<PAGE>
As Filed With the Securities and Exchange Commission on April 28, 2000
File Nos. 33-78648 / 811-8500
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 9 [X]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 11 [X]
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
-------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Daniel O. Hirsch, Esq. Copy to: Richard W. Grant, Esq.
One South Street Morgan, Lewis & Bockius LLP
Baltimore, MD 21202 1701 Market Street
(Name and address of agent for service) Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
____ immediately upon filing pursuant to paragraph (b)
__X_ on May 1, 2000 pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)
____ 75 days after filing pursuant to paragraph (a)
____ on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
[GRAPHIC OMITTED]
Real Estate Securities
Fund, Inc.
(Class A and Class B Shares)
Prospectus
May 1, 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.
<PAGE>
[GRAPHIC OMITTED]
This mutual fund (the "Fund") seeks total return primarily through investments
in common stocks 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
(the "Class A Shares") and Flag Investors Class B Shares (the "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.)
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 .......................................... 4
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
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
<PAGE>
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 management, successful track records, good prospects for future
growth, and financial flexibility. 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 may be 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 investment in "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 different
levels of performance over time provide an indication of the risks of investing
in the Fund. The chart and table provide an historical record and do not
necessarily indicate how the Fund will perform in the future.
Class A Shares*
For years ended December 31,
32.70% 22.01% (21.15%) (2.85%)
- --------------------------------------------------------------------------------
1996 1997 1998 1999
- -----------
* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown. For the period from December 31, 1999 through March 31,
2000, the year-to-date return for Class A Shares was 3.32%.
During the four-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, 1999)
<TABLE>
<CAPTION>
Wilshire
Real Estate
Class A Shares(1) Class B Shares(1) Securities Index(2)
----------------- ----------------- -------------------
<S> <C> <C> <C>
Past One Year ........... (8.19)% (8.33)% (10.26)%
Since Inception ......... 6.81%(1/3/95) 7.03%(1/3/95) 1.55%(3)
</TABLE>
- -----------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the current 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 REITs, Real Estate Operating Companies (REOCs) and partnerships. The
Index comprises 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 12/31/99.
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 Fees: 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%(1) None
Maximum Deferred Sales Charge (Load) (as a percentage
of original purchase price or redemption proceeds, whichever is lower) ........ 1.00%(1) 5.00%(2)
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). 0.96% 1.21%
------- -------
Total Annual Fund Operating Expenses ........................................... 1.86% 2.61%
Less Fee Waivers ............................................................... (0.61)%(3) (0.61)%(3)
------- -------
Net Expenses ................................................................... 1.25% 2.00%
======= =======
</TABLE>
- -----------
(1) 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.")
(2) 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.")
(3) 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, 2001 and may be extended.
2
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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 that 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:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
Class A Shares(1) .......... $670 $1,049 $1,456 $2,616
Class B Shares(1) .......... $703 $1,057 $1,545 $2,694
You would pay the following expenses if you did not redeem your shares:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
Class A Shares(1) .......... $670 $1,049 $1,456 $2,616
Class B Shares(1) .......... $203 $ 757 $1,345 $2,694
- ------------------------
(1) Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year one only.
Federal regulations require that the Example 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
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 management, successful track
records, good prospects for future growth, and financial flexibility. Then,
using their own model, the Advisors 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,
3
<PAGE>
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 investment in 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 of loss in pursuing the Fund's primary
investment strategies outweighed the opportunity for gain.
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 on each day the Exchange is open
for business. While regular trading ordinarily closes at 4:00 p.m. Eastern
Time, it could be earlier on the day before a holiday. Contact the Transfer
Agent to determine whether the Fund will close early before a particular
holiday. The net asset value per share of a class 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,
the security is priced at its "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.
4
<PAGE>
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. Your subsequent investments
may be as low as $100 if you participate in the monthly plan or $250 if
you participate in the quarterly plan. 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 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 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
- --------------------------------------------------------------------------------
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. All owners of the shares must
sign the letter exactly as their names appear on the account.
2) A guarantee of your signature if you are redeeming more than $50,000. You can
obtain a signature guarantee 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.
5
<PAGE>
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 in cash 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 7:00 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 or facsimile. If you hold 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 is 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 is based on 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
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 charge you pay on your current purchase of Class A Shares may
be reduced under the following circumstances:
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 a reduced sales charge. (For this purpose your existing investments
will be valued at the higher of cost or current value.) You may also combine
your purchases and investments with those of your spouse
6
<PAGE>
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. Each time you make a purchase
during the period, you will pay the sales charge applicable to their combined
value. If, at the end of the 13-month period, the total value of your purchases
is less than the amount you indicated, you will be required to pay the
difference between the sales charges you paid and the sales charges applicable
to the amount you actually did purchase. Some of the shares you own will be
redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying a
sales charge under the following circumstances:
1) If you are 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 Director of this or any affiliated Fund, a
director, an employee or a member of the immediate family of an employee of
any of the following (or their respective affiliates): the 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. Your securities dealer or servicing agent may charge
you an additional fee 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 B Shares of the Fund, respectively,
without payment of the sales charges described previously or any other charge,
up to four times a year. You may not exchange Class A shares of a Flag
Investors money market fund unless you acquired those shares through a prior
exchange from shares of another Flag Investors fund. 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.
Redemption Price
You will pay a sales charge when you redeem Class A Shares within 24
months of purchase only if your shares were purchased at net asset value
because they were part of an investment of $1 million or more. The amount of
any sales charge deducted from your redemption price will be determined
according to the following schedule:
<PAGE>
Sales Charge as a Percentage
of the Dollar Amount
Subject to Charge
----------------------------------------------
Class A Sales Charge Class B Sales Charge
(as % of (as % of
Years Since Purchase Cost or Value) Cost or Value)
- ---------------------- ---------------------- ---------------------
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%
Seventh and
Thereafter ......... None None
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 shares you have owned for the longest period of time.
7
<PAGE>
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 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 Minors 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.
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 seven years, your shares convert to Class A Shares, thus eliminating
the higher expenses.
Your securities dealer is paid a fee when you buy shares. In addition,
your securities dealer is paid an annual fee as long as you hold your shares.
For Class A and B Shares, this fee begins when you purchase your shares. Your
securities dealer or servicing agent may receive different levels of
compensation depending upon which class of shares you buy. In addition to these
payments, the Fund's investment advisor may provide significant compensation to
securities dealers and servicing agents for distribution, administrative and
promotional services.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allow it to pay your
securities dealer or shareholder servicing agent distribution and other fees
for the sale of its shares and for shareholder service. 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 average daily net
assets and an annual shareholder servicing fee equal to 0.25% of 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.
8
<PAGE>
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its net investment income in the form of monthly dividends and to distribute
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 net income and capital
gains. The dividends and distributions you receive are 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. Each
sale or exchange of the Fund's shares is generally a taxable event. The Fund
will tell you annually how to treat dividends and distributions.
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. ("ICCC" 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. ICCC 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 $14 billion of net assets as of March 31, 2000. LaSalle is a
registered investment advisor which, at March 31, 2000, advised mutual funds
with approximately $45 million in net assets.
ICCC 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,
1999, ICCC received from the Fund a fee equal to 0.04% (net of fee waivers) of
the Fund's average daily net assets. ICCC compensates LaSalle out of its
advisory fee. ICCC 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, 2001 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
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.
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. ICCC became a subsidiary of Bankers Trust Corporation in a
merger that occurred after these events took place. Bankers Trust plead guilty
to misstating entries in the bank's books and records and agreed to pay a $63.5
million fine to state and federal authorities. On July 26, 1999, the federal
criminal proceedings were concluded with Bankers Trust's formal sentencing. 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, ICCC 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.
9
<PAGE>
Mr. Morrill, Managing Director and Chief Executive Officer of LaSalle,
has 20 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 14 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 tables are 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
tables represent the rate that an investor would have earned on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, is included in the Fund's Annual Report,
which is available upon request.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
January 3,
Class A Shares 1995(1)
--------------------------------------------------- Through
For the Year Ended December 31, December 31,
--------------------------------------------------- --------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ............ $ 11.64 $ 15.78 $ 13.89 $ 11.20 $10.00
------- ------- ------- ------- ------
Income from Investment
Operations:
Net investment income ............ 0.53 0.58 0.52 0.61 0.56
Net realized and
unrealized gain/(loss)
on investments ................. (0.85) (3.79) 2.44 2.90 1.21
------- ------- ------- ------- ------
Total from Investment
Operations ..................... (0.32) (3.21) 2.96 3.51 1.77
------- ------- ------- ------- ------
Less Distributions:
Distributions from net
investment income .............. (0.44) (0.46) (0.60) (0.58) (0.49)
Distributions from net
realized capital gains ......... (0.14) (0.43) (0.47) (0.22) (0.05)
Return of capital ................ -- (0.04) -- (0.02) (0.03)
------- ------- ------- --------- ------
Total distributions .............. (0.58) (0.93) (1.07) (0.82) (0.57)
------- ------- ------- --------- ------
Net asset value at end of
period ......................... $ 10.74 $ 11.64 $15.78 $ 13.89 $11.20
======= ======= ======= ======= ======
Total Return(2) ................... (2.85)% (20.82)% 22.01% 32.70% 18.19%
Ratios to Average Daily
Net Assets:
Expenses Before
Waivers ........................ 1.86% 1.55% 1.58% 2.28% 3.25%(3)
Expenses After Waivers ........... 1.25% 1.25% 1.25% 1.25% 1.25%(3,4)
Net investment income ............ 4.67% 4.28% 3.87% 5.29% 6.09%(3,4)
Supplemental Data:
Net assets at end of
period (000) ................... $20,449 $33,239 $41,773 $19,816 $ 7,17(1)
Portfolio turnover rate .......... 7% 24% 35% 23% 28%
</TABLE>
- -----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Effective January 1, 1996, the Fund's expense and net investment income
ratios are based on average daily net assets. Prior to that date they were
based on average monthly net assets. Under the prior method, the ratio of
expenses to average net assets was 1.19% and the ratio of net investment
income to average net assets was 5.95%.
11
<PAGE>
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
January 3,
Class B Shares 1995(1)
------------------------------------------------- Through
For the Year Ended December 31, December 31,
------------------------------------------------- ---------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Per Share Operating
Performance:
Net asset value at
beginning of period ............ $11.60 $ 15.71 $13.84 $11.18 $10.00
------ ------- ------ ------- ------
Income from Investment
Operations:
Net investment income ............ 0.43 0.47 0.42 0.52 0.50
Net realized and
unrealized gain/(loss)
on investments ................. (0.83) (3.77) 2.42 2.89 1.20
------ ------- ------ ------ ------
Total from Investment
Operations ..................... (0.40) (3.30) 2.84 3.41 1.70
------ ------- ------ ------ ------
Less Distributions:
Distributions from net
investment income .............. (0.34) (0.34) (0.50) (0.51) (0.42)
Distributions from net
realized capital gains ......... (0.14) (0.43) (0.47) (0.22) (0.05)
Return of capital ................ -- (0.04) -- (0.02) (0.05)
------ ------- ------ ------ ------
Total distributions .............. (0.48) (0.81) (0.97) (0.75) (0.52)
------ ------- ------ ------ ------
Net asset value at end of
period ......................... $10.72 $ 11.60 $15.71 $13.84 $11.18
====== ======= ====== ====== ======
Total Return(2) ................... (3.50)% (21.39)% 21.11% 31.67% 17.40%
Ratios to Average Daily
Net Assets:
Expenses Before
Waivers ........................ 2.61% 2.30% 2.33% 3.03% 4.05%(3)
Expenses After Waivers ........... 2.00% 2.00% 2.00% 2.00% 2.00%(3,4)
Net investment income ............ 3.89% 3.48% 3.12% 4.46% 5.39%(3,4)
Supplemental Data:
Net assets at end of
period (000) ..................... $4,725 $ 7,641 $9,799 $5,295 $3,016
Portfolio turnover rate ........... 7% 24% 35% 23% 28%
</TABLE>
- -----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Effective January 1, 1996, the Fund's expense and net investment income
ratios are based on average daily net assets. Prior to that date they were
based on average monthly net assets. Under the prior method, the ratio of
expenses to average net assets was 1.90% and the ratio of net investment
income to average net assets was 5.25% for the Class B Shares.
12
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor
LASALLE INVESTMENT
MANAGEMENT (SECURITIES), L.P.
100 East Pratt Street
Baltimore, Maryland 21202
Distributor
ICC DISTRIBUTORS, INC.
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, Maryland 21201
Custodian
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York 10006
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
<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.
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 (5/00)
<PAGE>
[GRAPHIC OMITTED]
Real Estate Securities
Fund, Inc.
(Institutional Shares)
Prospectus
May 1, 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.
<PAGE>
[GRAPHIC OMITTED]
This mutual fund (the "Fund") seeks total return primarily through investments
in common stocks 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 Institutional
Shares (the "Institutional Shares") of the Fund. Institutional Shares may be
purchased only by eligible institutions, by certain qualified retirement plans,
or by investment advisory affiliates of DB Alex. Brown LLC or the Flag Investors
family of funds on behalf of their clients. (See "How to Buy Institutional
Shares.")
TABLE OF CONTENTS
Investment Summary ........................................... 1
Fees and Expenses of the Institutional
Shares .................................................... 2
Investment Program ........................................... 2
The Fund's Net Asset Value ................................... 3
How to Buy Institutional Shares .............................. 4
How to Redeem Institutional Shares ........................... 4
Telephone Transactions ....................................... 5
Dividends and Taxes .......................................... 5
Investment Advisor and Sub-Advisor ........................... 5
Financial Highlights ......................................... 7
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
<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"). 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 management, successful track records, good prospects for future
growth, and financial flexibility. 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 may be 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 investment in "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 different
levels of performance over time provide an indication of the risks of investing
in the Fund. The chart and table provide an historical record and do not
necessarily indicate how the Fund will perform in the future.
Institutional Shares
For years ended December 31,
(20.64)% (2.56%)
- --------------------------------------------------------------------------------
1998 1999
- -----------------------
* For the period from December 31, 1999 through March 31, 2000, the
year-to-date return for Institutional Shares was 3.45%.
During the two-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).
<PAGE>
Average Annual Total Return (for periods ended December 31, 1999)
Wilshire
Real Estate
Institutional Securities
Shares(1) Index(2)
-------------- ------------
Past One Year ........... (2.56)% (10.26)%
Since Inception ......... (3.02)%(3/31/97) ( 8.30)%(3)
- ------------------------
(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 REITs, Real Estate Operating Companies (REOCs) and partnerships. The
Index comprises 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 3/31/97 through 12/31/99.
1
<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>
<S> <C>
Shareholder Fees (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 .............................................................. 0.96%
-------
Total Annual Fund Operating Expenses ........................................ 1.61%
Less Fee Waivers and Expense Reimbursements ................................. (0.61)%(1)
-------
Net Expenses ................................................................ 1.00%
=======
</TABLE>
- ------------------------
(1) 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, 2001
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 that 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:
1 year 3 years 5 years 10 years
-------- --------- --------- ---------
Institutional Shares(1) ........ $102 $443 $806 $1,811
- ------------------------
(1) Based on Total Annual Fund Operating Expenses after fee waivers and expense
reimbursements for year one only.
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
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 pro-cess 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 management, successful track
records, good prospects for future growth, and financial flexibility. Then,
using their own model, the Advisors 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.
2
<PAGE>
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 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 investment in 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 of loss in pursuing the Fund's primary
investment strategies outweighed the opportunity for gain.
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 on each day the Exchange is open for business. While regular trading
ordinarily closes at 4:00 p.m. Eastern Time, it could be earlier on the day
before a holiday. Contact the Transfer Agent to determine whether the Fund will
close early before a particular holiday. The net asset value per share of
Institutional Shares is calculated by subtracting the liabilities attributable
to the Institutional Shares from its proportionate share of the Fund's assets
and dividing the result by the out-standing 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,
the security is priced at its "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
3
<PAGE>
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 DB Alex. Brown LLC or the Flag
Investors family of funds 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.
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 DB Alex. Brown LLC or the Flag Investors family of funds
purchasing shares for the accounts of their investment advisory clients.
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 of the Fund up to four times
a year. 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 them 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 shares by that time,
the dividend will be paid in cash 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.
4
<PAGE>
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
If your shares are in an account with the Transfer Agent, you may redeem
them in any amount up to $500,000 or exchange them for Institutional shares of
another Flag Investors fund by calling the Transfer Agent on any Business Day
between the hours of 8:30 a.m. and 7:00 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 or facsimile. If you hold shares in
certificate form, you may not exchange or redeem them by telephone.
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The The Fund's policy is to distribute to shareholders substantially all
of its net investment income in the form of monthly dividends and to distribute
net capital gains on an annual basis.
Dividend Reinvestment
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
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.
Taxes
The following summary is based on current tax laws, which may change.
The Fund will distribute substantially all of its net income and capital
gains. The dividends and distributions you receive are 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. Each
sale or exchange of the Fund's shares is generally a taxable event. The Fund
will tell you annually how to treat dividends and distributions.
