,142
Organization ................................................ 28,328
Shareholder Reporting fees .................................. 26,542
Custodian fees .............................................. 15,719
Miscellaneous ............................................... 3,204
Directors' fee .............................................. 2,230
------------
Total expenses ......................................... 820,157
Less:Fees waived ............................................ (144,382)
------------
Net expenses ........................................... 675,775
------------
Net investment income ....................................... 2,007,708
------------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions ................ 981,839
Change in unrealized appreciation/depreciation of investments (14,660,156)
------------
Net loss on investments ..................................... (13,678,317)
------------
Net decrease in net assets resulting from operations ........... $(11,670,609)
============
SEE NOTES TO FINANCIAL STATEMENTS.
-30-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended December 31,
- -------------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income ............................. $ 2,007,708 $ 1,467,633
Net realized gain from security transactions ...... 981,839 1,997,900
Change in unrealized appreciation/
depreciation of investments ..................... (14,660,156) 4,596,911
------------ ------------
Net increase/(decrease) in net assets resulting
from operations ................................. (11,670,609) 8,062,444
------------ ------------
Distributions to Shareholders from:
Net investment income:
Class A Shares .................................. (1,296,479) (1,271,684)
Class B Shares .................................. (249,595) (238,106)
Institutional Shares ............................ (24,043) (1,925)
------------ ------------
Net realized capital gains:
Class A Shares .................................. (1,218,097) (1,205,375)
Class B Shares .................................. (295,348) (274,879)
Institutional Shares ............................ (23,198) (8,516)
------------ ------------
Return of capital:
Class A Shares .................................. (103,847) --
Class B Shares .................................. (21,830) --
Institutional Shares ............................ (1,944) --
------------ ------------
Total distributions ............................... (3,234,381) (3,000,485)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares ...................... 15,886,815 22,600,633
Value of shares issued in reinvestment of dividends 2,740,207 2,621,448
Cost of shares repurchased ........................ (14,115,495) (3,539,713)
------------ ------------
Increase in net assets derived from
capital share transactions ...................... 4,511,527 21,682,368
------------ ------------
Total increase/(decrease) in net assets ........... (10,393,463) 26,744,327
Net Assets:
Beginning of period ............................... 51,855,397 25,111,070
------------ ------------
End of period ..................................... $ 41,461,934 $ 51,855,397
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
-31-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
For the Period
January 3, 1995(1)
For the Years through
Ended December 31, December 31,
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............... $ 15.78 $ 13.89 $ 11.20 $ 10.00
---------- ---------- ---------- ---------
Income from Investment Operations:
Net investment income ................................ 0.58 0.52 0.61 0.56
Net realized and unrealized gain/(loss) on investments (3.79) 2.44 2.90 1.21
---------- ---------- ---------- ---------
Total from Investment Operations ..................... (3.21) 2.96 3.51 1.77
---------- ---------- ---------- ---------
Less Distributions:
Distributions from net investment income ............. (0.46) (0.60) (0.58) (0.49)(2)
Distributions from net realized capital gains ........ (0.43) (0.47) (0.22) (0.05)
Return of capital .................................... (0.04) -- (0.02) (0.03)(2)
---------- ---------- ---------- ---------
Total distributions .................................. (0.93) (1.07) (0.82) (0.57)
---------- ---------- ---------- ---------
Net asset value at end of period ..................... $ 11.64 $ 15.78 $ 13.89 $ 11.20
========== ========== ========== =========
Total Return(3) ......................................... (20.82)% 22.01% 32.70% 18.19%
Ratios to Average Daily Net Assets:
Expenses(4) .......................................... 1.25% 1.25% 1.25% 1.25%(6,7)
Net investment income(5) ............................. 4.28% 3.87% 5.29% 6.09%(6,7)
Supplemental Data:
Net assets at end of period (000) .................... $ 33,239 $ 41,773 $ 19,816 $ 7,171
Portfolio turnover rate .............................. 24% 35% 23% 28%
</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 1.55%, 1.58%, 2.28% and 3.25%
(annualized)for the years ended December 31, 1998, 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 3.98%, 3.54%, 4.26% and
3.89% (annualized) for the years ended December 31, 1998, 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 have been based on average daily net assets. Prior to that date they
were based on average monthly net assets. Under the prior method, the ratio
of expenses to average net assets was 1.19% and the ratio of net investment
income to average net assets was 5.95%.
SEE NOTES TO FINANCIAL STATEMENTS.
-32- & -33-
<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 Years January 3, 1995(1)
Ended December 31, through December 31,
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............... $ 15.71 $ 13.84 $ 11.18 $ 10.00
--------- --------- --------- ---------
Income from Investment Operations:
Net investment income ................................ 0.47 0.42 0.52 0.50
Net realized and unrealized gain/(loss) on investments (3.77) 2.42 2.89 1.20
--------- --------- --------- ---------
Total from Investment Operations ..................... (3.30) 2.84 3.41 1.70
--------- --------- --------- ---------
Less Distributions:
Dividends from net investment income ................. (0.34) (0.50) (0.51) (0.42)(2)
Distributions from net realized capital gains ........ (0.43) (0.47) (0.22) (0.05)
Return of capital .................................... (0.04) -- (0.02) (0.05)(2)
--------- --------- --------- ---------
Total distributions .................................. (0.81) (0.97) (0.75) (0.52)
--------- --------- --------- ---------
Net asset value at end of period ..................... $ 11.60 $ 15.71 $ 13.84 $ 11.18
========= ========= ========= =========
Total Return(3) ......................................... (21.39)% 21.11% 31.67% 17.40%
Ratios to Average Daily Net Assets:
Expenses(4) .......................................... 2.00% 2.00% 2.00% 2.00%(6,7)
Net investment income(5) ............................. 3.48% 3.12% 4.46% 5.39%(6,7)
Supplemental Data:
Net assets at end of period (000) .................... $ 7,641 $ 9,799 $ 5,295 $ 3,016
Portfolio turnover rate .............................. 24% 35% 23% 28%
</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 2.30%, 2.33%, 3.03% and 4.05%
(annualized) for the years ended December 31, 1998, 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 3.18%, 2.79%, 3.43% and
3.09% (annualized) for the years ended December 31, 1998, 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%.
SEE NOTES TO FINANCIAL STATEMENTS.
-34- & -35-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the For the Period
Year Ended March 31, 1997(1)
December 31, through December 31,
- -------------------------------------------------------------------------------
1998 1997
Per Share Operating Performance:
Net asset value at beginning
of period ..................... $ 15.91 $ 14.19
------- -------
Income from Investment Operations:
Net investment income ........... 0.58 0.47
Net realized and unrealized
gain/(loss) on investments .... (3.78) 2.14
------- -------
Total from Investment Operations (3.20) 2.61
------- -------
Less Distributions:
Dividends from net investment
income ........................ (0.50) (0.42)
Distributions from net realized
capital gains ................. (0.43) (0.47)
Return of capital ............... (0.04) --
------- -------
Total distributions ............. (0.97) (0.89)
------- -------
Net asset value at end of period ... $ 11.74 $ 15.91
======= =======
Total Return ....................... (20.64)% 18.84%
Ratios to Average Daily Net Assets:
Expenses(2) ..................... 1.00% 1.00%(4)
Net investment income(3) ........ 4.73% 4.30%(4)
Supplemental Data:
Net assets at end of period (000) $ 582 $ 288
Portfolio turnover rate ......... 24% 35%(4)
- ------------------
(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 1.28% and 1.39% (annualized) for
the year ended December 31, 1998 and for the period ended December 31, 1997,
respectively.
(3) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 4.45% and 3.73%
(annualized) for the year ended December 31, 1998 and for the period ended
December 31, 1997, respectively.
(4) Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
-36-
<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 began operation January 3, 1995, and Institutional Shares,
which began operations 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 have neither a
sales charge nor a distribution fee.
When preparing the Fund's financial statements in accordance with generally
accepted accounting principles, management makes estimates and assumptions.
