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[GRAPHIC OMITTED]
Real Estate Securities
Fund Inc.
(Class A and Class B Shares)
Prospectus & Application
May 1, 1999, as supplemented through
January 18, 2000
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.
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[FLAG INVESTORS LOGO]
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 of sales charges and fund
expenses. (Refer to the section on sales charges and the attached Application.)
TABLE OF CONTENTS
Investment Summary .............................................1
Fees and Expenses of the Fund ..................................2
Investment Program .............................................3
The Fund's Net Asset Value .....................................4
How to Buy Shares ..............................................5
How to Redeem Shares ...........................................5
Telephone Transactions .........................................6
Sales Charges ..................................................6
How to Choose the Class
That Is Right for You .......................................8
Dividends and Taxes ............................................9
Investment Advisor and sub-Advisor .............................9
Financial Highlights ..........................................11
Application ................................................. A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
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INVESTMENT SUMMARY
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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"). Real estate investing may produce capital
appreciation and income--the two components of total return. In selecting
investments for the Fund, the investment advisor and sub-advisor (the
"Advisors") use a combination of 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, the Advisors attempt to purchase
securities at attractive relative valuations. The resulting portfolio is
diversified by sector and region. The Fund's investment portfolio will consist
mainly of "core holdings", but may also include "special situations". Core
holdings are investments in companies that 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.
Risk Profile
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.
Real Estate and REIT Risks. Investing in the securities of real
estate-related companies involves many of the risks of investing directly in
real estate. These risks include declining real estate values, changing economic
conditions and increasing interest rates. 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.
Style Risk. As with any investment style, the method used by the Advisors
in selecting the Fund's "core holdings" may underperform another investment
style. In addition, the Fund's "special situations" may cause the Fund to
experience additional price volatility.
If you invest in the Fund, you 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.
Class A Shares*
For years ended December 31,
1996 1997 1998
32.70% 22.01% -21.15%
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* 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 (0.3)%.
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).
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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>
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(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges, which
increased on January 18, 2000.
(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 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.
FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Shareholder Transaction Expenses: Alternative Alternative
(fees paid directly from your investment) -------------------- --------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) ................................... 5.50%* None
Maximum Deferred Sales Charge (Load) (as a percentage
of original purchase price or redemption proceeds,
whichever is lower).................................................... 1.00%* 5.00%* *
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 ....................................................... (0.30)%*** (0.30)%***
------ ------
Net Expenses ........................................................... 1.25% 2.00%
====== ======
</TABLE>
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* 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. After seven years, 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.
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Example:
This Example is intended to help you compare the cost of investing in each
class of 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:
<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* $991* $1,409* $2,663*
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* $691* $1,209* $2,663*
</TABLE>
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*Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year 1 only.
Federal regulations require that the 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.
INVESTMENT PROGRAM
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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 Advisors 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
own model, they measure a variety of factors to find companies that are
attractively priced. These factors include a company's expected return,
intrinsic value, and measures of its potential for growth versus the value of
its securities. 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,
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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 they own. Mortgage REITs may be affected by
the quality of the credit they extend. 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 before
they are qualified to pass income through to shareholders 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. As with any
investment style, the method used by the Advisors in selecting the Fund's core
holdings may underperform another investment style. In addition, the Fund's
special situations may cause the Fund to experience additional price volatility.
There can be no guarantee that the Fund will achieve its goals.
To reduce the Fund's risk 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 do not 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
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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. On the days before certain
holidays are observed, the primary trading markets for the Fund may close early
and the Fund also may close early. You may call the Transfer Agent at
1-800-553-8080 for additional information about whether the Fund will close
early before a particular holiday. The net asset value 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 or after the Fund
has closed early before a holiday, 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.
4
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HOW TO BUY SHARES
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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.
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, 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
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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
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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. You
can obtain one from most banks or securities dealers.
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.
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
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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 either 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
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Purchase Price
The price you pay to buy shares will be the Fund's offering price which is
calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
Class A
Sales Charge
as % of
-------------------------
Offering Net Amount Class B
Amount of Purchase Price Invested Sales Charge
- ------------------------------- ---------- ------------ -------------
Less than $ 50,000 ........... 5.50% 5.82% None
$ 50,000 - $ 99,999 ......... 4.50% 4.71% None
$ 100,000 - $249,999 ......... 3.50% 3.63% None
$ 250,000 - $499,999 ......... 2.50% 2.56% None
$ 500,000 - $999,999 ......... 2.00% 2.04% None
$1,000,000 and over ........... None None None
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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:
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 Class A or B Shares of any other Flag Investors fund for
an equal dollar amount of Class A or Class B Shares, respectively, without
payment of the sales charges described above or any other charge. You may not
exchange Class A shares of a Flag Investors money market fund unless you
acquired those shares through a prior exchange. 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.