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. ("ICCC" 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. ICCC 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 $14 billion of net assets as of March 31, 2000. LaSalle is a
registered investment advisor which, at March 31, 2000, advised mutual funds
with approximately $45 million in net assets.
ICCC 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.
5
<PAGE>
As compensation for its services for the fiscal year ended December 31,
1999, ICCC received from the Fund a fee equal to 0.04% (net of fee waivers) of
the Fund's average daily net assets. ICCC compensates LaSalle out of its
advisory fee. ICCC 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 1.00% of the average daily net assets of the
Institutional Shares. This agreement will continue until at least April 30,
2001 and may be extended. ICCC also may provide significant compensation to
securities dealers and servicing agents for distribution, administrative and
promotional services.
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
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.
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. ICCC became a subsidiary of Bankers Trust Corporation in a
merger that occurred after these events took place. Bankers Trust plead guilty
to misstating entries in the bank's books and records and agreed to pay a $63.5
million fine to state and federal authorities. On July 26, 1999, the federal
criminal proceedings were concluded with Bankers Trust's formal sentencing. 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, ICCC 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 20 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 14 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.
6
<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 has been audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, is included in the Fund's Annual Report,
which is available upon request.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
March 31, 1997(1)
For the Years Ended Through
December 31, December 31,
------------------- -----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ......................... $11.74 $ 15.91 $14.19
------ ------- ------
Income from Investment Operations:
Net investment income .......................................... 0.58 0.58 0.47
Net realized and unrealized gain/(loss) on investments ......... (0.87) (3.78) 2.14
------ ------- ------
Total from Investment Operations ............................... (0.29) (3.20) 2.61
------ ------- ------
Less Distributions:
Distributions from net investment income ....................... (0.47) (0.50) (0.42)
Distributions from net realized capital gains .................. (0.14) (0.43) (0.47)
------ ------- ------
Return of capital .............................................. -- (0.04) --
------ ------- ------
Total distributions ............................................ (0.61) (0.97) (0.89)
------ ------- ------
Net asset value at end of period ............................... $10.84 $ 11.74 $15.91
====== ======= ======
Total Return .................................................... (2.56)% (20.64)% 18.84%
Ratios to Average Daily Net Assets:
Expenses Before Waivers ........................................ 1.61% 1.28% 1.39%(2)
Expenses After Waivers ......................................... 1.00% 1.00% 1.00%(2)
Net investment income .......................................... 5.18% 4.73% 4.30%(2)
Supplemental Data:
Net assets at end of period (000) .............................. $ 585 $ 582 $ 288
Portfolio turnover rate ........................................ 7% 24% 35%
</TABLE>
- -----------
(1) Commencement of operations.
(2) Annualized.
7
<PAGE>
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor
LASALLE INVESTMENT
MANAGEMENT (SECURITIES), L.P.
100 East Pratt Street
Baltimore, Maryland 21202
Distributor
ICC DISTRIBUTORS, INC.
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080
Independent Accountants
PRICEWATERHOUSECOOPERS LLP
250 West Pratt Street
Baltimore, Maryland 21201
Custodian
BANKERS TRUST COMPANY
130 Liberty Street
New York, New York 10006
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
1701 Market Street
Philadelphia, Pennsylvania 19103
<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.
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 (5/00)
<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 A PROSPECTUS WHICH MAY BE OBTAINED FROM YOUR
SECURITIES DEALER OR SHAREHOLDER SERVICING AGENT OR BY WRITING THE FUND,
ONE SOUTH STREET, BALTIMORE, MARYLAND 21202, OR BY CALLING (800) 767-FLAG.
THE FUND'S FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999, AND THE REPORT OF INDEPENDENT ACCOUNTANTS ARE INCLUDED
IN THE FUND'S ANNUAL REPORT AND INCORPORATED BY REFERENCE INTO THIS
STATEMENT OF ADDITIONAL INFORMATION.
Statement of Additional Information Dated May 1, 2000
Relating to the Prospectuses Dated May 1, 2000
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY................................................1
INVESTMENT OBJECTIVE AND POLICIES..............................................1
VALUATION OF SHARES AND REDEMPTION.............................................7
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS...........................8
MANAGEMENT OF THE FUND........................................................10
INVESTMENT ADVISORY AND OTHER SERVICES........................................15
DISTRIBUTION OF FUND SHARES...................................................16
BROKERAGE.....................................................................19
CAPITAL STOCK.................................................................21
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES.............................22
INDEPENDENT ACCOUNTANTS.......................................................22
LEGAL MATTERS.................................................................22
PERFORMANCE INFORMATION.......................................................22
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................24
FINANCIAL STATEMENTS..........................................................25
<PAGE>
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 Securities and Exchange Commission (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 "1940 Act"), and its Shares
under the Securities Act of 1933, as amended (the "1933 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 DB Alex. Brown LLC (formerly 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.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is total return primarily through
investments in common stocks of companies that are principally engaged in the
real estate industry. The Fund may also invest in equity securities including
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.
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
Page 1
<PAGE>
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
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 that 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.
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.
Page 2
<PAGE>
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 1940 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."
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
Page 3
<PAGE>
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 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%
Page 4
<PAGE>
limit. The Advisor reserves the right to comply with such different standards 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 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 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.
Page 5
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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
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.
Page 6
<PAGE>
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 interest in oil, gas or
other mineral exploration or development programs or oil, gas or
mineral leases.
The following investment restrictions 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 1940 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.
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.
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. 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 investors placing
orders with third parties to place orders up to the same time as other
investors.
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
Page 7
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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 1940 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.
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, 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 previously, in order to
qualify as a RIC, the Fund must distribute at least 90% of its investment
company taxable income (that generally includes dividends, taxable interest, and
the excess of net short-term capital gains over net long-term capital losses
less operating expenses, but determined without regard to the deduction for
dividends paid) 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.
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<PAGE>
If the Fund fails to qualify for any taxable year as a RIC, 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, to the extent of the Fund's
earnings and profits. 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 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 generally 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
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<PAGE>
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 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.
MANAGEMENT OF THE FUND
Directors and Officers
The Fund's Board of Directors manages the Fund's overall business and
affairs. 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 Advisors, 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.
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*RICHARD T. HALE, Chairman and Director (7/17/45)
Managing Director, Deutsche Asset Management and DB Alex. Brown LLC
(formerly BT Alex. Brown Incorporated); Director and President, Investment
Company Capital Corp. (registered investment advisor); Director or
President, Deutsche Asset Management Family of Funds (registered
investment companies); Chartered Financial Analyst. Formerly Director, ISI
Family of Funds (registered investment companies).
RICHARD R. BURT, Director (2/3/47)
IEP Advisors, LLP, 1275 Pennsylvania Avenue, NW, 10th Floor, Washington,
DC 20004. Chairman, IEP Advisors, Inc.; Chairman of the Board, Weirton
Steel Corporation; Member of the Board, Archer Daniels Midland Company
(agribusiness operations), Hollinger International, Inc. (publishing),
Homestake Mining Company (mining and exploration), HCL Technologies
(information technology) and Anchor Gaming (gaming software and
equipment); Director, Mitchell Hutchins family of funds and Flag Investors
Funds, Inc. (formerly Deutsche Funds, Inc.); and Trustee, Flag Investors
Portfolios Trust (formerly Deutsche Portfolios) (registered investment
companies); and Member, Textron Corporation International Advisory
Council. Formerly, partner, McKinsey & Company (consulting), 1991-1994;
U.S. Chief Negotiator in Strategic Arms Reduction Talks (START) with
former Soviet Union and U.S. Ambassador to the Federal Republic of
Germany, 1985-1991.
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor and
Capital Markets Consultant; Director, Wit Capital Group (registered
broker-dealer), The Nevis Fund and ISI Family of Funds (registered
investment companies). Formerly, Director, Circon Corp. (medical
instruments), November 1998-January 1999; 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 DB Alex. Brown LLC), 1985-1987; and General
Partner, Alex. Brown & Sons (now DB Alex. Brown LLC), 1976-1985.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director, Kimberly-Clark
Corporation (personal consumer products), Household International (banking
and finance) and ISI Family of Funds (registered investment companies).
Formerly, Chairman of the Quality Control Inquiry Committee, American
Institute of Certified Public Accountants, 1992-1998; Trustee, Merrill
Lynch Funds for Institutions, 1991-1993; Adjunct Professor, Columbia
University-Graduate School of Business, 1991-1992; and 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), DP Mann Holdings (insurance) and ISI
Family of Funds (registered investment companies).
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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 (charitable foundation); Director and
Executive Vice President, The Glenmede Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts; and Director, ISI Family of Funds
(registered investment companies).
*TRUMAN T. SEMANS, Director (10/27/26)
Brown Investment Advisory & Trust Company, 19 South Street, Baltimore,
Maryland 21202. Vice Chairman, Brown Investment Advisory & Trust Company
(formerly, Alex. Brown Capital Advisory & Trust Company); Director,
Investment Company Capital Corp. (registered investment advisor) and
Director and President of Virginia Hot Springs Inc. (property management).
Formerly, Managing Director, BT Alex. Brown Incorporated (now DB Alex.
Brown LLC); Vice Chairman, Alex. Brown & Sons Incorporated (now DB Alex.
Brown LLC) and Director, ISI Family of Funds (registered investment
companies).
ROBERT H. WADSWORTH, Director (1/29/40)
4455 E. Camelback Road, Suite 261 E., Phoenix, Arizona 85018. President,
Director, Investment Company Administration LLC, and President, Director,
First Fund Distributors, Inc. (registered broker-dealer); Director, The
Germany Fund, Inc., The New Germany Fund Inc., The Central European Equity
Fund, Inc., Flag Investors Funds, Inc. (formerly Deutsche Funds, Inc.);
Trustee, Flag Investors Portfolios Trust (formerly Deutsche Portfolios);
and Vice President, Professionally Managed Portfolios and Advisors Series
Trust (registered investment companies). Formerly, President, Guinness
Flight Investment Funds, Inc. (registered investment companies); and
President, The Wadsworth Group (registered investment advisor)
WILLIAM K. MORRILL, JR., President (6/2/37)
Managing Director and Chief Executive Officer, LaSalle Investment
Management (Securities), L.P. (formerly, ABKB/LaSalle Securities Limited
Partnership), 100 East Pratt Street, Baltimore, Maryland 21202. Portfolio
Manager with LaSalle or its predecessors since 1985.
KEITH R. PAULEY, Executive Vice President (9/27/61)
Managing Director, LaSalle Investment Management (Securities), L.P.
(formerly, ABKB/LaSalle Securities Limited Partnership), 100 East Pratt
Street, Baltimore, Maryland 21202. Portfolio Manager with LaSalle or its
predecessors since 1986.
JAMES A. ULMER III, Vice President (8/30/39)
Principal, LaSalle Investment Management (Securities), L.P. (formerly,
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.
CHARLES A. RIZZO, Treasurer (8/5/57)
Director, Deutsche Asset Management; Certified Public Accountant and
Certified Management Accountant. Formerly, Vice President, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC), 1998-1999 and Senior Manager,
Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP) 1993-1998.
Page 12
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AMY M. OLMERT, Secretary (5/14/63)
Director, Deutsche Asset Management; Certified Public Accountant.
Formerly, Vice President, BT Alex. Brown Incorporated (now DB Alex. Brown
LLC), 1997-1999 and Senior Manager, Coopers & Lybrand L.L.P. (now
PricewaterhouseCoopers LLP) 1992-1997.
DANIEL O. HIRSCH, Assistant Secretary (3/27/54)
Director, Deutsche Asset Management. Formerly, Principal, BT Alex. Brown
Incorporated (now DB Alex. Brown LLC), 1998-1999 and Assistant General
Counsel, United States Securities and Exchange Commission, 1993-1998.
- -------------------
* Messrs. Semans and Hale are directors who are "interested persons," as defined
in the 1940 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 Deutsche Asset Management or its affiliates. There are currently 24 funds in
the Flag Investors Funds and Deutsche Banc Alex. Brown Cash Reserve Fund, Inc.
fund complex (the "Fund Complex"). Mr. Semans serves as Chairman of five funds
and as a Director of 19 other funds in the Fund Complex. Mr. Hale serves as
Chairman of three funds and as Director of 21 funds in the Fund Complex. Messrs.
Burt, Hardiman, Levy, McDonald and Wadsworth and Ms. Rimel serve as Directors of
each fund in the Fund Complex. Mr. Rizzo serves as Treasurer, Ms. Olmert serves
as Secretary, and Mr. Hirsch serves as Assistant Secretary, for each of the
funds in the Fund Complex. Prior to September 28, 1999, the Fund Complex
included the four funds in the ISI Family of Funds.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with DB 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 Deutsche Asset Management 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
1940 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, 1999, Independent Directors' fees
attributable to the assets of the Fund totaled approximately $2,000.
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, 1999.
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COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total Compensation From the
Name of Person, Aggregate Compensation Fund and Fund Complex
Position From the Fund Payable to Pension or Retirement Payable to Directors
Directors for the Fiscal Year Benefits Accrued As for the Fiscal Year
Ended December 31, 1999 Part of Fund Expenses Ended December 31, 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard T. Hale, Chairman(2) $0 $0 $0
Truman T. Semans, Director(2) $0 $0 $0
Richard R. Burt, Director(5) $26(3) (4) $9,750 for service on 12
Boards in the Fund Complex
James J. Cunnane, Director(6) $108(3) (4) $29,250 for service on 12
Boards in the Fund Complex
Joseph R. Hardiman, Director $136 (4) $39,000 for services on 12
Boards in the Fund Complex
Louis E. Levy, Director $168(3) (4) $49,000 for service on 12
Boards in the Fund Complex
Eugene J. McDonald, Director $168(3) (4) $49,000 for service on 12
Boards in the Fund Complex
Rebecca W. Rimel, Director $134(3) (4) $39,000 for service on 12
Boards in the Fund Complex
Carl W. Vogt, Director(6) $134(3) (4) $39,000 for service on 12
Boards in the Fund Complex
Robert H. Wadsworth, Director(5) $26(2) (4) $9,750 for service on 12
Boards in the Fund Complex
</TABLE>
- ----------
(1) At December 31, 1999 there were eight funds in the Fund Complex. Prior to
September 28, 1999, the Fund Complex included four funds in the ISI Fund
Complex.
(2) A Director who is an "interested person" as defined in the 1940 Act.
(3) None of the amounts payable to Messrs. Burt, Cunnane, Levy, McDonald, Vogt,
Wadsworth and Ms. Rimel was deferred pursuant to the deferred compensation
plan.
(4) The Fund Complex has adopted a Retirement Plan for eligible Directors, as
described in the next paragraph. The actuarially computed pension expense
for the Fund for the year ended December 31, 1999 was approximately $339.
(5) Elected to the Fund's board effective October 7, 1999.
(6) Retired from the Fund's board effective October 7, 1999.
Page 14
<PAGE>
The Fund Complex has adopted a Retirement Plan for Directors who are
not employees of the Fund, the Fund's Administrator or its respective affiliates
(the "Directors' Retirement Plan") and a Retirement Plan for a former Director
serving as the Fund's President of other Funds in the Fund Complex
(collectively, the "Retirement Plans"). After completion of six years of
service, each participant in the Retirement Plans 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 Plans are unfunded and unvested. The Fund currently has
two participants in the Directors' Retirement Plan, a Director who retired
effective December 31, 1994 and another Director who retired effective December
31, 1996, each of whom qualified for the Retirement Plan by serving thirteen
years and fourteen years, respectively, as Directors 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 fees are allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex. Mr. McDonald has qualified
for, but has not received, benefits.
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, 1999 are as follows: for Mr. Levy, 5 years; for Mr. McDonald, 7
years; for Ms. Rimel 4 years; for Mr. Hardiman, 1 year; and for Messrs Burt and
Wadsworth, 0 years.
Estimated Annual Benefits Payable By
Years of Service Fund Complex Upon Retirement
- ---------------- ------------------------------------
Chairmen of Audit and
Executive Committees Other Participants
-------------------- ------------------
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
Any Director who receive fees from the Fund is permitted to defer 50%
to 100% of his or her annual compensation pursuant to a Deferred Compensation
Plan. Messrs. Burt, Levy, McDonald, Wadsworth and Ms. Rimel have each executed a
Deferred Compensation Agreement. Currently, the deferring Directors may select
from among various Flag Investors Funds and Deutsche Banc Alex. Brown Cash
Reserve Fund, Inc. 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.
Page 15
<PAGE>
Code of Ethics
The Board of Directors of the Fund and the Fund's Advisor have adopted
a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act. The Codes of Ethics
permit access persons to trade securities that may be purchased or held by the
Fund for their own accounts, subject to compliance with the Code's pre-clearance
requirements. In addition, the Codes provide for trading "blackout periods" that
prohibit trading by personnel within periods of trading by the Fund in the same
security, subject to certain exceptions. The Codes also prohibit short-term
trading profits and personal investment in initial public offerings. The Codes
require prior approval with respect to purchases of securities in private
placements.