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. The Fund values short-term
obligations with maturities of 60 days or less at amortized cost. When
a market quotation is unavailable, the Investment Advisor determines a
fair value using procedures that the Board of Directors establishes and
monitors. At December 31, 1998, there were two Board valued securities
collectively valued at $2,678,811, representing 6.46% of net assets of
the Fund.
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
-37-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- concluded
broker's custodial bank, holds the collateral in a separate account
until the repurchase agreement matures. The agreement requires that the
collateral's market value, including any accrued interest, exceed the
broker's repurchase obligation. 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
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
began 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 may consist 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.
-38-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor. 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. For
the year ended December 31, 1998, ICC's advisory fee was $315,817 of which
$15,525 was payable at the end of the period.
ICC has agreed to waive a portion of its fee and reimburse expenses so that
the Fund's total operating 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. ICC waived fees of $144,382 for the year ended December 31, 1998.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly based on the Fund's
average daily net assets. For the year ended December 31, 1998, ICC's fee was
$41,142 of which $3,194 was payable at the end of the period.
ICC also provides transfer agency services to the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the year
ended December 31, 1998, ICC's fee was $49,118 of which $10,510 was payable at
the end of the period.
Certain officers and directors of the Fund are also officers or directors
of ICC.
ABKB/LaSalle Securities Limited Partnership ("ABKB/LaSalle") is the Fund's
sub-advisor. As compensation for its sub-advisory services, ICC pays
ABKB/LaSalle a 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.
Bankers Trust Corporation has provided custody services to the Fund since
September 22, 1997.For the year ended December 31, 1998, custody fees amounted
to $15,719 of which $4,775 was payable at the end of the period.
-39-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- concluded
ICC Distributors, Inc., a member of the Forum Group of companies, provides
distribution services to the Fund for which the Fund pays ICC Distributors an
annual fee pursuant to Rule 12b-1, that is calculated daily and paid monthly at
the following annual rates:0.25% of the Class A Shares' average daily net assets
and 1.00% of the Class B Shares average daily net assets. The fees for Class B
Shares include a 0.25% shareholder servicing fee. 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.
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, 1998 was $407 and the accrued liability was $1,342.
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
Class 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, 1998 Dec. 31, 1997
------------- ---------------
Shares sold ................................ 913,519 1,256,866
Shares issued to shareholders on
reinvestment of dividends ............... 173,588 146,244
Shares redeemed ............................ (878,163) (182,922)
------------ ------------
Net increase in shares outstanding ......... 208,944 1,220,188
============ ============
Proceeds from sale of shares ............... $ 12,447,914 $ 18,297,796
Value of reinvested dividends .............. 2,258,875 2,192,511
Cost of shares redeemed .................... (11,380,062) (2,675,100)
------------ ------------
Net increase from capital share transactions $ 3,326,727 $ 17,815,207
============ ============
-40-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Class B Shares
-----------------------------
For the For the
Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997
------------- --------------
Shares sold .................................... 189,158 272,248
Shares issued to shareholders on
reinvestment of dividends ................... 34,739 28,690
Shares redeemed ................................ (188,973) (60,099)
----------- -----------
Net increase in shares outstanding ............. 34,924 240,839
=========== ===========
Proceeds from sale of shares ................... $ 2,735,502 $ 4,002,637
Value of reinvested dividends .................. 449,966 428,928
Cost of shares redeemed ........................ (2,520,889) (864,613)
----------- -----------
Net increase from capital share transactions ... $ 664,579 $ 3,566,952
=========== ===========
Institutional Shares
-------------------------------
For the For the
Year Ended Period Ended
Dec. 31, 1998 Dec. 31, 1997
------------- --------------
Shares sold ....................................... 47,072 18,118
Shares issued to shareholders on
reinvestment of dividends ...................... 2,477 1
Shares redeemed ................................... (18,105) --
--------- ---------
Net increase in shares outstanding ................ 31,444 18,119
========= =========
Proceeds from sale of shares ...................... $ 703,400 $ 300,200
Value of reinvested dividends ..................... 31,366 9
Cost of shares redeemed ........................... (214,544) --
--------- ---------
Net increase from capital share transactions ...... $ 520,222 $ 300,209
========= =========
-41-
<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 $14,161,492 and sales of investment securities aggregated $11,716,062
for the year ended December 31, 1998.
For Federal income tax purposes, the tax cost of investments held at
December 31, 1998 was $45,647,506. At December 31, 1998, aggregate gross
unrealized appreciation for all securities in which there is an excess of value
over tax cost was $1,780,650, and aggregate gross unrealized depreciation for
all securities in which there is an excess of tax cost over value was
$6,759,724.
NOTE 5--Net Assets
On December 31, 1998, net assets consisted of:
Paid-in capital:
Class A Shares ...................................... $ 36,710,121
Class B Shares ...................................... 8,239,179
Institutional Shares ................................ 823,918
Accumulated net realized gain from security transactions 667,790
Unrealized depreciation of investments ................. (4,979,074)
------------
$ 41,461,934
============
-42-
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors of
Flag Investors Real Estate Securities Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects the financial position of
Flag Investors Real Estate Securities Fund, Inc. (the "Fund") at December 31,
1998, and the results of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which include confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 5, 1999
<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 - 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 - 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 - 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 - Judged to be of the best quality. Carry the smallest degree of
investment risk and are generally referred to as "gilt-edged." Interest payments
are protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Judged to be of high quality by all standards. Together with the
Aaa group they comprise what are generally known as high-grade bonds. 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 - Possess many favorable investment attributes and 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.
A-1
<PAGE>
Baa - Considered as medium-grade obligations i.e., 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 23. Exhibits
(a)(1) Articles of Incorporation, dated April 29, 1994,
incorporated by reference to Exhibit (1)(a) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(a)(2) Articles Supplementary to Articles of
Incorporation, dated December 5, 1994,
incorporated by reference to Exhibit (1)(b) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(a)(3) Articles Supplementary to Articles of
Incorporation, dated December 19, 1996,
incorporated by reference to Exhibit (1)(c) to
Post-Effective No. 6 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-000798) on April
29, 1997.
(a)(4) Articles Supplementary to Articles of
Incorporation, dated October 23, 1998, filed
herewith.
(b) By-Laws, as amended through December 18, 1996,
incorporated by reference to Exhibit 2 to
Post-Effective No. 6 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 950116-97-000798) on April 29, 1997.
(c) Instruments Defining Rights of Security Holders for
Flag Investors Shares, 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 (File
No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession Nos. 950116-96-000269
and 950116-97-000798, respectively) on April 26, 1996
and April 29, 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
29, 1997.
(d)(1) Investment Advisory Agreement dated as of
September 1, 1997 between the Registrant and
Investment Company Capital Corp. incorporated by
reference to Exhibit (5)(a) to Post-Effective
Amendment No. 7 to Registrant's Registration
Statement on Form N- 1A (File No. 33-78648) filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000947) on April
28, 1998.
<PAGE>
(d)(2) Investment Sub-Advisory Agreement dated as of September
1, 1997 among the Registrant, Investment Company
Capital Corp. and ABKB/LaSalle Securities Limited
Partnership, incorporated by reference to Exhibit
(5)(b) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A (File
No. 33-78648) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000947)
on April 28, 1998.
(d)(3) Expense Limitation Agreement, filed herewith.
(e)(1) Distribution Agreement dated as of August 31, 1997
between Registrant and ICC Distributors, Inc.,
incorporated by reference to Exhibit (6)(a) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648)
filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000947) on April 28,
1998.
(e)(2) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers,
incorporated by reference to Exhibit (6)(b) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-
000947) on April 28, 1998.
(e)(3) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agent,
incorporated by reference to Exhibit (6)(c) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-
000947) on April 28, 1998.
(f) Not Applicable.
(g)(1) Custodian Agreement dated June 5, 1998, between
Registrant and Bankers Trust Company, filed herewith.