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Redemption Price
The amount of any sales charge deducted from your redemption price will be
determined according to the following schedule.
Sales Charge as a Percentage
of the Dollar Amount
Subject to Charge
(as % of Cost or Value)
----------------------------------
Class A Shares Class B Shares
Years Since Purchase Sales Charge Sales Charge
- ---------------------- ---------------- ---------------
First ................ 1.00%* 5.00%
Second ............... 0.50%* 4.00%
Third ................ None 3.00%
Fourth ............... None 3.00%
Fifth ................ None 2.00%
Sixth ................ None 1.00%
Thereafter ........... None None
* You will pay a sales charge when you redeem Class A Shares only if your
shares were purchased at net asset value because they were 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. If you bought your shares prior to
January 18, 2000, you will pay the sales charge that was in effect at the
time of your original 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
of the same class.
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
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 you 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 seven years after your purchase. If
you purchased your shares prior to January 18, 2000, your shares will be
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.
<PAGE>
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
8
<PAGE>
within six years of purchase, but the amount of the charge declines the longer
you hold your shares and, at the end of seven years, your shares convert to
Class A Shares thus eliminating the higher expenses.
In general, if you intend to invest more than $50,000, your combined sales
charges and expenses are lower with Class A Shares. If you intend to invest less
than $50,000 and expect to hold your shares for more than seven 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.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its income and capital
gains. The dividends and distributions you receive are subject to federal, state
and local taxation, depending upon your tax situation. The tax treatment of
dividends and distributions is the same whether or not you reinvest them. Each
sale or exchange of the Fund's shares is a taxable event.
More information about taxes is in the Statement of Additional
Information. Please contact your tax advisor if you have specific questions
about federal, state and local income taxes.
INVESTMENT ADVISOR AND SUB-ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and LaSalle Investment Management (Securities), L.P.
(formerly, ABKB/LaSalle Securities Limited Partnership) ("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 Deutsche Banc Alex.
Brown Cash Reserve Fund, Inc. These funds, together with the Fund, had
approximately $10.2 billion of net assets as of March 31, 1999. LaSalle is a
registered investment advisor which, at March 31, 1999, advised mutual funds
with approximately $64.8 million in net assets.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of LaSalle. 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 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 an indirect, wholly owned subsidiary of Deutsche Bank, A.G.
Deutsche Bank is a major global banking institution that is engaged in a
9
<PAGE>
wide range of financial services, including investment management, mutual funds,
retail and commercial banking, investment banking and insurance.
The Advisor was formerly an indirect subsidiary of Bankers Trust
Corporation. It became an indirect subsidiary of Deutsche Bank as a result of
Bankers Trust Corporation's merger with Deutsche Bank on June 4, 1999. Because
this merger resulted in a change of control of the Advisor, the shareholders
were asked to approve a new investment advisory agreement between the fund and
ICC and a new sub-advisory agreement among the Fund, ICC and LaSalle. Under
these agreements, the services provided to the Fund by the Advisors are the same
as the services provided under the agreements in effect when the Advisor was a
subsidiary of Bankers Trust. The agreements were approved at a Special Meeting
of shareholders held on October 7, 1999.
On March 11, 1999, Bankers Trust Company ("Bankers Trust"), a separate
subsidiary of Bankers Trust Corporation, announced that it had reached an
agreement with the United States Attorney's Office in the Southern District of
New York to resolve an investigation concerning inappropriate transfers of
unclaimed funds and related record-keeping problems that occurred between 1994
and early 1996. ICC became a subsidiary of Bankers Trust Corporation in a merger
that occurred after these events took place. Pursuant to its agreement with the
U.S. Attorney's Office, Bankers Trust plead guilty to misstating entries in the
bank's books and records and agreed to pay a $60 million fine to federal
authorities. Separately, Bankers Trust agreed to pay a $3.5 million fine to the
State of New York. The events leading up to the guilty pleas did not arise out
of the investment advisory or mutual fund management activities of Bankers Trust
or its affiliates.
As a result of the plea, absent an order from the SEC, ICC may not be able
to continue to provide investment advisory services to the Fund. The SEC has
granted a temporary order to permit Bankers Trust and its affiliates to continue
to provide investment advisory services to registered investment companies.
There is no assurance that the SEC will grant a permanent order.
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, a Vice
President of the Fund, has shared primary responsibility for managing the
Fund's assets since September, 1998.
Mr. Morrill, Managing Director and Chief Executive Officer of LaSalle, has
19 years of investment experience and has been a portfolio manager with LaSalle
or its predecessors since 1986.