The Fund's sub-advisor, LaSalle Investment Management (Securities),
L.P., has adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act.
The sub-advisor's Code permits access persons to trade securities that may be
purchased or held by the Fund for their own accounts, but prohibits the purchase
of securities of issuers whose primary business is investments in real estate,
with certain exceptions. The Code also prohibits personal investments in initial
public offerings, subject to receipt of a waiver from the sub-advisor's senior
compliance officer.
These codes of ethics are on public file with, and are available from,
the SEC.
The Fund's principal underwriter, ICC Distributors, Inc., is not
required to adopt a Code of Ethics as it meets the exception provided by Rule
17j-1(c)(3) under the 1940 Act.
Page 16
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
ICCC is an indirect subsidiary of Deutsche Bank A.G. ICCC is also the
investment advisor to other funds in the Flag Investors family of funds and
Deutsche Banc Alex. Brown Cash Reserve Fund, Inc. LaSalle, a Maryland limited
partnership, is a registered investment advisor that is indirectly controlled by
Jones Lang LaSalle Incorporated, an international real estate investment
management company. (See Investment Advisor and Sub-Advisor in the Prospectus).
Under the Investment Advisory Agreement, ICCC has agreed to obtain and
evaluate economic, statistical and financial information and to formulate and
implement investment policies for the Fund. ICCC has delegated this latter
responsibility to LaSalle. Any investment program undertaken by ICCC or LaSalle
will at all times be subject to policies and control of the Fund's Board of
Directors. ICCC 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. ICCC provides these services
without reimbursement by the Fund for any costs. Neither ICCC nor LaSalle shall
be liable to the Fund or its shareholders for any act or omission by ICCC or
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 ICCC and LaSalle to the Fund are not exclusive and ICCC
and LaSalle are free to render similar services to others.
As compensation for its services, ICCC 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. ICCC has contractually agreed to reduce its
annual fee, if necessary, or to make payments to the Fund to the extent 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, 2001 and may be extended. As compensation for its
services, LaSalle is entitled to receive a fee from ICCC, 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 Fund or ICCC 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 ICCC for the last three fiscal years
were as follows:
Page 17
<PAGE>
Advisory Fees For the Fiscal Year Ended December 31,
1999 1998 1997
---- ---- ----
Contractual Fee $221,377 $315,817 $255,425
Less amount waived ($206,400) ($144,382) ($128,442)
Fee after waivers $14,977* $171,435* $126,983*
- ----------
* Absent fee waivers for the fiscal years ended December 31, 1999, December 31,
1998 and December 31, 1997, the Fund's Total Operating Expenses would have
been 1.86%, 1.55% and 1.58%, respectively, of the Flag Investors Class A
Shares' average daily net assets, 2.61%, 2.30% and 2.33%, respectively, of
the Flag Investors Class B Shares' average daily net assets, and 1.61%, 1.28%
and 1.39% (annualized), respectively, of the Institutional Shares' average
daily net assets.
Sub-Advisory fees paid by ICCC to LaSalle for the last three fiscal years were
as follows:
Fiscal Year Ended December 31,
1999 1998 1997
---- ---- ----
LaSalle $9,217** $105,311** $80,292**
- ----------
** Net of fee waivers. LaSalle has agreed to waive its fees in proportion to any
fee waivers by ICCC.
ICCC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICCC serves as the
Fund's Custodian. (See "Custodian, Transfer Agent and Accounting Services.")
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").
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
Page 18
<PAGE>
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.
ICC Distributors and certain broker-dealers ("Participating Dealers")
have entered into Sub-Distribution Agreements under which such broker-dealers
have agreed to process investor purchase and redemption orders and respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund. Any Sub-Distribution Agreement may be terminated in the
same manner as the Distribution Agreement and shall automatically terminate in
the event of assignment.
In addition, the Fund may enter into Shareholder Servicing Agreements
with certain financial institutions, such as banks, to act as Shareholder
Servicing Agents, pursuant to which ICC Distributors will allocate a portion of
its distribution fee as compensation for such financial institutions' ongoing
shareholder services. The Fund may also enter into Shareholder Servicing
Agreements pursuant to which the Advisor, the Distributor, or their respective
affiliates, will provide compensation out of their own resources for ongoing
shareholder services. Such financial institutions may impose separate fees in
connection with these services and investors should review the Prospectus and
this Statement of Additional Information in conjunction with any such
institution's fee schedule. State securities laws may require banks and
financial institutions to register as dealers.
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. 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:
Page 19
<PAGE>
Fiscal Year Ended December 31,
Fee
1999 1998 1997
---- ---- ----
12b-1 Fee $114,902(1) $166,311(1) $134,163(2)
Class B Shareholder Servicing Fee $15,616(1) $23,251(1) $ 17,894(3)
- ----------
(1) Fees received by ICC Distributors.
(2) Of this amount, Alex. Brown & Sons Incorporated, 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 & Sons Incorporated, 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.
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 1940 Act, which provides that
investment companies may pay distribution expenses, directly or indirectly, only
pursuant to a plan adopted by the investment company's board of directors and
approved by its shareholders, the Fund has adopted two separate Plans of
Distribution, one for the Class A Shares and one for the Class B Shares
(collectively, the "Plans"). Under the Plans, the Fund pays a fee to ICC
Distributors for distribution and other shareholder servicing assistance as set
forth in the Distribution Agreement, and ICC Distributors is authorized to make
payments out of its fee to Participating Dealers and Shareholder Servicing
Agents.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to 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. The persons authorized to make such payments will make such reports.
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.
Page 20
<PAGE>
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:
Fiscal Year Ended December 31,
<TABLE>
<CAPTION>
Class 1999 1998 1997
- ----- ---------------------- ----------------------- --------------------------
Received Retained Received Retained Received Retained
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A Commissions $40,609(1) $0 $147,191(1) $0 $264,345(2) $124,308(4)
Class B Contingent $61,120(1) $0 $ 38,866(1) $0 $168,550(3) $ 61,341(4)
Deferred Sales
Charge
</TABLE>
- ----------
(1) By ICC Distributors.
(2) Of this amount, Alex. Brown & Sons Incorporated, 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 & Sons Incorporated, 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 & Sons Incorporated.
General Information
The Fund pays all costs associated with its organization and
registration under the 1933 Act and the 1940 Act. Except as described elsewhere,
the Fund pays or causes to be paid all continuing expenses of the Fund,
including, without limitation: investment advisory and distribution fees; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of cash, portfolio securities and other property,
and any transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to federal,
state or other governmental agencies; the costs and expenses of engraving or
printing of certificates representing Shares; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its Shares with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Directors and Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside 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, ICCC or LaSalle.
Page 22
<PAGE>
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. ICCC and
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 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 1940 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.
Page 23
<PAGE>
The Advisors directed transactions to broker-dealers and paid related
commissions because of research services in the following amounts:
Fiscal Year Ended December 31,
1999 1998 1997
---- ---- ----
Transactions Directed $17,978,890 $21,012,909 $41,151,108
Commissions Paid $ 52,829 $ 40,363 $ 73,026
For the fiscal years ended December 31, 1999 and December 31, 1998, the
Fund paid $0 and $290,267, respectively, in brokerage commissions to DB Alex.
Brown and its affiliates. For the period from September 1, 1997 through December
31, 1997, the Fund paid commissions to DB 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, the Fund
paid Alex. Brown & Sons Incorporated brokerage commissions in the aggregate
amount of $1,665, which represented 4.18% of the Fund's aggregate brokerage
commissions and which were paid on transactions that represented 4.68% of the
aggregate dollar amount of transactions that incurred commissions paid by the
Fund. The Fund did not hold any securities of its "regular brokers or dealers"
(as such term is defined in the 1940 Act) during its most recent fiscal year.
ICCC and 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.
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
Page 24
<PAGE>
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 as of 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.
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, 1999, Bankers Trust was
paid $32,561 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 ICCC. As compensation for providing
transfer and dividend disbursing services, ICCC receives from the Fund up to
$16.61 per account per year plus reimbursement for out-of-pocket expenses
incurred in connection therewith. For the fiscal year ended December 31, 1999,
ICCC received transfer agency fees of $49,392.
As compensation for providing accounting services, ICCC receives an
annual fee, calculated daily and paid monthly as shown below.
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 0.100%
$ 20,000,000 - $ 30,000,000 0.080%
$ 30,000,000 - $ 40,000,000 0.060%
$ 40,000,000 - $ 50,000,000 0.050%
$ 50,000,000 - $ 60,000,000 0.040%
$ 60,000,000 - $ 70,000,000 0.030%
$ 70,000,000 - $ 100,000,000 0.020%
$100,000,000 - $ 500,000,000 0.015%
$500,000,000 - $1,000,000,000 0.005%
over $1,000,000,000 0.001%
In addition, the Fund reimburses ICCC for certain out-of-pocket
expenses incurred in connection with ICCC's provision of accounting services
under the Master Services Agreements. As compensation for providing accounting
services to the Fund for the fiscal year ended December 31, 1999, ICCC received
fees of $33,167.
Page 25
<PAGE>
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 250 West Pratt Street, Baltimore, Maryland
21201, are independent accountants to the Fund.
LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
PERFORMANCE INFORMATION
The Fund may compare its performance to other funds or to relevant
indices, such as the Wilshire Real Estate Index, the NAREIT Equity Index, the
S&P 500, the Russell 2000, the S&P Utilities Index and the Lehman Brothers Fixed
Income Index.
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices or averages in advertisements or in certain reports to
shareholders, performance will generally be stated both in terms of total return
and in terms of yield. However, the Fund may also from time to time state the
performance of the Fund solely in terms of total return.
Total Return Calculations
The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:
P(1 + T)(n) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1-, 5-, or
10-year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of
the 1-, 5- or 10-year periods.
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one-, five-, and ten-year periods or a shorter period dating from the
effectiveness of the Fund's registration statement (or the later commencement of
operations of the series or class). In calculating the ending redeemable value
for the Class A Shares, the maximum sales load 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 (5.0% 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.
Page 26
<PAGE>
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, 1999 were as follows:
<TABLE>
<CAPTION>
One-Year Period Ended Inception Through
December 31, 1999 December 31, 1999
--------------------------------- ----------------------------------
Ending Ending Average Annual
Redeemable Value Total Return Redeemable Value Total Return
---------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Class
Class A - January 3, 1995(1) $918 (8.19)% $1,391 6.81%
Class B - January 3, 1995(1) $917 (8.33)% $1,405 7.03%
Institutional - March 31, 1997(1) $974 (2.56)% $919 (3.02)%
- ----------
</TABLE>
(1) 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, Inc., CDA/Weisenberger or Morningstar Inc., the Fund
calculates its aggregate and average annual total return for the specified
periods of time by assuming the investment of $10,000 in Shares and assuming the
reinvestment of each dividend or other distribution at net asset value on the
reinvestment date. For this alternative computation, the Fund assumes that the
$10,000 invested in Shares is net of all sales charges. The Fund will, however,
disclose the maximum sales charges and will also disclose that the performance
data do not reflect sales charges and that inclusion of sales charges would
reduce the performance quoted. Such alternative total return information will be
given no greater prominence in such advertising than the information prescribed
under SEC rules, and all advertisements containing performance data will include
a legend disclosing that such performance data represent past performance and
that the investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.
Yield Calculations
The yield of the Fund is calculated by dividing the net investment
income per Share earned by the Fund during a 30-day (or one month) period by the
maximum offering price per share on the last day of the period and annualizing
the result on a semiannual basis by adding one to the quotient, raising the sum
to the power of six, subtracting one from the result and then doubling the
difference. The Fund's net investment income per Share earned during the period
is based on the average daily number of Shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements.
Calculated in the manner described above, the Fund's yield for the
30-day period ended December 31, 1999 was 3.65% for the Class A Shares, 3.10%
for the Class B Shares, and 4.05% for the Institutional Shares.
Page 27
<PAGE>
Except as noted below, for the purpose of determining net investment
income earned during the period, interest earned on debt obligations held by the
Fund is calculated by computing the yield to maturity of each obligation based
on the market value of the obligation (including actual accrued interest) at the
close of business on the last business day of each month, or, with respect to
obligations purchased during the month, based on the purchase price (plus actual
accrued interest), dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund. For purposes of this
calculation, it is assumed that each month contains 30 days. The maturity of an
obligation with a call provision is the next call date on which the obligation
reasonably may be expected to be called or, if none, the maturity date.
Undeclared earned income will be subtracted from the net asset value
per share. Undeclared earned income is net investment income that, at the end of
the base period, has not been declared as a dividend, but is reasonably expected
to be and is declared as a dividend shortly thereafter.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. For the fiscal years
ended December 31, 1999, 1998 and 1997, the Fund's portfolio turnover rates were
7%, 24% and 35%, respectively.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 4, 2000, to Fund management's knowledge, DB Alex. Brown
beneficially owned less than 1% of the Fund's total outstanding Shares and
directors and officers as a group owned less than 1% of the Fund's total
outstanding Shares. As of April 4, 2000, to Fund management's knowledge, the
following persons owned of record or beneficially 5% or more of the outstanding
shares of a class of the Fund:
Page 28
<PAGE>
<TABLE>
<CAPTION>
Owned of Beneficially
Name and Address Record Owned Percentage Owned
---------------- -------- ------------ ----------------
<S> <C> <C> <C>
Bankers Trust Corp & Affil 401K
Savings Plan X X 15.39% of Class A Shares
The Partnershare Plan of Bankers Trust
NY Corp & Affil
100 Plaza One
Jersey City, NJ 07311-3999
Dean Witter FBO X X 6.84% of Class B Shares
Haussner Family Partnership
P.O. Box 250
New York, NY 10008-0250
DB Alex. Brown LLC X 15.93% of Institutional Shares
FBO 250-10788-16
P.O. Box 1346
Baltimore, MD 21203-1346
DB Alex. Brown LLC X 84.04% of Institutional Shares
FBO 259-88338-18
P.O. Box 1346
Baltimore, MD 21203-1346
</TABLE>
FINANCIAL STATEMENTS
The Fund furnishes shareholders with semi-annual and 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 financial statements for the Fund for the period ended December 31,
1999, are incorporated herein by reference to the Fund's Annual Report dated
December 31, 1999. A copy of the Fund's Annual Report must accompany this
Statement of Additional Information. The annual financial statements are audited
by the Fund's independent accountants.
Page 29
<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, incorporated by reference to Post-Effective No. 8 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-99-000309) on
February 26, 1999.
(b) By-Laws, as amended through July 28, 1999, filed herewith.
(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 June 4, 1999, between Registrant and
Investment Company Capital Corp., filed herewith.
(d)(2) Investment Sub-Advisory Agreement dated June 4, 1999, between Registrant,
Investment Company Capital Corp. and LaSalle Investment Management (Securities),
LP, filed herewith.
(d)(3) Expense Limitation Agreement, dated May 1, 2000, between Registrant and
Investment Company Capital Corp., 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.
<PAGE>
(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, incorporated by reference to Post-Effective No. 8 to Registrant's
Registration Statement on Form N-1A (File No. 33-78648), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-99-000309) on
February 26, 1999.
(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, filed herewith.
(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
<PAGE>
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, not applicable.
(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, incorporated by reference to Post-Effective No.
8 to Registrant's Registration Statement on Form N-1A (File No. 33-78648), filed
with the Securities and Exchange Commission via EDGAR (Accession No.
950116-99-000309) on February 26, 1999.
(p) Codes of Ethics, filed herewith.
(q) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification.
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
<PAGE>
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 (b) 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.
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
<PAGE>
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.
(a) Advisor
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 LaSalle
Investment Management (Securities), LP ("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 LaSalle
pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-34188).
Item 27. Principal Underwriters.
(a) ICC Distributors, Inc., the Distributor for shares of the Registrant, acts
as principal underwriter for the following open-end investment companies:
BT Advisor Funds, BT Institutional Funds, BT Pyramid Mutual Funds, Cash
Management Portfolio, Intermediate Tax Free Portfolio, NY Tax Free Money
Portfolio, Treasury Money Portfolio, International Equity Portfolio, Equity
500 Index Portfolio, Capital Appreciation Portfolio, Asset Management
Portfolio, BT Investment Portfolios, Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
Emerging Growth
<PAGE>
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 Short-Intermediate Income Fund, Inc., Flag Investors Value
Builder Fund, Inc., Flag Investors Real Estate Securities Fund, Inc., Flag
Investors Equity Partners Fund, Inc., Flag Investors Series Funds, Inc.
(formerly, Flag Investors International Fund, Inc.), Flag Investors Funds,
Inc. (formerly, Deutsche Funds, Inc.), Flag Investors Portfolios Trust
(formerly, Deutsche Portfolios), Morgan Grenfell Investment Trust, Glenmede
Fund, Inc. and Glenmede Portfolios.