(g)(2) Master Services Agreement between Registrant and
Investment Company Capital Corp., incorporated by
reference to Exhibit (8)(b) to Post-Effective No. 4 to
Registrant's Registration Statement on Form N-1A (File
No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000269)
on April 26, 1996.
(h) Not Applicable.
(i) Opinion of Counsel, incorporated by reference to
Exhibit 10 to Post-Effective No. 4 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000269)
on April 26, 1996.
C-2
<PAGE>
(j) Consent of Independent Accountants, filed herewith.
(k) Not Applicable.
(l) Subscription Agreement, incorporated by reference to
Exhibit 13 to Post-Effective No. 4 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000269)
on April 26, 1996.
(m)(1) Distribution Plan (Flag Investors Class A Shares),
incorporated by reference to Exhibit (15)(a) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(m)(2) Distribution Plan (Flag Investors Class B Shares),
incorporated by reference to Exhibit (15)(b) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(m)(3) Amended Distribution Plan (Flag Investors Class A
Shares), incorporated by reference to Exhibit
(15)(c) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N- 1A
(File No. 33-78648) filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000947) on April 28, 1998.
(m)(4) Amended Distribution Plan (Flag Investors Class B
Shares), incorporated by reference to Exhibit
(15)(d) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N- 1A
(File No. 33-78648) filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000947) on April 28, 1998.
(n) Financial Data Schedule, filed herewith as EX-27.
(o)(1) Rule 18f-3 Plan, incorporated by reference to Exhibit
(18)(a) to Post- Effective No. 5 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-001366)
on November 21, 1996.
(o)(2) Amended Rule 18f-3 Plan, filed herewith.
(p) Powers of Attorney, filed herewith.
C-3
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant.
Provide a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant. For any person controlled by
another person, disclose the percentage of voting securities owned by the
immediately controlling person or other basis of that person's control. For each
company, also provide the state or sovereign power under the law of which the
company is organized.
None.
Item 25. Indemnification.
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified against any liability incurred in their official
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 a 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 26. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor and each director, officer or
partner of the investment advisor, is or has been engaged within the last two
fiscal years for his or her own account or in the capacity of director, officer,
employee, partner or trustee. (Disclose the name and principal business address
of any company for which a person listed above serves in the capacity of
director, officer, employee, partner or trustee, and the nature of the
relationship.)
(a) Advisor
C-5
<PAGE>
During the last two fiscal years, no director or officer of Investment
Company Capital Corporation, the Registrant's investment advisor, has engaged in
any other business, profession, vocation or employment of a substantial nature
other than that of the business of investment management and, through
affiliates, investment banking.
(b) Sub-Advisor
The list required by this Item 26 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 27. Principal Underwriters.
State 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 Communications Fund, Inc.
(formerly, 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.) 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
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance None
Officer
- -----------
* Two Portland Square
Portland, Maine 04101
C-6
<PAGE>
(c) Not Applicable.
Item 28. Location of Accounts and Records.
State the name and address of each person maintaining principal possession
of 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] thereunder.
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 29. Management Services.
Provide a summary of the substantive provisions of any management related
service contract not discussed in part A or Part B of this Form disclosing the
parties to the contract and the total amount paid and by whom, for the
Registrant's last three fiscal years.
Not Applicable.
Item 30. Undertakings.
Furnish the following undertakings in substantially the following form in
all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's Annual Report to Shareholders will be
furnished upon request, without charge by contacting the Registrant
at (800) 767-3524.
C-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 8 to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 26th day of February, 1999.
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) indiciated:
* Chairman and Director February 26, 1999
- --------------------- -----------------
Richard T. Hale Date
* Director February 26, 1999
- --------------------- -----------------
James J. Cunnane Date
* Director February 26, 1999
- --------------------- -----------------
Joseph R. Hardiman Date
* Director February 26, 1999
- --------------------- -----------------
Louis E. Levy Date
* Director February 26, 1999
- --------------------- -----------------
Eugene J. McDonald Date
* Director February 26, 1999
- --------------------- -----------------
Rebecca W. Rimel Date
* Director February 26, 1999
- --------------------- -----------------
Carl W. Vogt Date
/s/ William K. Morrill, Jr. President February 26, 1999
- --------------------------- -----------------
William K. Morrill, Jr. Date
/s/ Joseph A. Finelli Chief Financial February 26, 1999
- --------------------- and Accounting -----------------
Joseph A. Finelli Officer Date
*By: /s/ Amy M. Olmert
--------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Edgar
Exhibit Exhibit
Number Number
- ------- -------
(a)(1) Articles of Incorporation, dated April 29, 1994,
incorporated by reference to Exhibit (1)(a) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(a)(2) Articles Supplementary to Articles of
Incorporation, dated December 5, 1994,
incorporated by reference to Exhibit (1)(b) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(a)(3) Articles Supplementary to Articles of
Incorporation, dated December 19, 1996,
incorporated by reference to Exhibit (1)(c) to
Post-Effective No. 6 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-000798) on April
29, 1997.
EX-99.B (a)(4) Articles Supplementary to Articles of Incorporation,
dated October 23, 1998, filed herewith.
(b) By-Laws, as amended through December 18, 1996,
incorporated by reference to Exhibit 2 to
Post-Effective No. 6 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-97-000798) on April 29, 1997.
(c) Instruments Defining Rights of Security Holders for
Flag Investors Shares, 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 (File
No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession Nos. 950116-96-000269
and 950116-97-000798, respectively) on April 26, 1996
and April 29, 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
29, 1997.
(d)(1) Investment Advisory Agreement dated as of
September 1, 1997 between the Registrant and
Investment Company Capital Corp. incorporated by
reference to Exhibit (5)(a) to Post-Effective
Amendment No. 7 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648) filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000947) on April
28, 1998.
<PAGE>
(d)(2) Investment Sub-Advisory Agreement dated as of September
1, 1997 among the Registrant, Investment Company
Capital Corp. and ABKB/LaSalle Securities Limited
Partnership, incorporated by reference to Exhibit
(5)(b) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A (File
No. 33- 78648) filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000947)
on April 28, 1998.
EX-99.B (d)(3) Expense Limitation Agreement, filed herewith.
(e)(1) Distribution Agreement dated as of August 31, 1997
between Registrant and ICC Distributors, Inc.,
incorporated by reference to Exhibit (6)(a) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648)
filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000947) on April 28,
1998.
(e)(2) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers,
incorporated by reference to Exhibit (6)(b) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648) filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-98-000947) on April 28, 1998.
(e)(3) Form of Shareholder Servicing Agreement between
Registrant and Shareholder Servicing Agent,
incorporated by reference to Exhibit (6)(c) to
Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648)
filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000947) on April 28,
1998.
(f) Not Applicable.
EX-99.B (g)(1) Custodian Agreement dated June 5, 1998, between
Registrant and Bankers Trust Company, filed herewith.
(g)(2) Master Services Agreement between Registrant and
Investment Company Capital Corp., incorporated by
reference to Exhibit (8)(b) to Post-Effective No. 4 to
Registrant's Registration Statement on Form N-1A (File
No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96- 000269)
on April 26, 1996.
(h) Not Applicable.
(i) Opinion of Counsel, incorporated by reference to
Exhibit 10 to Post-Effective No. 4 to Registrant's
Registration Statement on Form N- 1A (File No.
33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000269)
on April 26, 1996.
<PAGE>
EX-99.B (j) Consent of Independent Accountants, filed herewith.
(k) Not Applicable.
(l) Subscription Agreement, incorporated by reference to
Exhibit 13 to Post-Effective No. 4 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000269)
on April 26, 1996.
(m)(1) Distribution Plan (Flag Investors Class A Shares),
incorporated by reference to Exhibit (15)(a) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(m)(2) Distribution Plan (Flag Investors Class B Shares),
incorporated by reference to Exhibit (15)(b) to
Post-Effective No. 4 to Registrant's Registration
Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-96-000269) on April
26, 1996.