Mr. Pauley, Managing Director of LaSalle, has over 13 years of investment
experience and has been a portfolio manager with LaSalle or its predecessors
since 1986.
Mr. Ulmer, a Principal of LaSalle, has over 30 years of experience in real
estate and REIT investment, development and investment banking. Prior to joining
LaSalle in April of 1997, he was a portfolio analyst and strategist for AIRES
Real Estate Services from 1993 to 1997. Prior to 1993, he 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.
10
<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
----------------------------------------------------------
For the
Period
January 3,
1995(1)
For the through
Year 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 unreal-
ized 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>
<PAGE>
<TABLE>
<CAPTION>
Class B Shares
---------------------------------------------------------
For the
Period
January 3,
1995(1)
For the through
Year 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 ........ $ 15.71 $ 13.84 $ 11.18 $ 10.00
------- ------- ------- -------
Income from Investment
Operations:
Net investment income ........ 0.47 0.42 0.52 0.50
Net realized and unreal-
ized 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:
Distributions 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 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.
(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.
11
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors For assistance in completing this
Real Estate Securities Fund, Inc." and Application please call:
mail with this Application to: 1-800-553-8080, Monday through
Friday, 8:30 a.m. to 5:30 p.m.
Flag Investors Funds (Eastern Time).
P.O. Box 219663
Kansas City, MO 64121-9663 To open an IRA account, please call
Attn: Flag Investors Real Estate 1-800-767-3524 for an IRA information
Securities Fund, Inc. kit.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate the amount of
purchase.)
[ ] Class A Shares (5.5% maximum initial sales charge) in the amount of
$________
[ ] Class B Shares (5.0% maximum contingent deferred sales charge) in the
amount of $____________
Your Account Registration (Please Print)
<TABLE>
<CAPTION>
Existing Account No., if any: __________________
<S> <C>
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>
Letter of Intent (Optional)
[ ] I intend to invest at least the amount indicated below in Class A Shares
of Flag Investors Real Estate Securities 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
--------- ----------- ------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution Options
Please check the appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional shares of the same class of the
Fund at no sales charge.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
<PAGE>
Automatic Investing Plan (Optional)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_______ in Class A Shares or $_______ in Class B Shares for me, on a
monthly or quarterly basis, on or about the 20th of each month or if quarterly,
the 20th of January, April, July and October, and to draw a bank draft in
payment of the investment against my checking account. (Bank drafts may be drawn
on commercial banks only.)
Minimum Initial Investment: $250 per class
Subsequent Investments (check one): [ ] Monthly ($100 minimum per class)
[ ] Quarterly ($250 minimum per class)
Please attach a voided check.
- ---------------------------------- -----------------------------------------
Bank Name Depositor's Signature Date
- ---------------------------------- -----------------------------------------
Existing Flag Investors Fund Depositor's Signature (if
Account No., if any joint acct., both must sign) Date
Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of ___________ , ____ (year) please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $___________ , from Class A Shares and/or $___________ from Class B
Shares that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000 per class.)
Frequency (check one): [ ] Monthly [ ] Quarterly (January, April,
July, and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges (for
amounts up to $50,000) and telephone exchange privileges (with respect to other
Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank: _____________________________ Bank Account No.: ________________________
Address: ___________________________ Bank Account Name: _______________________
___________________________
<PAGE>
Signature and Taxpayer Certification
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding is
not an additional tax, and any amounts withheld may be credited against your
ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as required
by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above,
I have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish
either 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.: ____________________
A-2
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Distributor Custodian
ICC DISTRIBUTORS, INC. BANKERS TRUST COMPANY
Two Portland Square 130 Liberty Street
Portland, Maine 04101 New York, New York 10006
Transfer Agent Fund Counsel
INVESTMENT COMPANY CAPITAL CORP. MORGAN, LEWIS & BOCKIUS LLP
One South Street 1701 Market Street
Baltimore, Maryland 21202 Philadelphia, Pennsylvania 19103
1-800-553-8080
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, Maryland 21201
<PAGE>
[GRAPHIC OMITTED]
Flag Investors o P.O. Box 515 o Baltimore, MD 21203 o (800) 767-FLAG
www.flaginvestors.com
- --------------------------------------------------------------------------------
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 1-202-942-8090 to find out about the operation of the Public Reference
Room.) The EDGAR Database on the Commission's Internet site at
http://www.sec.gov has reports and other information about the Fund. Copies of
this information may be obtained, upon payment of a duplicating fee, by
electronic request at the following email address: [email protected], or by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-0102. 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 (1/00)