(b) Names and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
John Y. Keffer President None
Ronald H. Hirsch Treasurer None
Nanette K. Chern Chief Compliance Officer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Frederick Skillin Assistant Treasurer None
Marc D. Keffer Assistant Secretary None
- -----
* Two Portland Square
Portland, ME 04101
(c) Not Applicable.
Item 28. Location of Accounts and Records.
Investment Company Capital Corp. ("ICC"), Registrant's investment
advisor, transfer agent, dividend disbursing agent and accounting services
provider, One South Street, Baltimore, Maryland 21202, and LaSalle Investment
Management (Securities), LP ("LaSalle"), 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 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.
Not Applicable.
Item 30. Undertakings.
Not Applicable.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amendment to the Registration
Statement under Rule 485(b) under the Securities Act of 1933, and has duly
caused this Post-Effective Amendment No. 9 to the Registration Statement to be
signed on its behalf by the undersigned, duly authorized in the City of
Baltimore, and State of Maryland on the 28th day of April, 2000.
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
Registration Statement has been signed below by the following persons in the
capacities on the date(s) indicated:
Name Title Date
- --------------------------------------------------------------------------------
*/s/ Richard T. Hale Chairman and Director April 28, 2000
- --------------------
Richard T. Hale
*/s/ Richard R. Burt Director April 28, 2000
- --------------------
Richard R. Burt
*/s/ Joseph R. Hardiman Director April 28, 2000
- -----------------------
Joseph R. Hardiman
*/s/ Louis E. Levy Director April 28, 2000
- ------------------
Louis E. Levy
*/s/ Eugene J. McDonald Director April 28, 2000
- -----------------------
Eugene J. McDonald
*/s/ Rebecca W. Rimel Director April 28, 2000
- ---------------------
Rebecca W. Rimel
*/s/ Truman T. Semans Director April 28, 2000
- ---------------------
Truman T. Semans
*/s/ Robert H. Wadsworth Director April 28, 2000
- ------------------------
Robert H. Wadsworth
*/s/ William K. Morrill, Jr. President April 28, 2000
- ----------------------------
William K. Morrill, Jr.
*/s/ Charles A. Rizzo Chief Financial and April 28, 2000
--------------------- Accounting Officer
Charles A. Rizzo
*By: /s/ Daniel O. Hirsch
--------------------
Daniel O. Hirsch, Attorney-In-Fact April 28, 2000
By Power of Attorney.
<PAGE>
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch are
authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's President pursuant to a properly executed power of
attorney.
RESOLVED, that Edward J. Veilleux, Amy M. Olmert and Daniel O. Hirsch are
authorized to sign the Registration Statements on Form N-1A, and any
Post-Effective Amendments thereto, of Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc., Flag Investors Communications Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Total
Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
North American Government Bond Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc., Flag Investors Equity Partners Fund, Inc. and ISI Strategy Fund,
Inc. on behalf of each Fund's Chief Financial Officer pursuant to a properly
executed power of attorney.
<PAGE>
As Amended Through
July 28, 1999
BY-LAWS
OF
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the
Corporation shall be in the city of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal
executive office of the Corporation shall be in the City of Baltimore, State of
Maryland.
Section 3. Other Offices. The Corporation may have such
other offices in such places as the Board of Directors may from time to time
determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of the
shareholders of the Corporation shall not be required to be held in any year in
which shareholders are not required to elect directors under the Investment
Company Act of 1940, as amended (the "1940 Act") even if the Corporation is
holding a meeting of the shareholders for a purpose other than the election of
directors. If the Corporation is required by the 1940 Act to hold a meeting to
elect directors, the meeting shall be designated as the Annual Meeting of
shareholders for that year and shall be held within 120 days after the
occurrence of an event requiring the election of directors. The Board of
Directors may, in its discretion, hold a meeting to be designated as the Annual
Meeting of shareholders on a date within the month of March, in any year where
an election of directors by shareholders is not required under the 1940 Act. The
date of an Annual Meeting shall be set by appropriate resolution of the Board of
Directors, and shareholders shall vote on the election of directors and transact
any other business as may properly be brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the
shareholders, unless otherwise provided by law or by the Charter or the
Corporation may be called for any purpose or purposes by a majority of the Board
of Directors or the President, and shall be called by the President or Secretary
on the written request of the shareholders as provided by the Maryland General
Corporation Law. Such request shall state the purpose or purposes of the
proposed meeting and the matters proposed to be acted on at it; provided,
however, that unless requested by shareholders entitled to cast a majority of
all the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the shareholders held during the preceding twelve
(12) months.
Section 3. Place of Meetings. The regular meeting, if any, and
any special meeting of the shareholders shall be held at such place within the
United States as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder
List. (a) Notice of the place, date and time of the holding of each regular and
special meeting of the shareholders and the purpose or purposes of the meeting
shall be given personally or by mail, not less than ten nor more than ninety
days before the date of such meeting, to each shareholder entitled to vote at
such meeting and to each other shareholder entitled to notice of the meeting.
Notice by mail shall be deemed to be duly given when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
records of the
<PAGE>
Corporation, with postage thereon prepaid. The notice of every meeting of
shareholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of shareholders shall be
deemed waived by any shareholder who shall attend such meeting in person or by
proxy, or who shall, either before or after the meeting, submit a signed waiver
of notice which is filed with the records of the meeting. A meeting of
shareholders convened on the date for which it was called may be adjourned from
time to time without further notice to a date not more than 120 days after the
original record date.
(c) At least five (5) days prior to each meeting of
shareholders, the officer or agent having charge of the share transfer books of
the Corporation shall make a complete list of shareholders entitled to vote at
such meeting, in alphabetical order with the address of and the number of shares
held by each shareholder.
Section 5. Organization. At each meeting of the shareholders,
the Chairman of the Board (if one has been designated by the Board), or in his
absence or inability to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice President, or in the
absence or the inability to act of the Chairman of the Board, the President and
all the Vice Presidents, a chairman chosen by the shareholders shall act as
chairman of the meeting. The Secretary, or in his absence or inability to act,
any person appointed by the chairman of the meeting, shall act as secretary of
the meeting and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute
or the Charter of the Corporation, each holder of record of shares of stock of
the Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock standing in his name on
the record of shareholders of the Corporation as of the record date determined
pursuant to Section 5 of Article VI hereof or if such record date shall not have
been so fixed, then at the later of (i) the close of business on the day on
which notice of the meeting is mailed or (ii) the thirtieth (30) day before the
meeting. In all elections for directors, each share of stock may be voted for as
many individuals as there are directors to be elected and for whose election the
share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting
of shareholders may authorize another person or persons to act as proxy for the
shareholder by (1) a written authorization signed by such shareholder or the
shareholder's authorized agent; or (2) by telephone, a telegram, cablegram,
datagram or other means of electronic transmission to the person authorized to
act as proxy or to a proxy solicitation firm, proxy support service
organization, or other person authorized by the person who will act as proxy to
receive the transmission. No proxy shall be valid after the expiration of eleven
months from the date thereof, unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it, except
in those cases where such proxy states that it is irrevocable and where an
irrevocable proxy is permitted by law. Except as otherwise provided by statute,
the Charter of the Corporation or these By-Laws, any corporate action to be
taken by vote of the shareholders shall be authorized by a majority of the total
votes cast at a meeting of shareholders at which a quorum is present by the
holders of shares present in person or represented by proxy and entitled to vote
on such action, except that a plurality of all the votes cast at a meeting at
which a quorum is present is sufficient to elect a director.
(c) If a vote shall be taken on any question other
than the election of directors, which shall be by written ballot, then unless
required by statute or these By-Laws, or determined by the chairman of the
meeting to be advisable, any such vote need not be by ballot. On a vote by
ballot, each ballot shall be signed by the shareholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares voted.
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Section 7. Inspectors. The Board may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If the inspectors shall not be so appointed or if
any of them shall fail to appear or act, the chairman of the meeting may, and on
the request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except
as otherwise provided by statute any action required to be taken at any regular
or special meeting of shareholders, or any action which may be taken at any
annual or special meeting of shareholders, may be taken without a meeting,
without prior notice and without a vote, if the following are filed with
<PAGE>
the records of shareholders' meetings: (i) a unanimous written consent which
sets forth the action and is signed by each shareholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
shareholder entitled to notice of the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the
Charter of the Corporation, the business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. All powers of the
Corporation may be exercised by or under authority of the Board of Directors
except as conferred on or reserved to the shareholders by law or by the Charter
of the Corporation or these By-Laws.
Section 2. Number of Directors. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the Directors then in office; provided, however, that the number of
directors shall in no event be less than three (except for any period during
which shares of the Corporation are held by fewer than three shareholders) nor
more than fifteen. Any vacancy created by an increase in directors may be filled
in accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. Election and Term of Directors. Directors shall be
elected by plurality vote of a quorum cast by written ballot at the regular
meeting of shareholders, if any, or at a special meeting held for that purpose.
The term of office of each Director shall be from the time of his election and
qualification and until his successor shall have been elected and shall have
qualified, or until his death, or until he shall have resigned, or have been
removed as hereinafter provided in these By-Laws, or as otherwise provided by
statute or the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may
resign at any time by giving written notice of his resignation to the Board or
the Chairman of the Board or the President or the Secretary. Any such
resignation shall take effect at the time specified therein or, if the time when
it shall become effective shall not be specified therein, immediately upon its
receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Removal of Directors. Any Director of the
Corporation may be removed by the shareholders by a vote of a majority of the
votes entitled to be cast for the election of Directors.
Section 6. Vacancies. The shareholders may elect a successor
to fill a vacancy on the Board of Directors which results from the removal of a
Director. A majority of the remaining Directors, whether or not sufficient to
constitute a quorum, may fill a vacancy on the Board of Directors which results
from any cause except an increase in the number of Directors, and a majority of
the entire Board of Directors may fill a vacancy which results from an increase
in the number of Directors; provided, however, that no vacancies shall be filled
by action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A Director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a Director serves for the balance of the term of the
removed Director.
Section 7. Regular Meetings. Regular meetings of the Board
may be held with notice at such times and places as may be determined by the
Board of Directors.
Section 8. Special Meetings. Special meetings of the Board may
be called by the Chairman of the Board, the President, or by a majority of the
Directors either in writing or by vote at a meeting, and may be held at any
place in or out of the State of Maryland as the Board may from time to time
determine.
Section 9. Notice of Special Meetings. Notice of each special
meeting of the Board shall be given by the Secretary as hereinafter provided, in
which notice shall be stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each Director, either personally or by
telephone, telegraph, cable or wireless, at least twenty-four hours before the
time at which such meeting is to be held, or by first-class mail, postage
prepaid, or by commercial delivery services
<PAGE>
addressed to him at his residence or usual place of business, at least three
days before the day on which such meeting is to be held.
Section 10. Waiver of Notice of Special Meetings. Notice of
any special meeting need not be given to any Director who shall, either before
or after the meeting, sign a written waiver of notice which is filed with the
records of the meeting or who shall attend such meeting. Except as otherwise
specifically required by these By-Laws, a notice or waiver of notice of any
meeting need not state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than
three members, of the members of the entire Board shall be present in person at
any meeting of the Board in order to constitute a quorum for the transaction of
business at such meeting, and except as otherwise expressly required by statute,
the Charter of the Corporation, these By-Laws, the 1940 Act or other applicable
statute, the act of a majority of the Directors present at any meeting at which
a quorum is present shall be the act of the Board; provided, however, that the
approval of any contract with an investment adviser or principal underwriter, as
such terms are defined in the 1940 Act, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity bond required by the
1940 Act, and the selection of the Corporation's independent public accountants
shall each require the affirmative vote of a majority of the Directors who are
not interested persons, as defined in the 1940 Act, of the Corporation. In the
absence of a quorum at any meeting of the Board, a majority of the Directors
present thereat may adjourn the meeting from time to time, but not for a period
greater than thirty (30) days at any one time, to another time and place until a
quorum shall attend. Notice of the time and place of any adjourned meeting shall
be given to the Directors who were not present at the time of the adjournment
and, unless such time and place were announced at the meeting at which the
adjournment was taken, to the other Directors. At any adjourned meeting at which
a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called.
Section 12. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
shall preside. In the absence or inability of the Chairman of the Board to
preside at a meeting, the President, or, in his absence or inability to act,
another Director chosen by a majority of the Directors present, shall act as
chairman of the meeting and preside at it. The Secretary (or, in his absence or
inability to act, any person appointed by the Chairman) shall act as secretary
of the meeting and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee; provided, however, that for so long as
the Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment advisory
agreement, sub-advisory agreement or any plan (or agreement containing a plan)
pursuant to Rule 12b-1 under the 1940 Act.
Section 15. Meeting by Conference Telephone. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time; provided, however, that for so
long as the Corporation is registered as an investment company under the 1940
Act, this Section shall be inapplicable to the approval of any investment
advisory agreement, sub-advisory agreement or any plan (or agreement containing
a plan) pursuant to Rule 12b-1 under the 1940 Act.
Section 16. Compensation. Any Director, whether or not he is a
salaried officer, employee or agent of the Corporation, may be compensated for
his services as Director or as a member of a committee, or as Chairman of the
Board or chairman of a committee, and in addition may be reimbursed for
transportation and other expenses, all in such manner and amounts as the
Directors may from time to time determine.
Section 17. Investment Policies. It shall be the duty of the
Board of Directors to ensure that the purchase, sale, retention and disposal of
portfolio securities and the other investment practices of the Corporation are
at all times consistent with the investment policies and restrictions with
respect to securities investments and otherwise of the Corporation, as recited
in the current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
<PAGE>
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by
resolution adopted by a majority of the entire Board, designate an Executive
Committee, Compensation Committee, Audit Committee and Nomination Committee,
each of which shall consist of two or more of the Directors of the Corporation,
which committee shall have and may exercise all the powers and authority of the
Board with respect to all matters other than as set forth in Section 3 of this
Article IV.
Section 2. Other Committees of the Board. The Board of
Directors may from time to time, by resolution adopted by a majority of the
whole Board, designate one or more other committees of the Board, each such
committee to consist of two or more Directors and to have such powers and duties
as the Board of Directors may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of
the Board shall have power or authority to:
(a) recommend to shareholders any action requiring
authorization of shareholders pursuant to statute or the Charter;
(b) approve or terminate any contract with an
investment adviser or principal underwriter, as such terms are defined in the
1940 Act, or take any other action required to be taken by the Board of
Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new
By-Laws;
(d) declare dividends or other distributions or
issue capital stock of the Corporation; and
(e) approve any merger or share exchange which does
not require shareholder approval.
Section 4. General. One-third, but not less than two members,
of the members of any committee shall be present in person at any meeting of
such committee in order to constitute a quorum for the transaction of business
at such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings
and shall report such minutes to the Board. All such proceedings shall be
subject to revision or alteration by the Board; provided, however, that third
parties shall not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint one or more Vice Presidents and may also appoint such other officers,
agents and employees as it may deem necessary or proper. Any two or more offices
may be held by the same person, except the offices of President and Vice
President, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity. The Board may from time to time elect or appoint, or
delegate to the President the power to appoint, such other officers (including
one or more Assistant Vice Presidents, one or more Assistant Treasurers and one
or more Assistant Secretaries) and such agents, as may be necessary or desirable
for the business of the Corporation. Such other officers and agents shall have
such duties and shall hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
<PAGE>
Section 2. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chairman of the Board, the President or the Secretary. Any such resignation
shall take effect at the time specified therein or, if the time when it shall
become effective shall not be specified therein, immediately upon its receipt;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer,
agent or employee of the Corporation may be removed by the Board of Directors
with or without cause at any time, and the Board may delegate such power of
removal as to agents and employees not elected or appointed by the Board of
Directors. Such removal shall be without prejudice to such person's contract
rights, if any, but the appointment of any person as an officer, agent or
employee of the Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising
from death, resignation, removal or any other cause, may be filled for the
unexpired portion of the term of the office which shall be vacant, in the manner
prescribed in these By-Laws for the regular election or appointment to such
office.
Section 5. Compensation. The compensation of the officers of
the Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a Director of the Corporation.
Section 6. Bonds or Other Security. If required by the Board,
any officer, agent or employee of the Corporation shall give a bond or other
security for the faithful performance of his duties, in such amount and with
such surety or sureties as the Board may require.
Section 7. President. The President shall be the chief
executive officer of the Corporation. In the absence of the Chairman of the
Board (or if there be none), he shall preside at all meetings of the
shareholders and of the Board of Directors. He shall have, subject to the
control of the Board of Directors, general charge of the business and affairs of
the Corporation. He may employ and discharge employees and agents of the
Corporation, except such as shall be appointed by the Board, and he may delegate
these powers.