(m)(3) Amended Distribution Plan (Flag Investors Class A
Shares), incorporated by reference to Exhibit
(15)(c) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A
(File No. 33-78648) filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000947) on April 28, 1998.
(m)(4) Amended Distribution Plan (Flag Investors Class B
Shares), incorporated by reference to Exhibit
(15)(d) to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form N-1A
(File No. 33-78648) filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-98-000947) on April 28, 1998.
EX-27 (n) Financial Data Schedule, filed herewith as EX-27.
(o)(1) Rule 18f-3 Plan, incorporated by reference to Exhibit
(18)(a) to Post-Effective No. 5 to Registrant's
Registration Statement on Form N-1A (File No.
33-78648), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-001366)
on November 21, 1996.
EX-99.B (o)(2) Amended Rule 18f-3 Plan, filed herewith.
EX-99.B (p) Powers of Attorney, filed herewith.
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC. (the
"Corporation") having its principal office in the City of Baltimore, certifies
that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law at a meeting duly
convened and held on September 28, 1998 has adopted a resolution designating a
new class of shares and increasing the total number of shares of capital stock
which the Corporation has the authority to issue to thirty million (30,000,000)
shares of Common Stock, par value $.001 per share, having an aggregate par value
of thirty thousand dollars ($30,000.00), all of which shares are designated as
follows: seven million (7,000,000) shares are designated "Flag Investors Real
Estate Securities Fund Class A Shares," two million (2,000,000) shares are
designated "Flag Investors Real Estate Securities Fund Class B Shares," fifteen
million (15,000,000) shares are designated "Flag Investors Real Estate
Securities Fund Class C Shares" (the "Class C Shares"), five million (5,000,000)
shares are designated "Flag Investors Real Estate Securities Fund Institutional
Shares" and one million (1,000,000) shares remain undesignated.
SECOND: Immediately before the increase in authorized shares
and the designation of the Class C Shares, the Corporation was authorized to
issue fifteen million (15,000,000) shares of Common Stock, par value $.001 per
share, having an aggregate par value of fifteen thousand dollars ($15,000.00),
of which seven million (7,000,000) shares were designated "Flag Investors Real
Estate Securities Fund Class A Shares," two million (2,000,000) shares were
designated "Flag Investors Real Estate Securities Fund Class B Shares," five
million (5,000,000) shares were designated "Flag Investors Real Estate
Securities Fund Institutional Shares" and one million (1,000,000) shares
remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Real Estate Securities
Fund, Inc. has caused these Articles Supplementary to be executed by its
President and its corporate seal to be affixed and attested by its Secretary on
this 23rd day of October, 1998.
[CORPORATE SEAL]
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
By: /s/ William K. Morrill, Jr.
---------------------------
William K. Morrill, Jr.
President
Attest: /s/ Amy M. Olmert
-----------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
By: /s/ William K. Morrill, Jr.
---------------------------
William K. Morrill, Jr.
President
<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the 1st day of May,
1999 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"), with respect to the following:
WHEREAS, the Advisor serves as the Fund's investment advisor pursuant
to an Investment Advisory Agreement dated September 1, 1997; and
WHEREAS, the Advisor has voluntarily agreed to waive its fees and
reimburse expenses so that the Fund's total annual operating expenses 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; and
WHEREAS, the Fund and the Advisor desire to formalize these voluntary
fee waiver and expense reimbursement arrangements for a one year period
beginning on May 1, 1999 and ending on April 30, 2000.
NOW THERETOFORE, 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. The Advisor agrees to waive its fees and reimburse expenses for a
one year period from May 1, 1999 to April 30, 2000 to the extent necessary so
that the Fund's total annual operating expenses 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
2. Upon the termination of the Investment Advisory Agreement this
Agreement shall automatically terminate.
3. 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL]
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
Attest: /s/T.J. Lott by: /s/William K. Morrill
------------ ---------------------
By: William K. Morrill
Title: President
INVESTMENT COMPANY CAPITAL
CORP.
Attest: /s/Amy M. Olmert by: /s/Edward J. Veilleux
---------------- ---------------------
By: Edward J. Veilleux
Title: Executive Vice President
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of June 5, 1998 between BANKERS TRUST COMPANY (the
"Custodian") and FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC. (the
"Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer 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 the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
("Property") pursuant to the terms and conditions set forth herein. For purposes
of this Agreement, "delivery" of Property shall include the acquisition of a
security entitlement (as that term is defined in the New York Uniform Commercial
Code ("UCC")) with respect thereto. 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 non-cash investment property
of the Customer ("Securities") and cash from any source and in any currency
("Cash"), provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept as Property any property of a Customer that the
Custodian considers not to be appropriate or in proper form for deposit for any
reason. The Custodian shall not be responsible for any property of the Customer
held or received by the Customer or others and not delivered to the Custodian or
any Subcustodian.
2. Maintenance of Property 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.
Instructions to settle Securities transactions in any country shall be deemed to
authorize the holding of such Property in that country.
3. Custody Account. The Custodian agrees to establish and maintain a
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Customer 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 Account any Property received therefor by the Custodian or a
Subcustodian and to give, and authorize others
- 1 -
<PAGE>
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
Account, on behalf of the Customer, all Property in such Account and, to the
extent such Property constitutes financial assets for purposes of the New York
UCC, shall maintain those financial assets in such Account as security
entitlements in favor of the Customer. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions, 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 Account;
(b) present for payment all Securities held in the Account which are
called, redeemed or retired 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 the 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 the 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 the 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;
(e) execute in the Customer's name for the 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 the Account;
(f) pay for the Account, any and all taxes and levies in the nature of
taxes imposed on interest, dividends or other similar income on the Property in
the Account by any governmental authority. In the event there is insufficient
Cash available in the Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the Customer, at
- 2 -
<PAGE>
its option, may deposit additional Cash in the 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 maintain the Property in the Account directly in one
of its U.S. branches or indirectly through custody accounts which have been
established by the Custodian with the following other securities intermediaries:
(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.
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.
- 3 -
<PAGE>
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 Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems 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 Directors 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 normal 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 the Account which
is maintained by the Custodian through a Subcustodian employed pursuant to
Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer, any Property maintained through 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 Subcustodian
with respect to maintaining Property shall require that (i) the Account will be
adequately indemnified or its losses adequately insured; (ii) the Securities so
maintained will not be 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 will be freely transferable without the payment of money or value
other than for safe custody or administration and expenses related thereto; and
(iv) adequate records will be maintained identifying the Property maintained
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
- 4 -
<PAGE>
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
which is maintained by the Custodian or any Subcustodian through a Securities
System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian shall be required by its
agreement with the Custodian to, identify on its books such Property as being
maintained for the account of the Custodian or Subcustodian for its customers.
(b) Any Property maintained through 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 maintained directly by the
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on the Custodian's books as
belonging to the Account and not for the Custodian's own interest. The Custodian
shall keep accurate and detailed accounts of all investments, receipts,
disbursements and other transactions for the 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 the Account maintained by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by
- 5 -
<PAGE>
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
N-1A 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 Property,
including Property 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 a hard copy various reports of Account activity and of Property being
held in the Account. To the extent that such service shall include market values
of Securities in the 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.
9. Holding of Securities, Nominees, etc. Securities in the Account
which are maintained by the Custodian or any Subcustodian may be held directly
by such entity in the name of the Customer or in bearer form or maintained in
the Custodian's or Subcustodian's name, or in the name of the Custodian's or
Subcustodian's nominee. Securities that are maintained through 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 the 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
- 6 -
<PAGE>
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. Securities
maintained with a Securities System shall be maintained subject to the rules of
that Securities System governing the rights and obligations among the Securities
System and its participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the 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 A
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") or (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 the
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 the Customer.