Section 8. The Vice Presidents. In the absence or disability
of the President, or when so directed by the President, any Vice President
designated by the Board of Directors may perform any or all of the duties of the
President, and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President; provided, however, that no Vice
President shall act as a member of or as chairman of any committee of which the
President is a member or chairman by designation of ex-officio, except when
designated by the Board. Each Vice President shall perform such other duties as
from time to time may be conferred upon or assigned to him by the Board or the
President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, except those which the
Corporation has placed in the custody of a bank or trust company or member of a
national securities exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such bank or trust
company or member of a national securities exchange as custodian of the property
of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuables to be
deposited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and
supervise the investment of its funds as ordered or authorized by the Board,
taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
<PAGE>
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books
provided for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in
accordance with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Board or the President.
Section 12. Assistant Secretaries. In the absence or
disability of the Secretary, or when so directed by the Secretary, any Assistant
Secretary may perform any or all of the duties of the Secretary, and, when so
acting, shall have all the powers of, and be subject to all restrictions upon,
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of
any officer of the Corporation, or for any other reason that the Board may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the
Corporation shall be entitled upon request to have a certificate or
certificates, in such form as shall be approved by the Board, representing the
number of shares of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be delivered in any case. The
certificates representing shares of stock shall be signed by the President, a
Vice President, or the Chairman of the Board, and countersigned by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer and sealed
with the seal of the Corporation. Any or all of the signatures or the seal on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate shall be issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were still
in office at the date of issue.
Section 2. Rights of Inspection. There shall be kept at the
principal executive office, which shall be available for inspection during usual
business hours in accordance with the General Laws of the State of Maryland, the
following corporate documents: (a) By-Laws, (b) minutes of proceedings of the
shareholders, (c) annual statements of affairs, and (d) voting trust agreements,
if any. One or more persons who together are and for at least six months have
been shareholders of record of at least five percent of the outstanding stock of
any class may inspect and copy during usual business hours the Corporation's
books of account and stock ledger in accordance with the General Laws of the
State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of
the Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
<PAGE>
Section 4. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of Directors may, from time to time, define. No
certificate of stock shall be valid until countersigned by a Transfer Agent, if
the Corporation shall have a Transfer Agent or until registered by a Registrar,
if the Corporation shall have a Registrar. The duties of Transfer Agent and
Registrar may be combined.
Section 5. Record Date and Closing of Transfer Books. The
Board of Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof),
receive a dividend, or be allotted or exercise other rights. The record date may
not be more than ninety (90) days before the date on which the action requiring
the determination will be taken; and, in the case of a meeting of shareholders,
the record date shall be at least ten (10) days before the date of the meeting.
The Board of Directors shall not close the books of the Corporation against
transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates.
The holder of any certificate representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Corporation may issue a new certificate
of stock in the place of any certificate theretofore issued by it which the
owner thereof shall allege to have been lost, stolen or destroyed or which shall
have been mutilated, and the Board may, in its discretion, require such owner or
his legal representatives to give to the Corporation a bond in such sum, limited
or unlimited, and in such form and with such surety or sureties, as the Board in
its absolute discretion shall determine, to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board, in its absolute discretion,
may refuse to issue any such new certificate, except pursuant to legal
proceedings under the laws of the State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
office(s) of the Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing
the name of the Corporation, which shall be in the charge of the Secretary. The
Board of Directors may authorize one or more duplicate seals and provide for the
custody thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of
the Corporation shall end on the last day of December in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall
be deposited with such banks or other depositories as the Board of Directors of
the Corporation may from time to time determine.
<PAGE>
Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts,
acceptances, bills of exchange and other orders or obligations for the payment
of money shall be signed by such officer or officers or person or persons as the
Board of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market
instruments, bonds or other securities at any time owned by the Corporation may
be held on behalf of the Corporation or sold, transferred or otherwise disposed
of subject to any limits imposed by these By-Laws, and pursuant to authorization
by the Board and, when so authorized to be held on behalf of the Corporation or
sold, transferred or otherwise disposed of, may be transferred from the name of
the Corporation by the signature of the President or a Vice President or the
Treasurer or pursuant to any procedure approved by the Board of Directors,
subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or
certify the financial statements of the Corporation which are filed with the
Securities and Exchange Commission shall be selected annually by the Board of
Directors and ratified by the Board of Directors or the shareholders in
accordance with the provisions of the 1940 Act.
ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by
an independent firm of public accountants at the close of each annual period of
the Corporation and at such other times as may be directed by the Board. A
report to the shareholders based upon each such examination shall be mailed to
each shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify
its Directors to the fullest extent that indemnification of Directors is
permitted by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its Directors and to such further
extent as is consistent with law. The Corporation shall indemnify
<PAGE>
its Directors and officers who while serving as Directors or officers also serve
at the request of the Corporation as a Director, officer, partner, trustee,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust, other enterprise or employee benefit plan to the fullest extent
consistent with law. This Article XIII shall not protect any such person against
any liability to the Corporation or any shareholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former Director or officer
of the Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the Maryland
General Corporation Law, the Securities Act of 1933 (the "1933 Act") and the
1940 Act, as such statutes are now or hereafter in force.
<PAGE>
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.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 4th day
of June, 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").
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor
under the Investment Advisors Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an
agreement under which the Advisor will provide investment advisory and
administrative services for the Fund on the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints
the Advisor to act as the Fund's investment advisor. The Advisor shall manage
the Fund's affairs and shall supervise all aspects of the Fund's operations
(except as otherwise set forth herein), including the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board of
Directors. The Advisor shall give the Fund the benefit of its best judgment,
efforts and facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on May 2, 1994
and all amendments thereto (such Articles of Incorporation, as presently in
effect and as they shall from time to time be amended, are herein called the
"Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the Investment Company Act of 1940 on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission (the "SEC") on May
5, 1994;
<PAGE>
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-78648) and
under the 1940 Act as filed with the SEC on May 5, 1994 relating to the shares
of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are herein
called "Prospectus").
The Fund will furnish the Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Investment Advisor. In carrying out its
obligations under Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's
operations, except for distribution services;
(b) formulate and implement continuing programs for
the purchases and sales of securities, consistent with the investment objective
and policies of the Fund;
(c) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the Fund's Board
of Directors;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items for the
Fund's principal office;
(e) obtain and evaluate pertinent information
about significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Fund, and whether concerning the individual issuers whose securities are
included in the Fund's portfolio or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion in the
Fund's portfolio;
(f) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors;
(g) take all actions necessary to carry into effect
the Fund's purchase and sale programs;
(h) supervise the operations of the Fund's custodian,
sub-advisor, transfer and dividend disbursing agent;
(i) provide the Fund with such administrative
and clerical services for the maintenance of certain shareholder records, as are
deemed advisable by the Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating
of prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filings with the SEC.
4. Broker-Dealer Relationships. In the event that the Advisor
is responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Advisor's primary consideration in effecting securities transactions will be to
obtain the best price and execution on an overall basis. In performing this
function the Advisor shall comply with applicable policies established by the
Board of Directors and shall provide the Board of Directors with such reports as
the Board of Directors may require in order to monitor the Fund's portfolio
transaction activities. In certain instances the Advisor may make purchases of
underwritten issues at prices which include
<PAGE>
underwriting fees. In selecting a broker-dealer to execute each particular
transaction, the Advisor will take the following into consideration: the best
net price available; the reliability, integrity and financial condition of the
broker-dealer; the size of and difficulty in executing the order; and the value
of the expected contribution of the broker-dealer to the investment performance
of the Fund on a continuing basis. Accordingly, the price to the Fund in any
transaction may be less favorable than that available from another broker-dealer
if the difference is reasonably justified by other aspects of the portfolio
execution services offered. Subject to such policies as the Board of Directors
may determine, the Advisor shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker-dealer that provides brokerage and
research services to the Advisor an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Fund. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such broker-dealers who also provide research or statistical material or other
services to the Fund or the Advisor. Such allocation shall be in such amounts
and proportions as the Advisor shall determine and the Advisor will report on
said allocation regularly to the Board of Directors of the Fund, indicating the
broker-dealers to whom such allocations have been made and the basis therefor.
Consistent with the Conduct Rules of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Advisor may consider services in connection with the sale of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct BT Alex. Brown
Incorporated ("BT Alex. Brown") to execute portfolio transactions for the Fund
on an agency basis. The commissions paid to BT Alex. Brown must be, as required
by Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." If the purchase or sale of securities
consistent with the investment policies of the Fund or one or more other account
of the Advisor is considered at or about the same time, transactions in such
securities will be allocated among the accounts in a manner deemed equitable by
the Advisor. BT Alex. Brown and the Advisor may combine such transactions, in
accordance with applicable laws and regulations, in order to obtain the best net
price and most favorable execution.
The Fund will not deal with the Advisor or BT Alex. Brown in
any transaction in which the Advisor or BT Alex. Brown acts as a principal with
respect to any part of the Fund's order. If BT Alex. Brown is participating in
an underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with the rules of the SEC.
5. Control by Board of Directors. Any management or
supervisory activities undertaken by the Advisor pursuant to this Agreement, as
well as any other activities undertaken by the Advisor on behalf of the Fund
pursuant thereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder;
-24-
<PAGE>
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall
be allocable between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without cost to the
Fund, the services of one or more officers of the Fund, to the extent that such
officers may be required by the Fund for the proper conduct of its affairs.
(b) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation: payments to
the Fund's distributor under the Fund's plan of distribution, the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions, chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to Federal, State or
other governmental agencies; the costs and the expenses of the engraving or
printing of certificates representing shares of the Fund; all costs and expenses
in connection with registration and maintenance of registration of the Fund and
its shares with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of Fund shares; charges and
expenses of legal counsel, including counsel to the Directors of the Fund who
are not "interested persons" (as defined in the 1940 Act) of the Fund and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors
including a majority of the Fund's Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund, and of the shareholders of the Fund,
the Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor shall continue to supervise the performance of any such
sub-advisor and shall report regularly thereon to the Fund's Board of Directors,
but shall not be responsible for the sub-advisor's performance under the
sub-advisory agreement.
(b) The Advisor may, but shall not be under any duty to,
perform services on behalf of the Fund which are not required by this Agreement
upon the request of the Fund's Board of Directors. Such services will be
performed on behalf of the Fund and the Advisor's charge in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Advisor of any Fund
expense that the Advisor is not required to pay or assume
-25-
<PAGE>
under this Agreement shall not relieve the Advisor of any of its obligations to
the Fund nor obligate the Advisor to pay or assume any similar Fund expense on
any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by the Advisor, the Fund shall pay to the Advisor monthly
compensation at an annual rate of 0.65% of the first $100 million of the Fund's
average daily net assets, 0.55% of the Fund's average daily net assets exceeding
$100 million but not exceeding $200 million, 0.50% of the Fund's average daily
net assets exceeding $200 million but not exceeding $300 million and 0.45% of
the Fund's average daily net assets exceeding $300 million.
Except as hereinafter set forth, compensation under
this Agreement shall be calculated and accrued daily and the amounts of the
daily accruals shall be paid monthly. If this Agreement becomes effective
subsequent to the first day of a month or shall terminate before the last day of
a month, compensation for the part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation of the fees as set
forth above. Payment of the Advisor's compensation for the preceding month shall
be made as promptly as possible.
10. Non-Exclusivity. The services of the Advisor to the Fund
are not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted by law; and that the officers and directors of
the Advisor are not prohibited from engaging in any other business activity or
from rendering services to any other person, or from serving as partners,
officers, trustees or directors of any other firm, trust or corporation,
including other investment companies.
11. Term and Renewal. This Agreement shall become effective as
of the date hereof and shall continue in force and effect, subject to Section 12
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect from
year to year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund; and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of a party to this Agreement (other than as Directors
of the Fund) by votes cast in person at a meeting specifically called for such
purpose.
12. Termination. This Agreement may be terminated, without the
payment of any penalty, by the Fund upon vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act) or by the Advisor, upon sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
13. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and to
act in good faith and to use its best efforts within reasonable limits to ensure
the accuracy of all services performed under this Agreement, but the Advisor
shall not be liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of the Advisor or its
officers, directors or employees, or reckless disregard by the Advisor of its
duties under the Agreement.
14. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Fund and of the Advisor for this purpose shall be One South Street, Baltimore,
Maryland 21202.
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<PAGE>
15. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
FLAG INVESTORS REAL ESTATE
SECURITIES FUND, INC.
/s/T. J. Lott By: /s/William K. Morrill, Jr.
- ------------------------ ---------------------------
Name: William K. Morrill, Jr.
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
/s/Kathy Churko By: /s/Edward J. Veilleux
- ------------------------------ ----------------------
Name: Edward J. Veilleux
Title: Executive Vice President
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 4th day of June, 1999 by and
among FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland corporation
(the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), and LASALLE INVESTMENT MANAGEMENT (SECURITIES), L.P., a Maryland
limited partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub-Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on May
2, 1994 and all amendments thereto (such Articles of Incorporation, as
presently in effect and as they shall from time to time be amended are
herein called the "Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the Investment Company Act of 1940 on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") on May 5, 1994;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-78648)
and under the 1940 Act as filed with the SEC on May 5, 1994 relating to
the shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are
herein called "Prospectus").
<PAGE>
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Sub-Advisor. In carrying out its
obligations under Section 1 hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the Fund's Board
of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors;
(c) formulate and implement continuing programs
for the purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund; and
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. In selecting a
broker-dealer to execute each particular transaction, the Sub-Advisor will take
the following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Sub-Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such allocations
have been made and the basis therefor.
Consistent with the Conduct Rules of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may
<PAGE>
determine, the Sub-Advisor may consider services in connection with the sale of
shares of the Fund as a factor in the selection of broker-dealers to execute
portfolio transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct BT Alex. Brown
Incorporated ("BT Alex. Brown") to execute portfolio transactions for the Fund
on an agency basis. The commissions paid to BT Alex. Brown must be, as required
by Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." If the purchase or sale of securities
consistent with the investment policies of the Fund or one or more other
accounts of the Sub-Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Sub-Advisor. BT Alex. Brown and the Sub-Advisor may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution.
The Fund will not deal with the Sub-Advisor or BT Alex. Brown
in any transaction in which the Sub-Advisor or BT Alex. Brown acts as a
principal with respect to any part of the Fund's order. If BT Alex. Brown is
participating in an underwriting or selling group, the Fund may not buy
portfolio securities from the group except in accordance with policies
established by the Board of Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall furnish, at its expense and
without cost to the Fund, the services of the President and certain
Vice Presidents of the Fund, to the extent that such officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense
and without cost to the Fund, a trading function in order to carry out
its obligations under Section 3 hereof to place orders for the purchase
and sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Advisor under the Investment Advisory Agreement between
the Fund and the Advisor; payments to the Fund's distributor under the
Fund's plan of distribution; the charges and expenses of any registrar,
any custodian or depository appointed by the Fund for the safekeeping
-30-
<PAGE>
of its cash, portfolio securities and other property, and any transfer,
dividend or accounting agent or agents appointed by the Fund; brokers'
commission chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by
the Fund to Federal, state or other governmental agencies; the costs
and expenses of engraving or printing of certificates representing
shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its shares
with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting, and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and
travel expenses of Directors or Director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel
to the Directors of the Fund who are not "interested persons" (as
defined in the 1940 Act) of the Fund and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including but not limited to, legal
claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of the amounts determined by applying the following annual
rates to the Fund's average daily net assets: 0.40% of the first $100 million of
the Fund's average daily net assets, 0.35% of the Fund's average daily net
assets in excess of $100 million but not exceeding $200 million, 0.30% of the
Fund's average daily net assets in excess of $200 million but not exceeding $300
million, and 0.25% of the Fund's average daily net assets in excess of $300
million. Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month, compensation for that
part of the month this Agreement is in effect shall be prorated in a manner
consistent with the calculations of the fees as set forth above. Payment of the
Sub-Advisor's compensation for the preceding month shall be made as promptly as
possible.
9. Additional Responsibilities. The Sub-Advisor may, but shall
not be under any duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to examination by the Fund's independent certified public accountants. Payment
or assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is not
required to pay or assume under this Agreement shall not relieve the Sub-Advisor
of any of its obligations to the Fund nor obligate the Sub-Advisor to pay or
assume any similar Fund expenses on any subsequent occasions.
10. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 12
hereof, for two years from the date hereof.
11. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
-31-
<PAGE>
12. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Sub-Advisor on sixty (60) days'
written notice to the Fund and the Advisor. The notice provided for herein may
be waived by any person to whom such notice is required. This Agreement shall
automatically terminate in the event of its assignment (as defined in Section
2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers or Directors of the Sub-Advisor may serve as
officers or Directors of the Fund, and that officers or Directors of the Fund
may serve as officers or Directors of the Sub-Advisor to the extent permitted by
law; and that the officers and Directors of the Sub-Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, directors or trustees of
any other firm, trust or corporation, including other investment companies.
14. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Sub-Advisor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor for this purpose shall be 100 East Pratt Street, Baltimore, Maryland
21202, and the address of the Advisor and the Fund shall be One South Street,
Baltimore, Maryland 21202.
16. Questions and Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
-32-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
/s/T. J. Lott By: /s/William K. Morrill, Jr.
- ------------------------- -------------------------------
Name: William K. Morrill, Jr.
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
/s/Kathy Churko By: /s/Edward J. Veilleux
- ------------------------- --------------------------
Name: Edward J. Veilleux
Title: Executive Vice President
Attest: LASALLE INVESTMENT MANAGEMENT (SECURITIES), L.P.
/s/T. J. Lott By: /s/Keith R. Pauley
- ------------------------- -----------------------
Name: Keith R. Pauley
Title: Managing Director
<PAGE>
EXPENSE LIMITATION AGREEMENT
THIS EXPENSE LIMITATION AGREEMENT is made as of the first day of May,
2000 by and between FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC., a Maryland
corporation (the " Fund") and INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation ("ICC" or the "Advisor"), with respect to the following:
WHEREAS, the Advisor serves as the Fund's investment advisor pursuant
to an Investment Advisory Agreement dated June 4, 1999; 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 this voluntary
fee waiver and expense reimbursement arrangement for the period beginning on May
1, 2000 and ending on April 30, 2001.
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 the
period from May 1, 2000 and ending on April 30, 2001 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.
<PAGE>
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 Investment Company Act of 1940 as amended (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.
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/Kathy Churko /s/Amy M. Olmert
- --------------------------- --------------------------------
Name: Kathy Churko By: Amy M. Olmert
Title: Secretary
INVESTMENT COMPANY
CAPITAL CORP.
Attest:/s/Kathy Churko /s/Edward J. Veilleux
- -------------------------- --------------------------------
Name: Kathy Churko By: Edward J. Veilleux
Title: Executive Vice President
<PAGE>
1701 Market Street MORGAN, LEWIS
Philadelphia, PA 19103 & BOCKIUS L L P
(215)963-5000 C O U N S E L O R S A T L A W
Fax: (215)963-5299
April 24, 2000
Flag Investors Real Estate Securities Fund, Inc.
One South Street
Baltimore, Maryland 21202
Re: Opinion of Counsel regarding Post-Effective Amendment No. 9 to the
Registration Statement filed on Form N-1A under the Securities Act
of 1933 (File No. 33-78648)
Ladies and Gentlemen:
We have acted as counsel to Flag Investors Real Estate Securities Fund,
Inc. (the "Fund") a Maryland corporation, in connection with the
above-referenced Registration Statement which relates to the Fund's shares of
common stock, par value $.001 per share (the "Shares"). This opinion is being
delivered to you in connection with the Fund's filing of Post-Effective
Amendment No. 9 to the Registration Statement (the "Amendment") to be filed with
the Securities and Exchange Commission pursuant to Rule 485(b) under the
Securities Act of 1933. With your permission, all assumptions and statements of
reliance herein have been made without any independent investigation or
verification on our part, except to the extent otherwise expressly stated, and
we express no opinion with respect to the subject matter or accuracy of such
assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the State of Maryland to the existence and good
standing of the Fund dated April 12, 2000;
(b) the Articles of Incorporation of the Fund and all amendments and
supplements thereto (the "Articles of Incorporation");
(c) a certificate executed by Amy M. Olmert, the Secretary of the Fund,
certifying as to the Fund"s Articles of Incorporation and By-Laws
and certain resolutions adopted by the Board of Directors of the
Fund authorizing the issuance of the shares; and
(d) a printer's proof of the Amendment.
<PAGE>
In our capacity as counsel to the Fund, we have examined the originals,
or certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinion hereinafter expressed. In all such examinations, we have assumed
the legal capacity of all natural persons executing documents, the genuineness
of all signatures, the authenticity of all original or certified copies, and the
conformity to original or certified copies of all copies submitted to us as
conformed or reproduced copies. As to various questions of fact relevant to such
opinion, we have relied upon, and assume the accuracy of, certificates and oral
or written statements of public officials and officers or representatives of the
Fund. We have assumed that the Amendment, as filed with the Securities and
Exchange Commission, will be in substantially the form of the printer?s proof
referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of
the opinion that the Shares, when issued and sold in accordance with the
Articles of Incorporation and By-Laws, and for the consideration described in
the Registration Statement, will be legally issued, fully paid and nonassessable
under the laws of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in such Registration
Statement. In giving this consent, we do not concede that we are in the category
of persons whose consent is required under Section 7 of the 1933 Act.
Very truly yours,
/s/Morgan, Lewis & Bockius LLP
- ------------------------------
Morgan, Lewis & Bockius LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 9 to the Registration Statement on Form N-1A of our report dated
February 11, 2000, relating to the financial statements and financial highlights
which appears in the December 31, 1999 Annual Report to Shareholders of Flag
Investors Real Estate Securities Fund, Inc., which is also incorporated by
reference into the Registration Statement. We also consent to the references to
us under the headings "Financial Highlights" and "Independent Accountants" in
such Registration Statement.
PricewaterhouseCoopers LLP
Baltimore, Maryland
April 27, 2000
<PAGE>
Adopted December 14, 1994 and Amended March 18, 1996,
September, 1997 and December 17, 1997
Flag Investors Funds
Consolidated Code of Ethics
I. General
Rule 17j-1 under the Investment Company Act of 1940 (the "1940 Act") makes it
unlawful for certain persons to engage in "fraudulent" practices in connection
with purchases or sales by those persons of securities when those securities are
held or to be acquired by an investment company. The rule also requires every
investment company and the investment company's investment advisor and, in
certain cases, principal underwriter to adopt a Code of Ethics containing
provisions "reasonably necessary to prevent" such fraudulent practices by so
called "Access Persons."
Flag Investors Communications Fund, Inc. ("Communications"), Flag Investors
International Fund, Inc. ("International"), Flag Investors Emerging Growth Fund,
Inc. ("Emerging Growth"), Flag Investors Short-Intermediate Income Fund, Inc.
("Short-Intermediate"), Flag Investors Value Builder Fund, Inc. ("Value
Builder") Flag Investors Real Estate Securities Fund, Inc. ("Real Estate") and
Flag Investors Equity Partners Fund, Inc. ("Equity Partners") are investment
companies covered by the rule. Communications, International, Emerging Growth,
Short-Intermediate, Value Builder, Real Estate and Equity Partners are also
referred to herein individually as a "Fund," and collectively as "Funds."
Investment Company Capital Corp. ("ICC") is the investment advisor to
Communications, International, Emerging Growth, Short-Intermediate, Value
Builder, Real Estate and Equity Partners. Alex. Brown Investment Management
("ABIM") is the sub-advisor to Communications, Value Builder and Equity
Partners; The Glenmede Trust Company ("Glenmede") is the sub-advisor to
International; Brown Investment Advisory & Trust Company ("Brown Trust") is the
sub-advisor to Emerging Growth and Short-Intermediate; LaSalle Investment
Management (Securities) L.P. ("LaSalle") is the sub-advisor to Real Estate.
ABIM, Glenmede, Brown Trust and LaSalle are referred to herein as the
Sub-Advisors. ICC Distributors, Inc. ("ICC Distributors") is the principal
underwriter for each of the Funds. This document constitutes the Code of Ethics
required by Rule l7j-1.
II. Definitions
For purposes of this Code, the following terms have the meanings, set forth as
follows:
A. "Access Person" means:
1. Every director and officer of a Fund;
2. Every "advisory person" of the Funds and of ICC and the
Sub-Advisors. An advisory person is an employee who, in
connection with his or her regular functions or duties, makes,
participates in, or obtains information regarding the purchase
or sale of a security by a Fund, or whose functions relate to
the making of any recommendations with respect to such
purchases or sales; and any natural person in a control
relationship with a Fund or the Fund's investment advisor or
sub-advisor who obtains information concerning recommendations
made to the Fund with regard to the purchase or sale of a
security;
3. Any director or officer of ICC or the Sub-Advisors who,
with respect to a Fund for which such entity acts as
investment advisor or sub-advisor, makes any recommendation,
participates in the determination of which recommendation
shall be made, or whose principal function or duties relate to
the determination of which recommendation shall be made; or
who, in connection with his or her duties, obtains any
information concerning securities recommendations being made
by such investment advisor or sub-advisor to the Fund; and
4. Any director or officer of ICC Distributors who in the
ordinary course of his or her business makes, participates in
or obtains information regarding the purchase or sale of
securities for the Funds or whose functions or duties as part
of the ordinary course of his or her business relate to the
making of any recommendation to the Funds regarding any
purchase or sale of securities.
<PAGE>
B. "Beneficial Ownership" of a security is to be determined in the same
manner as it is for purposes of Section 16 of the Securities Exchange
Act of 1934. This means that a person should generally consider himself
or herself the beneficial owner of any securities in which he or she
has a direct or indirect pecuniary interest. In addition, a person
should consider himself or herself the beneficial owner of securities
held by his or her spouse, his or her minor children, a relative who
shares his or her home, or other persons by reason of any contract,
arrangement, understanding or relationship that provides him or her
with sole or shared voting or investment power.
C. "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the 1940 Act. Section 2(a)(9) defines "control" as the power
to exercise a controlling influence over the management or policies of
a company, unless such power is solely the result of an official
position with such company. Ownership of 25% or more of a company's
outstanding voting securities is presumed to give the holder thereof
control over the company. Such presumption may be countered by the
facts and circumstances of a given situation.
D. "Covered Persons" means any officer, director or employee of
the Funds, ICC, the Sub-Advisors and ICC Distributors.
E. "Disinterested Director" means a Director of a Fund who is not
an "interested person" of the Fund within the meaning of Section
2(a)(19) of the 1940 Act.
F. "Held or to be acquired" means (i) is or has been held by the Fund,
or (ii) is being or has been considered by such Fund or its investment
advisor or Sub-Advisor for purchase, within the most recent 15 days.
G. "Investment Personnel" means all Access Persons who occupy the
position of portfolio manager with respect to a Fund, all Access
Persons who provide or supply information and/or advice to any
portfolio manager, or who execute or help execute any portfolio
manager's decisions, and all Access Persons who, in connection with
their regular functions, obtain contemporaneous information regarding
the purchase or sale of a security by a Fund.
H. "Purchase or sale of a security" means obtaining or disposing of
"beneficial ownership" (see B above) of that security and includes,
among other things, the writing of an option to purchase or sell a
security. A person who has any questions about beneficial ownership
should consult the Secretary of the Fund.
I. "Security" shall have the same meaning as that set forth in Section
2(a)(36) of the 1940 Act, except that it shall not include securities
issued by the Government of the United States or an agency thereof,
bankers' acceptances, bank certificates of deposit, commercial paper
and registered, unaffiliated open-end investment companies.
J. A security is "being purchased or sold" by a Fund from the time when
a purchase or sale program has been communicated to the person who
places the buy and sell orders for the Fund until the time when such
program has been fully completed or terminated.
III. General Principles
A. Covered Persons
All Covered Persons are subject to the prohibitions of Rule 17j-1
against fraudulent practices and to the general fiduciary principles as
set forth in B and C below. Certain provisions of this Code of Ethics,
for example, the reporting requirements and certain other requirements
and restrictions contained herein apply to narrower classes of persons,
e.g., Access Persons or Investment Personnel.
However, everyone in the ICC, Sub-Advisor and ICC Distributors
organizations should appreciate the need to behave in an ethical manner
with respect to the Funds. In particular, all employees who are
involved in any way with the activities of a Fund should be wary of any
potential conflicts between their duty of loyalty to a Fund and their
own financial interests, particularly with respect to their own
securities trading activities. Employees should take care to preserve
the confidentiality of the Funds' business affairs. Employees who are
not "Access Persons" but who become aware of proposed Fund securities
transactions should not engage in transactions in those same securities
without the permission of the Secretary of the Fund. Otherwise,
employees who are not Access Persons are not limited in their personal
securities transactions by this Code, but such employees are encouraged
to consult with the Secretary of the Fund or with other officers of the
Funds if they have any doubts about the applicability of the Code to
any proposed transaction.
<PAGE>
B. Statement of General Fiduciary Principles
The following principles are the policy of the Funds, ICC, he
Sub-Advisors and ICC Distributors and must be followed by all Covered
Persons:
1. It is the duty of all Covered Persons at all times to place
the interests of shareholders first;
2. All personal securities transactions must be conducted
consistent with this Code of Ethics and in such manner as to
avoid any actual or potential conflict of interest or any
abuse of an individual's position of trust and responsibility;
and
3. Covered Persons must not take inappropriate advantage to
the detriment of shareholders of the Funds of their positions,
or the information they acquire, with or on behalf of the
Funds, ICC, the Sub-Advisors and ICC Distributors.
C. Fraudulent Practices
Rule 17j-1 makes it unlawful for any Covered Person, in connection with
a Fund with which such Covered Person has a relationship, to:
1. Employ any device, scheme or artifice to defraud the Fund;
2. Make to the Fund any untrue statement of a material fact or
omit to state to the Fund a material fact necessary in order
to make the statements made, in light of the circumstances
under which they are made, not misleading;
3. Engage in any act, practice or course of business which
operates or would operate as a fraud or deceit upon the Fund;
or
4. Engage in any manipulative practice with respect to the
Fund.
IV. Restrictions on Personal Transactions
A. Preclearance
As set forth below, Access Persons, Investment Personnel and, in
certain instances, Covered Persons are required to "preclear" personal
securities transactions. These preclearance requirements and procedures
should be reasonably designed to identify any prohibition or limitation
applicable to the proposed transaction.
1. A Disinterested Director of a Fund shall not purchase or
sell a security that the Director knows is to be sold or
acquired by the Fund, without first obtaining written
authorization of the Fund's Secretary;
2. Covered Persons who, in connection with their regular
functions or duties do not make or participate in decisions
regarding the purchase or sale of securities for a Fund,
obtain information (other than publicly available information)
regarding such purchases or sales, or make or participate in
the making of recommendations in connection with such
purchases or sales, shall not purchase or sell a security that
the Covered Person knows is to be sold or acquired by the
Fund, without first obtaining written authorization of the
Fund's Secretary; and
3. Access Persons shall not purchase or sell a security (other
than on behalf of the Fund) without first obtaining written
authorization of the Fund's Secretary.
B. Exemptions
The requirements of paragraph A above shall not apply to the following
transactions:
1. Purchases or sales over which the person had no direct or
indirect influence or control;
2. Purchases or sales which are non-volitional on the part of
either the person or the Fund;
3. Purchases which are part of an automatic dividend
reinvestment plan;
<PAGE>
4. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities,
to the extent such rights were acquired from such issuer; or
5. Transactions in shares of any investment company.
Where a person has fiduciary responsibility which makes it
inappropriate, in the view of such person, to obtain prior
authorization with respect to a transaction, such person may complete
the transaction but must promptly notify the Secretary of the Fund or
another appropriate person.
C. Blackout Periods
No Access Person may execute securities transactions on a day during
which any Fund in the Access Person's complex has a pending "buy" or
"sell" order in the same security until that order is executed or
withdrawn. No Investment Personnel may buy or sell a security within
seven calendar days before and three calendar days after the Fund,
which the Investment Personnel manages, trades in that security. Access
Persons and Investment Personnel of ICC, ABIM and Brown Trust
(collectively Asset Management) would be exempt from the blackout
provisions of this Section IV.C. provided that: 1) the market
capitalization of a particular security exceeds $2 billion; and 2)
orders of the respective business unit of Asset Management do not
exceed ten (10) percent of the daily average trading volume for the
prior fifteen (15) days.
D. Prohibition Against Participation in IPOs
No Investment Personnel may acquire securities as a part of an initial
public offering by the issuer.
E. Private Placements
Investment Personnel may acquire securities in a private placement only
after prior approval by the Secretary of the Fund. The Secretary of the
Fund will consider the following factors, among others, in determining
whether to grant approval of the acquisition in a private placement by
Investment Personnel:
1. Whether the opportunity is being offered to the Investment
Personnel by virtue of his or her position with the Fund;
2. Whether the transaction appears upon reasonable inquiry and
investigation to present no reasonable likelihood of harm to
the Funds and which is otherwise in accordance with Rule
l7j-l; and
3. Whether the security offered in the private placement is a
security that is eligible for purchase, and should be made
available for purchase, by any of the Funds.
F. Ban on Short-Term Trading Profits
No Investment Personnel may profit in the purchase and sale, or sale
and purchase, of the same (or equivalent) securities within 60 calendar
days. Any profits realized on such short-term trades will be disgorged
to the benefit of the appropriate Fund, if practical.
V. Compliance Procedures
A. Reporting Requirements
1. Every Access Person shall report1/ to the Secretary of the
Fund the following information with respect to transactions in
any security in which such Access Person2/ has, or by reason
of such transaction acquires, any direct or indirect
beneficial ownership in a security, whether or not the
security is held or to be acquired by the Fund:
- --------
1/ Any such report may contain a statement that the report shall not be
construed as an admission by the person making the report that he has any
direct or indirect beneficial ownership in the security to which the report
relates.