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 the Account and delivery of Securities
out of the 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
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, the Account, on a contractual basis, as outlined
in the applicable Service Standards as defined
- 7 -
<PAGE>
below and provided to the Customer by the Custodian, the Custodian may, at its
sole option, reverse such credits or debits to the 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.
The applicable Service Standards shall be defined as the Global Guide,
the Policies and Standards Manual, and any other documents issued by the
Custodian from time to time specifying the procedures for communicating with the
Customer, the terms of any additional services to be provided to the Customer,
and such other matters as may be agreed between the Customer and the Custodian
from time to time.
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 the 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 in 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 provisionally 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 after 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 charges at a rate which the Custodian customarily charges for similar
extensions of credit.
- 8 -
<PAGE>
(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not on deposit in the Account, or (ii) any Proceeding shall
occur, the Custodian may sell such of the Securities subject to the Conditional
Credit as it selects in its sole discretion and shall apply the net proceeds of
such sale to cover such Debit, including related late charges, and any remaining
proceeds shall be credited to the Account. If such proceeds are insufficient to
satisfy such debt in full, the Customer shall continue to be liable to the
Custodian for any shortfall. The Custodian shall make the Conditional Credit a
final entry on its books as to the Securities not required to be sold to satisfy
such Debit. Pending payment in full by the Customer of the purchase price for
Securities subject to a Conditional Credit, and the Custodian's making a
Conditional Credit a final entry on its books, and unless consented to by the
Custodian, the Customer shall have no right to give further Instructions in
respect of Securities subject to a Conditional Credit. The Custodian shall have
the sole discretion to determine which Securities shall be deemed to have been
paid for by the Customer out of funds available in the Account. Any such
Conditional Credit may be reversed (and any corresponding Debit shall be
canceled) by the Custodian unless and until the Custodian makes a final entry on
its books crediting such Securities to the Account. The term "Proceeding" shall
mean any insolvency, bankruptcy, receivership, reorganization or similar
proceeding relating to the Customer, whether voluntary or involuntary.
(e) The Customer agrees that it will not intentionally 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 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.
- 9 -
<PAGE>
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed or in order
to satisfy requirements for additional or substitute collateral.
(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, the Portfolio's investment advisor 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 or 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 21.
(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 in accordance
- 10 -
<PAGE>
with 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 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 right 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 the 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
- 11 -
<PAGE>
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 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 the 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 the 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 or 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
- 12 -
<PAGE>
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
pursuant to any contract or any law or regulation. The provisions of this
Section shall survive termination of this Agreement.
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 B. Such fees will not be abated by, nor shall the Custodian be required
to account for, any profits or commissions received by the Custodian in
connection with its provision of custody services under this Agreement. 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 the
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 the Account. The Custodian is authorized to charge the Account for such items
and the Custodian shall have a lien on the Property in the 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 the Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit C attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit C. 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. 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 the Account and to whom the Cash in
the 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
- 13 -
<PAGE>
Securities in the Account and to whom the Cash in the Account shall be paid. In
either case, the Custodian will deliver such Property to the persons so
specified, after deducting therefrom any amounts which the Custodian determines
to be owed to it hereunder. In addition, the Custodian may in its discretion
withhold from such delivery such Property as may be necessary 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 the Account and to whom the Cash in the 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.
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. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, the Custodian shall be
entitled to use available Cash in the Account, and to dispose of Securities in
the Account as is necessary. In any such case and without limiting the
foregoing, the Custodian shall be entitled to take such other actions or
exercise such other options, powers and rights as the Custodian now or hereafter
has as a secured creditor under the New York UCC or any other applicable law.
24. 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 the Account as herein provided, is not
prohibited by law or any governing documents or contracts to which it is
subject;
(ii) the terms of this Agreement do not violate any obligation
by which it is bound, whether arising by contract, operation of law or
otherwise;
- 14 -
<PAGE>
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms; and
(iv) it will deliver to the Custodian a duly executed
Secretary's Certificate in the form of Exhibit D attached 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 it 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 it in accordance
with its terms;
(iii) it 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
(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.
25. 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.
26. Publicity. Customer shall furnish to Custodian in accordance with
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.
27. 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.
- 15 -
<PAGE>
28. 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.
29. 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 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.
30. 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.
31. 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.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
33. 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.
- 16 -
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
By: /s/Amy M. Olmert
--------------------------
Name: Amy M. Olmert
--------------------------
Title: Secretary
--------------------------
BANKERS TRUST COMPANY
By: /s/Richard Fogarty
--------------------------
Name: Richard Fogarty
--------------------------
Title: Vice President
--------------------------
- 17 -
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Real Estate Securities Fund, Inc.
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 applicable Service Standards.
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 than 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.
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.
<PAGE>
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 will 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 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
applicable Service Standards. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit A will be deemed to be automatically
amended to include or delete such countries as the case may be.
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Real Estate Securities Fund, Inc.
BANKERS TRUST CUSTODY FEE SCHEDULE
FOR
BT ALEX. BROWN MUTUAL FUNDS
(FLAG INVESTORS FUNDS AND ISI FUNDS)
Effective October 1, 1997
CUSTODY FEES
1. DOMESTIC SAFEKEEPING FEES
ANNUAL ASSET FEE (BY FUND- EXCEPT CASH RESERVE)
Market Value Basis Point
$0 - $100 million 1.00
Over $100 million 0.75
ANNUAL ASSET FEE (CASH RESERVE FUND)
Market Value Basis Point
$0 - $1 billion 1.00
$1 billion - $3 billion 0.75
Over $3 billion 0.50
2. DOMESTIC TRANSACTION FEES
================================================================================
TRANSACTION TYPE $USD
- --------------------------------------------------------------------------------
AUTOMATED DEPOSITORY: DTC/PTC/FED 10.00
- --------------------------------------------------------------------------------
MANUAL DEPOSITORY: DTC/PTC/ FED 15.00
- --------------------------------------------------------------------------------
PHYSICAL AUTOMATED 15.00
- --------------------------------------------------------------------------------
PHYSICAL MANUAL 20.00
- --------------------------------------------------------------------------------
P&I PAYMENTS 5.00
- --------------------------------------------------------------------------------
REDEMPTIONS 10.00
- --------------------------------------------------------------------------------
REORGANIZATIONS Included in safekeeping charge
================================================================================
<PAGE>
3. GLOBAL SAFEKEEPING AND ASSET FEES
================================================================================
Receive and
Annual Deliver
Country Asset Fee Transactions
================================================================================
Argentina 35 Basis Points $100
- --------------------------------------------------------------------------------
Australia 3 Basis Points $ 50
- --------------------------------------------------------------------------------
Austria 5 Basis Points $ 75
- --------------------------------------------------------------------------------
Bangladesh 40 Basis Points $150
- --------------------------------------------------------------------------------
Belgium 4 Basis Points $ 60
- --------------------------------------------------------------------------------
Botswana 50 Basis Points $150
- --------------------------------------------------------------------------------
Brazil 30 Basis Points $ 70
- --------------------------------------------------------------------------------
Canada 2 Basis Points $ 20
- --------------------------------------------------------------------------------
Cedel/Euroclear 3 Basis Points $ 20
- --------------------------------------------------------------------------------
Chile 30 Basis Points $ 80
- --------------------------------------------------------------------------------
China 30 Basis Points $ 75
- --------------------------------------------------------------------------------