2/ No report is required if such person is a Disinterested Director, and such
person would be required to make such report solely by reason of being a
director, except where such director knew or, in the ordinary course of
fulfilling his official duties as a director of the Fund, should have known
that during the 15-day period immediately preceding or after the date of the
transaction in a security by the director, such security is or was purchased
or sold, or considered for purchase or sale by the Fund.
<PAGE>
a. The date of the transaction, title and number of
shares, and the principal amount of each security
involved;
b. The nature of the transaction (i.e., purchase,
sale or any other type of acquisition or
disposition);
c. The price at which the transaction was effected;
d. The name of the broker, dealer or bank with or
through whom the transaction was effected; and
e. The date the report was signed.
2. Every report shall be made not later than ten days after
the end of the calendar quarter in which the transaction to
which the report relates was effected, and shall be in the
form of Appendix A hereto. In the event no reportable
transaction occurred during the quarter, the report should be
so noted and returned signed and dated.
3. Notwithstanding the provisions of Section 1 hereof, no
person shall be required to make a report with respect to
transactions effected for any account over which such person
does not have any direct or indirect influence or control.
B. Disclosure of Personal Holdings
Each Access Person must disclose to the Secretary of the Fund, all
personal securities holdings - irrespective of trading activity - upon
commencement of employment or within two weeks of receipt of this Code
of Ethics. Each Access Person must revise the list of such holdings
thereafter on an annual basis.
C. Records of Securities Transactions
Access Persons must direct each brokerage firm or bank at which such
person maintains a securities account to supply to the Secretary of the
Fund, on a timely basis, duplicate copies of confirmations of all
personal securities transactions and copies of periodic statements for
all securities accounts.
D. Certification of Compliance with Code of Ethics
Access Persons must certify annually that they have read and understand
this Code of Ethics and recognize that they are subject to the Code and
that they have complied with the Code and its reporting requirements.
E. Post-Trade Monitoring
Each Fund must implement procedures to monitor personal investment
activity by Access Persons after preclearance has been granted in order
to identify patterns of personal securities trading occurring before
Fund trades.
VI. Additional Restrictions
A. Prohibition Against Receiving Gifts
No Access Person may accept any gift or other thing of more than de
minimis value from any person or entity that does business with or on
behalf of the Funds, ICC, the Sub-Advisors and ICC Distributors.
B. Prohibition Against Serving as Director
No Investment Personnel may serve on the board of directors of a
publicly traded company, absent prior authorization from the Secretary
of the Fund based upon a determination that the board service would be
consistent with the interests of the Fund and its shareholders. If such
authorization is granted, the Investment Personnel that is serving as a
director must be isolated from those making investment decisions
through a "Chinese Wall" or other procedures.
<PAGE>
VII. Review and Enforcement
A. General
Access Persons who have supervisory responsibility should take
reasonable steps to protect against violations of Rule 17j-1 by
employees for whom they are responsible. Supervisors are not expected
to guarantee the conduct of their employees, but should be alert to
possible problems. In addition, Access Persons who become aware of
violations of Rule 17j-1 or actions inconsistent with this Code are
expected to take steps to correct such problems. Depending on the
gravity of the situation, it may be appropriate for an Access Person to
bring a problem to the attention of the Chairman of a Fund. The
Chairman may agree to handle such matters in confidence, subject to the
right of the Board of Directors to obtain information about any
activities of the Chairman.
B. Review
The Secretary of each Fund shall notify all Access Persons of their
obligations under Rule 17j-1 and the Code. The Secretary of the Fund
shall review all reports and shall promptly consider all requests made
by Access Persons of ICC, the Sub-Advisors and ICC Distributors
pursuant to the provisions of the Code. If problems arise, the
Secretary of each Fund may attempt to resolve those problems
informally, but he or she has the authority to recommend sanctions to
the Chairman of the Fund or to the Board of Directors where
appropriate. The Secretary of the Fund will make a quarterly report to
the Board of Directors concerning all reports received. Subject to the
authority of the Board of Directors, the Secretary of each Fund shall
have broad discretion to administer the Code so as to achieve its
purposes and prevent the problems that Rule 17j-1 was designed to
resolve.
C. Enforcement
1. The Secretary of the Fund shall compare all reported
personal securities transactions with completed portfolio
transactions of the Funds and a list of securities being
considered for purchase or sale by the Funds to determine
whether a violation of this Code may have occurred. Before
making any determination that a violation has been committed
by any person, the Secretary of the Fund shall give such
person an opportunity to supply additional explanatory
material.
2. If the Secretary of the Fund determines that a violation of
this Code may have occurred, he or she shall submit his or her
written determination, together with the confidential monthly
report and any additional explanatory material provided by the
individual, to the Chairman of the Fund and outside counsel,
who shall make an independent determination as to whether a
violation has occurred.
3. If the Chairman and outside counsel find that a violation
has occurred, the Chairman shall impose upon the individual
such sanctions as he or she deems appropriate and shall report
the violation and the sanction imposed to the Board of
Directors of the Fund.
4. No person shall participate in a determination of whether
he or she has committed a violation of the Code or of the
imposition of any sanction against himself or herself. If a
securities transaction of the Chairman is under consideration,
the President shall act in all respects in the manner
prescribed herein for the Chairman.
In the event the Secretary of a Fund is absent or unable to serve, the
Treasurer or Vice Presidents of the Funds, respectively, shall assume
the responsibilities and perform the obligations of the Secretary of
each Fund under this Code.
VIII. Records
The Funds shall maintain records in the manner and to the extent set forth
below, which records may be maintained on microfilm under the conditions
described in Rule 31a-2 under the 1940 Act and shall be available for
examination by representatives of the Securities and Exchange Commission.
<PAGE>
A. A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect shall be preserved in an
easily accessible place;
B. A record of any violation of this Code and of any action taken as a
result of such violation shall be preserved in an easily accessible
place for a period of not less than five years following the end of the
fiscal year in which the violation occurs;
C. A copy of each report made by a director pursuant to this Code shall
be preserved for a period of not less than five years from the end of
the fiscal year in which it is made, the first two years in an easily
accessible place; and
D. A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code shall be
maintained in an easily accessible place.
IX. Investment Advisor's, Sub-Advisor's and Principal Underwriter's Code
of Ethics
A. The procedures for clearance and reporting of personal securities
transactions set forth in sections IV and V hereof shall not apply to
any Access Person who is subject to substantially similar requirements
under procedures established by ICC, the Sub-Advisors and ICC
Distributors.
B. Each of ICC, the Sub-Advisors and ICC Distributors shall:
1. Submit to the Board of Directors of the Fund a copy
of its code of ethics adopted pursuant to Rule 17j-1;
2. Promptly report to the Fund in writing any material
amendments to such Code;
3. Promptly furnish to the Fund upon request copies of
any reports made pursuant to such Code by any person who is
an Access Person as to the Fund; and
4. Immediately furnish to the Fund, without request, all
material information regarding any violation of such Code by
any person who is an Access Person as to the Fund.
X. Miscellaneous
A. Confidentiality. All reports of securities transactions and
any other information filed with the Funds pursuant to this Code shall
be treated as confidential.
B. Interpretation of Provisions. The Board of Directors may from
time to time adopt such interpretations of this Code as it deems
appropriate.
C. Periodic Review and Reporting. The Chairman of each Fund
shall report to the Board of Directors at least annually as to the
operation, and any violations, of this Code and shall address in
any such report the need (if any) for further changes or modifications
to this Code.
Adopted this 14th day
of December, 1994.
<PAGE>
APPENDIX A
FLAG INVESTORS FUNDS
Transaction Report
To: The Secretary, FLAG INVESTORS FUNDS
From: _______________________________________________________________
This Transaction Report (the "Report") is submitted pursuant to the
Code of Ethics of the Flag Investors Funds (the "Funds"), and supplies, on the
table on the reverse side, information with respect to a transaction in any
security in which I may be deemed to have, or by reason of such transaction
acquire, any direct or indirect beneficial ownership interest, whether or not
such security is a security held or to be acquired by any one or more of the
Funds for the calendar quarter ended ______________ 20 .* I understand that I
may have beneficial ownership of securities of which certain other persons are
the record owners as well as securities of which I am the record owner, and I
have included transactions in such securities in this Report where applicable. I
also understand that:
(i) If I am a "Disinterested" Director of the Funds, I am required to
report a transaction in a security only in such cases as I knew or, in the
ordinary course of fulfilling my official duties as a Director of the Fund,
should have known that, during the 15-day period immediately preceding or after
the date of my purchase or sale, the security was purchased or sold, or was
considered for purchase or sale by a Fund or its investment advisor for such
Fund; and
(ii) I am not required to include in this Report transactions effected
for any account over which I do not have any direct or indirect influence or
control.
I hereby certify that:
1. I am fully familiar with the Code of Ethics of the Fund;
2. To the best of my knowledge, the information furnished in this
Report is complete, true and correct; and
3. If, during the month indicated, I have obtained, through the
acquisition of securities or otherwise, ownership of 1/2% or more of the
outstanding voting securities of any issuer, I have reported such fact to the
Fund.
__________________
Date Signature
*If you had no reportable transactions during the quarter, please enter "none"
in the table on the next page.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Date of Shares or Nature of Broker
Trans- Title of Principal Trans- Price Dealer
action Issuer Securities Amount action* Per Unit Or Bank**
- ------- ---------- ---------- --------- --------- -------- -------
</TABLE>
<PAGE>
* Purchase, sale or other type of disposition or acquisition.
** Indicate in this column if you wish to disclaim beneficial ownership of
any security listed in this report.
<PAGE>
February, 2000
PERSONAL SECURITIES TRADING
POLICIES AND PROCEDURES
For: Alex. Brown Investment Management ("ABIM")
Investment Company Capital Corp. ("ICC")
- ----------------------------------------------------------------------------
I. INTRODUCTION
ABIM and ICC ("Asset Management") recognize the desirability of
permitting Employees and members of their immediate families the opportunity to
engage in normal investment practices for their personal accounts and accounts
in which they have a beneficial interest. The legitimate investment objectives
of Employees, however, must be balanced against the interests of clients as well
as Asset Management's regulatory responsibilities.
Asset Management's policies and procedures regarding personal
securities trading have been developed in response to various securities laws
and rules and regulations of self-regulatory agencies. These procedures include
many of the recommendations made by a special advisory group formed by the
Investment Company Institute to review practices and standards governing
personal investing. These procedures have been submitted to the Board of
Directors of the Flag Investors Family of mutual funds (the "Funds"), and shall
serve as the Code of Ethics required in connection with Asset Management's
services as investment advisor to the Funds.
Each Employee is expected to adhere to these policies and procedures
so as to avoid any actual or potential conflicts of interest, or situations in
which an individual may be accused of having abused a position of trust and
responsibility. Any questions regarding the application of these policies and
procedures should be directed to your appropriate senior officer or the
designated Asset Management compliance officer.
II. DEFINITIONS
Employee - For purposes of these policies and procedures, the term
Employee will refer to all Employees of Asset Management and members of
their immediate families.
Immediate Family - Immediate Family shall include spouse, minor
children, dependents and other relatives who share the same house and
depend on the Employee for support.
Employee Related Accounts - The term " Employee Related Account" shall
mean any account held in the name of an Employee or in which the
Employee has a Beneficial Interest. In addition, such accounts include
accounts held in the name(s) of any member(s) of the Employee's
Immediate Family as well as any account in which those persons have a
Beneficial Interest.
Beneficial Interest - An Employee or immediate family member shall be
considered to have a beneficial interest in an account if he or she
obtains benefits from the account substantially equivalent to whole or
partial ownership. Employee and immediate family members are also
deemed to have a beneficial interest in accounts in which they have the
power, directly or indirectly, to make investment decisions. Examples
include, but are not limited to, accounts for trusts, partnerships and
corporations in which an Employee or immediate family member maintains
an interest or derives a benefit.
4
<PAGE>
Discretionary Accounts - An Employee Related Account where full
investment discretion has been granted to an investment manager,
trustee or outside bank where neither the Employee nor a close relative
participates in the investment decisions or is informed in advance of
transactions in the account.
III. POLICIES/PROCEDURES
A. Substantive Restrictions on Personal Investing
1. Initial Public Offerings
Asset Management Employees are prohibited from acquiring shares of an
issuer in an initial public offering.
2. Private Securities Transactions
Asset Management Employees may engage in such transactions
after having obtained the prior written approval of the
appropriate senior officer of their respective business unit
and Mutual Funds Compliance. Attached as Exhibit A is a copy
of the general policy and the appropriate form for making such
request. Among the factors in considering the request by a
senior officer are: 1) whether the opportunity is being made
available to the Employee due to the Employee's position
within Asset Management; 2) whether the transaction would
appear to conflict with clients' interests; and, 3) whether
the security being offered is an appropriate investment to be
made on behalf of clients.
Employees who received approval to engage in a private
securities transaction must disclose that investment in the
event they become involved in any subsequent consideration of
the issuer as a potential investment for the Funds or other
clients. In such circumstances, a final decision to invest on
behalf of clients should be made after independent review by
personnel with no personal interest in the issuer.
3. Blackout Periods
a. Pending Trades - Employees are prohibited from executing a
transaction in an Employee Related Account when Asset
Management clients of their respective business unit have
pending "buy" or "sell" orders in the same security. This
prohibition will remain in effect until such orders are
executed or withdrawn.
b. Fund Trades - Employees are prohibited from trading in a
security for a period of at least seven calendar days
before, and three calendar days after, any transaction by
a Fund Account advised by that respective business unit of
Asset Management in the same security. This blackout
period would be inapplicable where 1) the market
capitalization of the security exceeded $2 billion; and 2)
trades of the respective business unit of Asset Management
do not exceed 10% of the daily average trading volume for
the prior 15 days.
c. Discretionary Accounts - The Blackout Periods described
above do not apply to Discretionary Accounts.
4. Outside Securities Accounts
a. General
Except in extraordinary circumstances, Asset Management
prohibits the maintenance of Employee Related Accounts
with broker/dealers outside of DBAB. The appropriate
senior officer for their respective business units must
approve any requests by Employees for such accounts.
Attached as Exhibit B, is a copy of the general policy and
the appropriate form for making such request. All such
accounts are subject to prior approval and record keeping
requirements as will be described below.
b. Exceptions
Asset Management has determined that the following outside
accounts are exempt from the prior approval requirements:
5
<PAGE>
(i) accounts maintained directly with an investment
company in which shares of open-end investment
companies only can be purchased; and
(ii) Discretionary Accounts.
c. Transfer
Outside accounts which are not exempt under Section 4.b.
must be transferred to DBAB within forty-five (45) days of
the Employee's hire date.
5. Ban on Short-Term Trading Profits
In addition to the blackout periods noted above, and in the
absence of appropriate extenuating circumstances, Asset
Management Employees are prohibited from profiting in the
purchase and sale, or sale and purchase, of the same (or
equivalent) securities within 60 calendar days. Profits
realized from trades within the proscribed period will be
required to be forfeited to the appropriate Asset Management
business unit. Under limited and appropriate circumstances, an
Employee may request an exception to this restriction. Such
requests may only be made to the appropriate senior officer of
his or her respective business unit.
6. Outside Business Affiliations, Employment or Compensation
Asset Management Employees may not maintain outside
affiliations (e.g. officer or director, governor, trustee,
etc.) without the prior written approval of the appropriate
senior officer of their respective business units. Attached as
Exhibit C is a copy of the general policy and the appropriate
form for making such request. Service on Boards of publicly
traded companies should be limited to a small number of
instances. However, such service may be undertaken based upon
a determination that these activities are consistent with the
interest of Asset Management and its clients. Employees
serving as directors will not be permitted to participate in
the process of making investment decisions on behalf of
clients which involve the subject company.
7. Gifts
Asset Management restricts the making or receiving of gifts
and gratuities to ensure the highest standards of employee
integrity and conduct, and to ensure compliance with rules of
the various self-regulatory organizations. Asset Management
Employees are expected to report and receive prior approval
for any such gifts or gratuities, except for gifts of de
minimis value. De minimis is defined as the annual receipt of
gifts from the same source valued at $100 or less.
6
<PAGE>
B. Procedures for Personal Investing
1. Transaction Approval
All Asset Management Employees must receive prior approval
of personal securities transactions in Employee Related
Accounts. All prior approval requests must be made in
writing to the appropriate person designated for such
approvals. Approvals of transactions are good for the day
they are given and must be reinstated the next day if not
executed or withdrawn. Attached as Exhibit D is a copy of
the Personal Securities Transaction Approval Form to be
completed by Asset Management Employees. Only after
receiving approval may the Asset Management Employees
contact their registered representative to enter the order.
Requests for approval of trades by ABIM Employees (and the
accompanying approval form) are to be directed to the Chief
Executive Officer, or his designee, and a copy of the
completed form will be maintained centrally at ABIM.
Requests for approval of trades by ICC Employees (and the
accompanying approval form) are to be directed to Mutual
Funds Compliance. After approval, ICC employees must receive
approval from Corporate Compliance and forward the Corporate
pre-clearance number to Mutual Funds Compliance. One copy of
the completed form will be maintained with Mutual Funds
Compliance.