Columbia 35 Basis Points $100
- --------------------------------------------------------------------------------
Czech Republic 20 Basis Points $ 70
- --------------------------------------------------------------------------------
Denmark 4 Basis Points $ 50
- --------------------------------------------------------------------------------
Ecuador 45 Basis Points $100
- --------------------------------------------------------------------------------
Egypt 45 Basis Points $ 80
- --------------------------------------------------------------------------------
Finland 10 Basis Points $ 75
- --------------------------------------------------------------------------------
France 5 Basis Points $ 50
- --------------------------------------------------------------------------------
Germany 3 Basis Points $ 30
- --------------------------------------------------------------------------------
Ghana 50 Basis Points $150
- --------------------------------------------------------------------------------
Greece 35 Basis Points $120
- --------------------------------------------------------------------------------
Hong Kong 5 Basis Points $ 30
- --------------------------------------------------------------------------------
Hungary 45 Basis Points $150
- --------------------------------------------------------------------------------
India (Physical) 60 Basis Points $200
- --------------------------------------------------------------------------------
India (Dematerialized) 25 Basis Points $140
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Receive and
Annual Deliver
Country Asset Fee Transactions
- --------------------------------------------------------------------------------
Indonesia 8 Basis Points $ 35
- --------------------------------------------------------------------------------
Ireland 5 Basis Points $ 50
- --------------------------------------------------------------------------------
Israel 40 Basis Points $ 50
- --------------------------------------------------------------------------------
Italy 3 Basis Points $ 50
- --------------------------------------------------------------------------------
Japan 3 Basis Points $ 35
- --------------------------------------------------------------------------------
Jordan 30 Basis Points $100
- --------------------------------------------------------------------------------
Kenya 50 Basis Points $150
- --------------------------------------------------------------------------------
Luxembourg 4 Basis Points $ 60
- --------------------------------------------------------------------------------
Malaysia 7 Basis Points $ 50
- --------------------------------------------------------------------------------
Mauritius 50 Basis Points $140
- --------------------------------------------------------------------------------
Mexico 5 Basis Points $ 30
- --------------------------------------------------------------------------------
Morocco 30 Basis Points $130
- --------------------------------------------------------------------------------
Netherlands 4 Basis Points $ 45
- --------------------------------------------------------------------------------
New Zealand 4 Basis Points $ 50
- --------------------------------------------------------------------------------
Norway 5 Basis Points $ 50
- --------------------------------------------------------------------------------
Pakistan 30 Basis Points $150
- --------------------------------------------------------------------------------
Peru 50 Basis Points $100
- --------------------------------------------------------------------------------
Philippines 8 Basis Points $ 30
- --------------------------------------------------------------------------------
Poland 45 Basis Points $100
- --------------------------------------------------------------------------------
Portugal 4 Basis Points $ 75
- --------------------------------------------------------------------------------
Russia 50 Basis Points $300
- --------------------------------------------------------------------------------
Singapore 7 Basis Points $ 50
- --------------------------------------------------------------------------------
Slovakia 25 Basis Points $100
- --------------------------------------------------------------------------------
South Africa 5 Basis Points $ 30
- --------------------------------------------------------------------------------
South Korea 15 Basis Points $ 50
- --------------------------------------------------------------------------------
Spain 6 Basis Points $ 50
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
Receive and
Annual Deliver
Country Asset Fee Transactions
- --------------------------------------------------------------------------------
Sri Lanka 12 Basis Points $ 60
- --------------------------------------------------------------------------------
Sweden 4 Basis Points $ 50
- --------------------------------------------------------------------------------
Switzerland 3 Basis Points $ 50
- --------------------------------------------------------------------------------
Taiwan 15 Basis Points $100
- --------------------------------------------------------------------------------
Thailand 7 Basis Points $100
- --------------------------------------------------------------------------------
Tunisia 45 Basis Points $ 50
- --------------------------------------------------------------------------------
Turkey 15 Basis Points $ 50
- --------------------------------------------------------------------------------
United Kingdom 2 Basis Points $ 15
- --------------------------------------------------------------------------------
Venezuela 35 Basis Points $100
- --------------------------------------------------------------------------------
Zambia 50 Basis Points $150
- --------------------------------------------------------------------------------
Zimbabwe 50 Basis Points $150
- --------------------------------------------------------------------------------
4. DDA RELATED CHARGES
Cash Connector Services $25 per month per account
(MTC, MTD, EBR, BTC Reporting)
Statement Rendition (CDS) Services
Account Maintenance $50 per month per account
Debit Postings $0.35 per posting
Credit Postings $0.35 per posting
Money Transfer Charges*
Outgoing Payments $6.00
Incoming Payments No Charge
Book to Book Transfers No Charge
*Above Money Transfer Charges assume electronic instruction via bank-provided
software. Manual instructions received via facsimile, etc. will incur a charge
of $25 per transaction.
Overdraft Rate: Prime + 1.00%
<PAGE>
NOTES
Market Values will be provided by the Fund Accountant at month-end to determine
monthly assets for billing purposes.
o A manual transaction is an instruction that is received in writing,
i.e.facsimile
o The standard Global Custody Service includes: asset safekeeping, trade
settlement, income collection, corporate action processing including
proxy voting and tax reclaims where appropriate.
o Third party FX transactions and other cash movements with no associated
security transaction (e.g. free payments/receipts) are charged at $10 per
U.S. wire and $25 per non-U.S. wire. No fee is levied for FX transactions
executed with Bankers Trust.
o Fees are billed monthly in arrears.
This Exhibit B shall be amended upon delivery by the Custodian of a new Exhibit
B 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.
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Real Estate Securities Fund, Inc.
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 the Account in the
countries specified in the applicable Service Standards. 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, 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.
<PAGE>
EXHIBIT D
[Name of Entity]
Certificate of the Secretary
I, [Name of Secretary], hereby certify that I am the Secretary of
[Name of Entity], a ______________________[type of entity] organized under the
laws of ________________________[jurisdiction] (the "Customer"), and as such I
am duly authorized to, and do hereby, certify that:
1. Good Standing. The Customer's organizational documents, and
all amendments thereto, have been filed with the appropriate governmental
officials of ______________[jurisdiction], the Customer 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. Organizational Documents. The Customer's [name of
organizational documents - i.e., Bylaws, Articles of Incorporation, etc.] have
been duly adopted and no action has been taken to repeal such [name of
organizational documents], the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf of
the Customer, 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 Customer now in force relating to or
affecting the matters referred to therein, including, without limitation,
confirming that the Customer is duly authorized to appoint Bankers Trust Company
as Custodian of assets delivered to it by the Customer and enter into a certain
custody agreement with Bankers Trust Company (the "Agreement") setting forth the
terms and conditions of such appointment, and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
(a) execute said Agreement in such form as the officers executing the same have
approved, such approval to be conclusively evidenced by their execution and
delivery thereof, and (b) execute any instructions in connection with the
Agreement, in conformity with the requirements of the Customer's [name of
organizational documents], and other pertinent documents to which the Customer
may be bound.
4. Incumbency. The following named individuals are duly elected
(or appointed), qualified and acting officers of the Customer holding those
offices set forth opposite their respective names as of the date hereof, each
having full authority, acting individually, to bind the Customer, as a legal
matter, with respect to all matters pertaining to the Agreement, and to execute
and deliver said Agreement on behalf of the Customer, and the signatures set
forth opposite the respective names and titles of said officers are their true,
authentic signatures:
Name Title Signature
---- ----- ---------
- -------------------- -------------------- --------------------
- -------------------- -------------------- --------------------
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day of
_______________[Date], 1997.
By: __________________________________
Name: __________________________________
Title: Secretary
I, __________________________[Name of Confirming Officer],
__________________[Title] of the Customer, hereby certify that on this ___ day
of _______________[Date], 19__, _____________________[NAME OF SECRETARY] is the
duly elected Secretary of the Customer and that the signature above is his/her
genuine signature.
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE>
EXHIBIT E
CASH MANAGEMENT ADDENDUM (this "Addendum") to the CUSTODIAN
AGREEMENT (the "Agreement") between BANKERS TRUST COMPANY (the "Custodian") and
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC. (the "Customer").
WHEREAS, the Custodian will provide cash management services to
the Customer, and the Custodian and the Customer desire to confirm their
understanding with respect to such services;
NOW, THEREFORE, the Custodian and the Customer agree as follows:
1. Until the Custodian receives Instructions to the contrary, the
Custodian will hold all Cash received for the Account in deposit accounts
maintained with Subcustodians for the benefit of the Custodian's clients, will
credit to the Account interest on such Cash at rates and times the Custodian
shall from time to time determine and will receive compensation therefor out of
any amounts paid by Subcustodians in respect of such Cash.
2. To the extent the Custodian may from time to time inform the
Customer with respect to one or more currencies, the Custodian will sweep Cash
in such currencies to deposit accounts maintained with one or more Subcustodians
until the Custodian notifies the Customer otherwise or receives Instructions to
the contrary.
3. The Customer acknowledges that it has received and reviewed
the current policies of the Custodian regarding cash management services, which
are attached to this Addendum.
4. Capitalized terms used but not defined in this Addendum are
used with the respective meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, this Addendum has been executed as of the
date of the Agreement.
BANKERS TRUST COMPANY
By: /s/Richard Fogarty
------------------
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
By: /s/Amy M. Olmert
----------------
<PAGE>
Global Custody Cash Management Program
In the Global Custody cash management program, currencies on
which Bankers Trust pays interest are divided into two categories: (1)
currencies on which we pay interest based on a market benchmark rate for
overnight deposits, and (2) currencies on which we pay interest based on a rate
paid by the London branch of Bankers Trust Company or the local subcustodian.
Currencies on which we pay interest based on a market
benchmark rate for overnight deposits (which we call "Benchmark Rate
Currencies"):
o For each of these currencies, the interest rate we pay is based on a
specific market benchmark (such as Effective Fed Funds) and is
calculated by taking an average of the benchmark rate and subtracting a
spread. (See Schedule A)
o Currently, the only Benchmark Rate Currency is the U.S. Dollar. Over time
we will be considering additional currencies to include in this category.
o Operationally, most balances in Benchmark Rate Currencies are swept
overnight into deposits at the London branch of Bankers Trust Company.
Where you have selected a short-term investment fund, your U.S. Dollar
balances in the U.S. will be swept overnight in accordance with your
instructions.
Currencies on which we pay interest based on a rate paid by
the London branch of Bankers Trust Company or the local subcustodian (which we
call "Base Rate Currencies"):
o For each of these currencies, the interest rate we pay is based on the
rate paid by the London branch or the local subcustodian on overnight
deposits in the currency. In either case, interest is calculated by
using the overnight rate (which will be the actual overnight, a weekly
average, or monthly average rate, depending on the currency) and
subtracting a spread. (See Schedule A)
o Currencies that are part of the sweep program will earn interest based
on the base rate, which will be the higher of the rate offered by the
London branch of Bankers Trust Company or the local subcustodian.
o Currencies that are not part of the sweep program will generally earn
interest based on the rate paid by the local subcustodian. We may at
times be able to sweep certain currency balances into deposits of
Bankers Trust Company's London branch in order to be able to earn a
higher rate for you. On those days, any such currency will be treated
as part of the sweep program, and you will earn interest on all of your
balances in that currency at the higher rate for that day.
<PAGE>
o Currently, there are 39 Base Rate Currencies, 21 of which are included
in our sweep program to the London branch.
o Operationally, most balances in Base Rate Currencies that are part of
our sweep program are swept overnight into deposits at the London
branch, while balances in Base Rate Currencies that are not part of our
sweep program remain with the local subcustodian.
For each currency on which we pay interest:
o We will notify you periodically in writing of changes in spreads and
updates to the cash management program. These program updates also will
be available through Global Custody Flash Notices.
o You earn interest at the calculated rate on your entire contractual
balance without any action on your part and without any minimum balance
requirements. This is the case regardless of whether we are able to
invest your balances at or near the applicable benchmark or base rate
and regardless of whether your contractual balance may exceed your
actual balance.
o Our program generally requires that overnight balances in each currency
remain with (or are swept to) a subcustodian we designate for that
currency. Nevertheless, we pay our stated rate of interest on any
balances that, because of transactions in your account, are held
overnight with an alternate subcustodian if we receive interest on that
currency from that subcustodian. If the alternate subcustodian does not
pay interest, however, these balances are excluded from our program.
o The minimum rate paid is 0.50%, except for the Japanese Yen (for which
it is 0.05%) and the Singapore Dollar (for which it is 0.25%). Please
note that this is also subject to change as appropriate for any
currency.
o You will have continuous access through Globe*View, BTWorld, or
Globe*Link or other agreed electronic on-line system to the interest
rate earned during the previous "rate averaging period". Because we may
use weekly or monthly average rates to calculate the interest you earn,
we do not know the actual interest rate until the weekly or monthly
period is completed.
o For swept currencies, from time to time we may not be able to sweep the
full amount of your balances to the London branch because of
operational constraints or because your balance on a contractual basis
temporarily exceeds your actual balance. You will, however, always
receive credit for interest based on your entire contractual balance.
To the extent you would have earned a lower rate on balances not swept,
we will make up the difference. To the extent that actual balances are
higher than contractually posted balances due to purchase fails or
otherwise, we will retain the interest earned as compensation.
<PAGE>
o The effective rate we pay on overnight balances will generally differ
from the effective rate we receive (whether from the London branch or
the local subcustodian). Any difference between the effective rate we
receive and the effective rate we pay (which may be positive or
negative, but is generally positive) is kept by us and covers our fee
for running the cash management program and the related costs we
absorb.
Obviously, there will be currencies on which we will not pay
interest because of local regulations, insufficient scale, or other reasons.
However, we hope to identify additional currencies where we can begin paying
interest and we will announce those to you as soon as practical.
Although currently most cash balances in our overnight sweep
program are swept into deposits at the London branch of Bankers Trust Company,
we reserve the right to utilize other branches or affiliates for the overnight
sweep program.
As you know, overdrafts are not permitted in the normal course
of business in any currency. Should they occur in any currency, your account
will be charged a fee to settle transactions in advance of receipt of funds. If
the overdraft is not promptly cured (and in any event upon the expiration of 30
days) after the investment manager has been notified of the outstanding
overdraft, the account's home currency will be used to cure the overdraft and
the associated foreign exchange will be done by Bankers Trust at market rates.
(Other currencies may be utilized to the extent the home currency is
insufficient.) Investment managers that have not cured overdrafts within such
period will be deemed to have directed such foreign exchange transaction.
Accounts subject to EISA will be deemed to have engaged in the transaction under
the authority of the class exemptions available to qualified professional asset
managers and in-house investment managers. To the extent that the overdraft is
less than the U.S. dollar equivalent of $50,000, Bankers Trust's foreign
exchange desk will bundle the transaction with other small amounts for other
clients.
<PAGE>
Schedule A
New Cash Management Program - Global Custody
Overnight Uninvested Cash Balances
(* - Denotes currencies in sweep program)
Currencies Rates
- ---------- -----
Argentine Peso Base Rate less 100
Australian Dollar* Base Rate less 130
Austrian Schilling* Base Rate less 125
Belgian Franc* Base Rate less 225
British Pound Sterling* Base Rate less 165
Canadian Dollar* Base Rate less 150
Czech Koruna Base Rate less 75
Danish Krone* Base Rate less 100
Deutsche Mark* Base Rate less 150
Dutch Guilder* Base Rate less 175
European Currency Unit* Base Rate less 125
Finnish Markka* Base Rate less 150
French Franc* Base Rate less 110
Greek Drachma Base Rate less 75
Hong Kong Dollar* Base Rate less 225
Hungarian Forint Base Rate less 75
Indonesian Rupiah Base Rate less 100
Irish Punt* Base Rate less 100
Israeli Shekel Base Rate less 75
Italian Lira* Base Rate less 125
Japanese Yen Base Rate less 75
Jordanian Dinar Base Rate less 150
Korean Won Base Rate less 75
Malaysian Ringgit Base Rate less 150
Mexican Peso Base Rate less 150
New Taiwan Dollar Base Rate less 75
New Zealand Dollar* Base Rate less 100
Norwegian Krone* Base Rate less 150
Philippine Peso Base Rate less 100
Polish Zloty Base Rate less 150
Portuguese Escudo* Base Rate less 125
Singapore Dollar Base Rate less 150
Slovak Koruna Base Rate less 100
South African Rand* Base Rate less 200
Spanish Peseta* Base Rate less 200
Swedish Krona* Base Rate less 200
<PAGE>
Currencies Rates
- ---------- -----
Swiss Franc* Base Rate less 100
Thai Baht Base Rate less 150
Turkish Lira Base Rate less 75
U.S. Dollar* Effective Fed Funds less 100
We reserve the right, in our sole discretion, to adjust the base rates and
benchmark rates used and the spreads charged at any time and for any reason. We
will notify you periodically in writing of changes in spreads and updates to the
cash management program. These program updates also will be available through
Global Custody Flash Notices.
1 Not applicable if U.S. Dollars are swept to a short-term investment fund.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
February 5, 1999, relating to the financial statements and financial highlights
of the Flag Investors Real Estate Securities Fund, Inc., which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants" in such Statement of Additional Information and to the reference to
us under the heading "Financial Highlights" in such Prospectus.
/s/PRICEWATERHOUSECOOPERS LLP
- -----------------------------
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 26, 1999
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<NAME> REAL ESTATE - A
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<OVERDISTRIBUTION-GAINS> 0
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<PAGE>
Flag Investors Real Estate Securities Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B, Flag Investors Class C
and Flag Investors Institutional Shares
Adopted December 13, 1995
Amended through March 26, 1997
With exhibits through September 28, 1998
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, Flag
Investors Class C 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. The Flag Investors Class C
Shares have not yet been offered.
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.
<PAGE>
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")(1); and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
- ------------------
(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>
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset value
and dividends and distributions of the various classes of shares of the Fund and
the proper allocation of income and expenses among the various classes of shares
of the Fund are required to comply with the Fund's internal control structure
pursuant to applicable auditing standards, including Statement on Auditing
Standards No. 55, and to be reviewed as part of the independent accountants'
review of such internal control structure. The independent accountants' report
on the Fund's system of internal controls required by Form N-SAR, Item 77B, is
not required to refer expressly to the procedures for calculating the classes'
net asset values.
<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 SHARES CLASS A CLASS B UNCLASSIFIED
- ----------------- --------- --------- ------------
10,000,000 7,000,000 2,000,000 1,000,000
<PAGE>
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file articles supplementary to the
Fund's Articles of Incorporation and to take such other action as may be
necessary to designate and reclassify shares in the foregoing manner.
RESOLVED, that the Distribution Agreement between the Fund and Alex.
Brown & Sons Incorporated for the Class B Shares be, and the same hereby is,
approved;
FURTHER RESOLVED, that the Plan of Distribution for the Class B Shares
of the Fund is determined to be reasonably likely to benefit the Fund and its
shareholders; and that based on information reasonably available to the
Directors, expenditures contemplated by such Plan are comparable to expenditures
for similar plans;
FURTHER RESOLVED, that said Plan be, and the same hereby is, approved.
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
<PAGE>
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Real Estate Securities Fund, Inc. and Alex. Brown & Sons Incorporated
for the Flag Investors Institutional Shares of said Fund be, and the same hereby
is, approved;
FURTHER RESOLVED, that the proper officers of Flag Investors Real
Estate Securities Fund, Inc. be, and each of them hereby is, authorized and
directed to enter into and execute the Distribution Agreement on behalf of the
Fund, and to take all other actions that such officer deems necessary or
appropriate in connection with the execution of such agreement, the taking of
any action to establish conclusively such officer's authority therefore and the
approval and ratification thereof by the Fund.
Approved: March 26, 1997
Approval of Amended Rule 18f-3 Plan
RESOLVED, based upon information presented to the Board of Directors of
Flag Investors Real Estate Securities Fund, Inc. (the "Fund"), that the
Directors, including a majority of the Directors 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 Trust New York Corporation (the "Merger"), or at such
other time as the proper officers of the Fund shall determine;
<PAGE>
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.
Date Approved: March 27, 1998
Approval of Restated Distribution Agreements 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.
RESOLVED, that the proposed form of Sub-Distribution Agreement
for the Flag Investors Family of Funds be, and hereby is, approved in
substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proposed form of Shareholder
Servicing Agreement for the Flag Investors Family of Funds be, and the same
hereby is, approved in substantially the form submitted to this meeting.
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 their respective Funds, to take all
necessary or appropriate actions to effect the purposes of the foregoing
resolutions.
Date Approved: September 28, 1998
Establishment of Flag Investors Class C
Shares, Authorization to Increase Authorized
Amounts, Designate New Shares, File Articles Supplementary
to the Fund's Articles of Incorporation and
Take Other Necessary or Appropriate Action
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 be, and hereby is, increased from fifteen million
(15,000,000) shares, having the aggregate par value of fifteen thousand dollars,
to thirty million (30,000,000) shares, having the aggregate par value of
<PAGE>
thirty thousand dollars ($30,000), and that from such amount, fifteen million
(15,000,000) authorized and unissued shares be, and they hereby are, designated
and classified as the "Flag Investors Real Estate Securities Fund Class C
Shares" (the "Flag Investors Class C Shares");
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 execute and file Articles Supplementary to the Fund's Articles of
Incorporation to effectuate the increase in authorized shares and to designate
and classify the Flag Investors Class C Shares;
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 file with the Securities and
Exchange Commission a supplement to the Fund's prospectus and to take all other
actions and make all other filings that the officer so acting may deem necessary
or appropriate in connection with the establishment of the Flag Investors Class
C Shares, the taking of any such action to establish conclusively such officer's
authority therefor and the approval and ratification thereof by the Fund; and
FURTHER RESOLVED, that any and all actions heretofore or
hereafter taken by such officer or officers within the terms of the foregoing
resolutions be, and they hereby are, ratified and confirmed as the authorized
act and deed of Flag Investors Real Estate Securities Fund, Inc.
<PAGE>
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 filed as Exhibit (1)(b) to Post-Effective Amendment
No. 4 to Registrant's Registration Statement on Form N-1A (Registration No.
33-78648), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 0000950116-96-000269) on April 26, 1996 are herein incorporated
by reference.
3. Articles Supplementary establishing the Institutional Shares filed as
Exhibit (1)(c) to Post-Effective Amendment No. 6 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. Articles Supplementary filed as Exhibit (a)(4) to this Post-Effective
Amendment No. 8 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-78648), filed herewith and are herein incorporated by
reference.
5. By-Laws as amended through December 18, 1996 filed as Exhibit (2) to
Post-Effective Amendment No. 6 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.
6. Distribution Agreement between Registrant and ICC Distributors, Inc. filed
as Exhibit (6)(a) to Post-Effective Amendment No. 7 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-78648), filed with the Securities
and Exchange Commission via EDGAR (950116-98-000947) on April 28, 1998 and is
herein incorporated by reference.
7. Distribution Plan with respect to Class A Shares filed as Exhibit (15)(c) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (950116-98-000947) on April 28, 1998 and is herein
incorporated by reference.
8. Distribution Plan with respect to Class B Shares filed as Exhibit (15)(d) to
Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-78648), filed with the Securities and Exchange
Commission via EDGAR (950116-98-000947) on April 28, 1998 and is herein
incorporated by reference.
<PAGE>
9. Form of Sub-Distribution Agreement between ICC Distributors, Inc. and
Participating Dealers filed as Exhibit (6)(b) to Post-Effective Amendment No. 7
to Registrant's Registration Statement on Form N-1A (Registration No. 33-78648),
filed with the Securities and Exchange Commission via EDGAR (950116-98-000947)
on April 28, 1998 and is herein incorporated by reference.
10. 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.
11. 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: February 25, 1999
<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: February 25, 1999
<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: February 25, 1999
<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: February 25, 1999
<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: February 25, 1999
<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: February 25, 1999
<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: February 25, 1999
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, 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/ Joseph R. Hardiman
----------------------
Joseph R. Hardiman
Date: February 25, 1999