Asset Management has determined that certain securities
transactions are exempt from the prior approval requirements
as follows:
o Trading activity in Discretionary Accounts;
o Shares of open-end investment companies registered
under the Investment Company Act of 1940;
o Shares purchased under an issuer sponsored dividend
reinvestment program;
o Purchases and sales of securities issued or guaranteed
by the U.S. government or its agencies and bank
certificates of deposit;
o To the extent acquired from the issuer, purchases
effected upon the exercise of rights issued pro rata to
holders of a class of securities; and
o Securities purchased under an employer sponsored stock
purchase plan or upon the exercise of employee stock
options. Any sale of securities acquired pursuant to
the exercise of employee stock options remains subject
to the pre-clearance procedures.
7
<PAGE>
2. Records of Securities Transactions
a. General
Each Asset Management Employee is responsible for
confirming that all Employee Related Accounts are set up
in such a way that designated supervisory personnel
receive records of securities transactions as follows:
(i) In the case of accounts maintained at DBAB, a
report system (the Firm Insider Trade
Report System) has been developed which will
provide designated supervisory
personnel a monthly summary report of securities
transactions in Employee Related
Accounts. At the time an account is approved,
Employees must provide the account
name and number to the person in their respective
business unit responsible for
maintaining the report system.
(ii) In the case of outside securities accounts, Asset
Management must receive duplicate copies of
confirmations and statements. Before engaging in
any transactions, the Employee must confirm that:
i) the account has been approved; and, ii) that
firm has been instructed to provide duplicate
confirmations and statements.
b. Exemptions
(i) Accounts maintained directly with an investment
company in which shares of open-end investment
companies only can be purchased are exempt from
the records requirements, provided that the
requisite information regarding the account is
disclosed in the Employee's Initial Holdings
Report and Annual Holdings Report, as described
in paragraph 4.a. below.
(ii) Discretionary Accounts are exempt from the
records requirements, provided that the requisite
information regarding the account is disclosed as
described in paragraph 4.b. below.
3. Post-Trade Monitoring
Asset Management supervisory personnel will conduct periodic reviews of
the trading activities of Asset Management Employees to monitor compliance with
these procedures so as to ensure that the interests of Asset Management and its
clients are not compromised.
4. sCertification/Disclosure of Accounts and Holdings
a. Employee Related Accounts
All Asset Management Employees will, at time of hire and annually
thereafter, be provided with a copy of these policies and procedures and will be
requested to certify annually that they have read and understand them.
<PAGE>
(i) Initial Holdings Report
Within 10 days of the Employee's hire date, each
Employee shall make an Initial Holdings Report in the
form of Exhibit E.
(ii) Annual Holdings Report
On an annual basis, each Employee shall make an
Annual Holdings Report in the form of Exhibit E. The
Annual Holdings Report shall contain information
which is current as of a date which is no more than
30 days before the report is submitted.
b. Discretionary Accounts
Each Asset Management Employee with an outside Discretionary
Account will, at the time of hire and annually thereafter,
provide Mutual Funds Compliance with a certification from
their investment manager, trustee or outside bank, as
applicable, as to the discretionary status of the account. The
certification form is attached as Exhibit F.
C. Sanctions
Persons violating the provisions of these Personal Trading
Policies and Procedures may be subject to the following
sanctions:
1. Upon the first violation within a one-year period, the
Employee will be subject to a monetary penalty of $100,
or such other penalty as may be determined in the
discretion of the committee referenced in paragraph 3.
2. Upon the second violation within a one-year period, the
Employee will be subject to a monetary penalty of $500,
or such other penalty as may be determined in the
discretion of the committee referenced in paragraph 3
(assuming that the first violation was brought to the
Employee's attention).
3. Upon the third violation within a one-year period, the
matter shall be reviewed by a committee consisting of
the Head of the Business Unit, the Head of Legal and
the Head of Compliance. The committee will determine
appropriate sanctions, which may include (but are not
limited to) a letter of censure, further monetary
penalties, restrictions on the violator's personal
securities transactions, unwinding of the transaction
and disgorgement of profits and suspension or
termination of employment.
The proceeds of any monetary penalties recovered in connection
with the sanctions described above shall be donated to the
United Way.
9
<PAGE>
EXHIBIT A
PRIVATE SECURITIES TRANSACTIONS
Private Securities Transactions are those which are not transacted
through a brokerage firm and/or not reflected on records of accounts maintained
at such brokerage firms. Asset Management Employees and members of their
immediate family may not purchase or sell any security (except those exempt
under these Personal Securities Policies and Procedures) in a private securities
transaction unless the Employee has received the prior written approval of the
senior officer of their respective business unit. Requests for approval must be
made on the Request for Approval of Private Securities Transaction Form (a copy
of which is provided with this Code).
The definition of a private securities transaction should be construed
broadly. Any questions regarding such transactions should be directed to the
senior officer of the respective business unit.
PLEASE SEE THE REQUEST FOR APPROVAL OF PRIVATE SECURITIES TRANSACTION FORM
BEGINNING ON THE FOLLOWING PAGE
REQUEST FOR APPROVAL OF
PRIVATE SECURITIES TRANSACTION
To:__________________________________________________(Branch/Department Manager)
The undersigned requests approval of the following securities transaction:
Issuer:
Is Issuer a publicly traded company? Yes _________ No
Buy: ___________ Sell: _________ Anticipated Date of Transaction:
10
<PAGE>
Description of Securities:
Number of Shares/Units: _________________________________ Cost/Proceeds
Name of person from whom I propose to purchase or to whom I propose to sell:
Is this person a client of the Firm? Yes ___________ No
If yes, what is nature of the client relationship between that person and the
firm?
To your knowledge, is this investment being offered to others? Yes _____ No
Are you providing any service or advice to this Issuer? Yes _____ No
If yes, please describe the service or advice:
(Name of Person Requesting Approval)
_____________________________
(Date) (Signature)
................................................................................
IMPORTANT NOTICE
----------------
IT IS THE FIRM'S POLICY THAT EMPLOYEES MAY NOT SOLICIT OR RECOMMEND TO
ANY CLIENT OF THE FIRM THE PURCHASE OF ANY SECURITY UNLESS SUCH PURCHASE IS MADE
THROUGH THE FIRM. MOREOVER, THE RECEIPT BY ANY EMPLOYEE OF A "FINDER'S FEE" OR
OTHER COMPENSATION FROM A PERSON OR COMPANY UNRELATED TO THE FIRM FOR REFERRALS
OF PROSPECTIVE INVESTORS IS PROHIBITED.
To: Mutual Funds Compliance
I have reviewed and approved this request for permission to engage in
the private securities transaction described. In connection with this request, I
have the following comments:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________
(Name of Branch/Department Manager)
___________________ ________________________________________
(Date) (Signature of Branch/Department Manager)
................................................................................
To: _______________________________________________ (Person Requesting Approval)
Your request for permission to engage in the private securities
transaction described on the front of this form has been approved. If any of the
details of that transaction change, please advise Mutual Funds Compliance before
the transaction is completed.
________________________
(Date) (Mutual Funds Compliance)
11
<PAGE>
EXHIBIT B
OUTSIDE SECURITIES ACCOUNTS
It is the Firm's policy that all Employee Related Accounts be
maintained at DBAB. Such accounts may be maintained at outside firms only in
extraordinary circumstances. Any such requests for an outside securities account
must be made in writing on a Request for Approval of an Outside Brokerage
Account Form (a copy of which is provided with these procedures) and approved in
advance by the appropriate senior officer of the respective business unit.
Approval will be granted only if:
|X| The other firm offers products of services not available through DBAB; or,
|X| Other extenuating needs or circumstances exist and are demonstrated.
PLEASE SEE THE REQUEST FOR APPROVAL OF OUTSIDE BROKERAGE ACCOUNT FORM
BEGINNING ON THE FOLLOWING PAGE
12
<PAGE>
REQUEST FOR APPROVAL OF AN OUTSIDE BROKERAGE ACCOUNT
To:___________________________________ From:________________________________
Branch/Department Manager
The undersigned requests approval to maintain the outside brokerage account
described below.
Name & Address__________________________________________________________________
of Broker Dealer________________________________________________________________
Investment Representative for A/C:______________________________________________
A/C #: ______________________ A/C Title:__________________________________
Reason for Request:_____________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
I understand that if my request is approved, I must:
1) Comply with the Firm's procedures requiring prior approval by my
supervisor of All transactions in this account; and
2) Make the necessary arrangements for my supervisor to receive duplicate
confirmations and monthly statements for this account.
____________________________________ _________________________________________
(Name of Person Requesting Approval) (Signature of Person Requesting Approval)
................................................................................
To: Mutual Funds Compliance Date:______________________
I have reviewed and approved this request for the above outside
brokerage account.
___________________________________ ________________________________________
(Name of Branch/Department Manager) (Signature of Branch/Department Manager)
13
<PAGE>
EXHIBIT C
OUTSIDE BUSINESS AFFILIATIONS,
EMPLOYMENT AND COMPENSATION
General Policy
No Asset Management Employee may maintain outside affiliations
(directorships, governorships or trusteeships) with business organizations,
outside employment or receive compensation from any source, without the prior
approval of the senior officer of their respective business unit. In addition,
some instances may require approval by the New York Stock Exchange as well.
Requests for approval must be made on the Outside Business Affiliation,
Employment or Compensation Form (a copy of which is provided with these
procedures). Termination of such affiliations must also be reported.
Service on Board of Eleemosynary Organizations
Asset Management Employees are encouraged not only to provide monetary
support to charitable and civic organizations in their communities, but also to
be generous with their time and effort. Asset Management is justifiably proud
that many Employees serve as officers, directors, trustees or fund-raisers for
numerous eleemosynary organizations.
From time to time, such organizations may need to procure, either
directly or indirectly, brokerage or investment management services that DBAB
provides, and the Employee associated with such an organization may expect
either to provide those services on behalf of DBAB, or be compensated by DBAB as
a result of the use of these services, or to be directed business by an
unrelated service provider recommended by the Employee to that organization.
For the benefit of the eleemosynary organization, DBAB and the Asset
Management Employee associated with the eleemosynary organization, the following
guidelines apply whenever DBAB is providing or is expected to provide services,
directly or indirectly, to the organization with which the employee is
associated:
1. The Employee must disclose his or her employment by DBAB; and,
2. If the Employee expects to be compensated by DBAB in connection
with or as a result of, the services provided by DBAB or an
unrelated service provider recommended by the Employee, the
Employee must disclose this fact; and,
3. If the Employee is a member of the body which decides whether to
employ DBAB, the Employee must abstain from participating in the
selection of the service provider; and,
4. All of the foregoing must be memorialized in writing to the
appropriate officer of the board of the eleemosynary organization
or in the minutes of the applicable meeting(s) of the governing
body at which the selection of the service provider is made.
PLEASE SEE THE APPROVAL OF OUTSIDE BUSINESS AFFILIATION, EMPLOYMENT OR
COMPENSATION FORM ON THE FOLLOWING PAGE
14
<PAGE>
OUTSIDE BUSINESS AFFILIATION, EMPLOYMENT OR COMPENSATION
FIRM POLICY
No Employee may maintain any outside affiliations (e.g. officer or
director, governor, or trustee etc.) with any business organization, outside
employment, or receive compensation from any source without prior approval of
the individual's Branch/Department Manager and Mutual Funds Compliance.
Outside affiliation relationships with non-business organizations (e.g.
church, civic organization, etc.) do not require prior approval unless the
Employee wants to establish and handle an account for the organization.
Generally, Employee's may not serve as trustee for any such accounts while they
also serve as IR.
Please provide the information requested below, sign on the back, and
submit the form to you Branch/Department Manager for approval. You will be
informed if approval is granted.
1. Employee Name:______________________________________________________________
2. Organization with which you wish to become affiliated, or organization or
person by whom you wish to be employed or compensated:
a. Name:__________________________________________________________________
b. Address:_______________________________________________________________
c. Nature of Business:____________________________________________________
d. Does the organization have publicly traded securities?_________________
e. If so, where are they traded?__________________________________________
f. Does the organization have a brokerage account at the Firm?____________
g. If so, what is the account number and who is the IR?___________________
3. State the nature of your proposed affiliation or employment, or the
nature of the services for which you will be compensated, and briefly
describe your duties:__________________________________________________
4. On what date will your proposed affiliation, employment or compensation
begin?
5. a. Will you be compensated?_________________________________________
b. If so, how much?_________________________________________________
6. State the nature and extent of your financial interest, if any, in the
organization:
7. State the amount of time you will devote to the organization's business and
indicate whether you will devote any time to the organization's business
during normal working hours:
___________________________________________________________________________
8. State the reasons why you have been asked to become affiliated with the
organization (social contact, knowledge of the industry,
etc.)______________________________________________________________________
___________________________________________________________________________
................................................................................
15
<PAGE>
To: ___________________________________________(Branch/Department Manager)
The undersigned requests approval of the outside business affiliation,
employment or compensation described on the reverse side of this request.
_________________________________________
(Name of Person Requesting Approval)
________________________ _________________________________________
(Date) (Signature of Person Requesting Approval)
................................................................................
To: Mutual Funds Compliance
I have reviewed and approved this request for the outside business
affiliation, employment or compensation described on the reverse side of this
request. In connection with this request, I have the following comments:
________________________________________
(Name of Branch/Department Manager)
_______________________ ________________________________________
(Date) (Signature of Branch/Department Manager)
................................................................................
To:_________________________________________________(Person Requesting Approval)
The outside business affiliation, employment or compensation described
on the reverse side of this request has been approved. Please advise your
Manager and the Legal/Compliance Department in writing if any of the information
on the reverse side of this request changes materially.
______________________ __________________________________________
(Date) (Mutual Funds Compliance)
16
<PAGE>
EXHIBIT D
ICC EMPLOYEE TRANSACTION APPROVAL FORM
- --------------------------------------------------------------------------------
EMPLOYEE NAME
- --------------------------------------------------------------------------------
NAME OF SECURITY
- --------------------------------------------------------------------------------
BUY or SELL/ # OF SHARES
- --------------------------------------------------------------------------------
TRADE DATE
- --------------------------------------------------------------------------------
ACCOUNT #
- --------------------------------------------------------------------------------
BROKER / BROKERAGE
- --------------------------------------------------------------------------------
Are you aware of any fund trades of the securities named above in the past 3
days or of the intention of any fund manager to trade the securities named above
within the next 7 days?
o YES o NO
If the transaction described above is a purchase, does it involve the
acquisition of shares of an issuer in an initial public offering? o YES o NO
(Purchases of shares of an issuer in an initial public offering are prohibited.)
If the transaction described above is a transaction for profit, have you held
your position in the securities for more than 60 days? o YES o NO
(If transaction is for profit, position must be held a minimum of sixty (60)
days prior to sale.)
Approval___________________________
Corporate Compliance 212-469-8787 Corporate Pre-Clearance # ____
- --------------------------------------------------------------------------------
FOR COMPLIANCE DEPARTMENT USE ONLY
----------------------------------
- -Market cap: ____ over $2 billion ____ under $2 billion
- -Fund trades do not exceed 10% of Issuer's average daily trading volume for last
15 days: ____ yes ____ no
- -Blackout period applies: ____ yes ____ no
_____ Initials
17
<PAGE>
EXHIBIT E
ALEX. BROWN INVESTMENT MANAGEMENT
---------------------------------
INVESTMENT COMPANY CAPITAL CORP.
INITIAL/ANNUAL HOLDINGS REPORT
------------------------------
NAME: ________________________
DATE:
I hereby certify that I have read, understand and have complied with the
memorandum entitled: Personal Securities Trading Policies and Procedures.
Furthermore, I am providing/confirming below certain additional information.
IF MORE SPACE IS NEEDED, ATTACH AN ADDITIONAL FORM
1. Provided below is a description of all Employee Related Accounts
(including open-end investment company accounts), as described in these
procedures, which I maintain or in which I have a beneficial interest.
PLEASE ATTACH A COPY OF THE MOST RECENT STATEMENT FOR ALL ACCOUNTS LISTED
ACCOUNT NAME ACCOUNT NUMBER BROKER/DEALER OR BANK
------------ -------------- AT WHICH MAINTAINED
--------------------------------
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
18
<PAGE>
2. Provided below is a description of securities in which I have any
direct or indirect beneficial interest.
NAME OF CLASS SHARE/ PRINCIPAL AMOUNT
-------- ----- ------ ----------------
ISSUER OF SECURITIES UNIT (IF DEBT SECURITY)
------ ------------- ---- ------------------
AMOUNT
------
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
3. I have engaged in the following private securities transactions during
the calendar year.
NAME OF ISSUER DATE OF TRANSACTION NATURE OF INVESTMENT
-------------- ------------------- --------------------
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
____________ ______________ ________________________________
_________________________________
(Date) (Signature)
- --------------------------------------------------------------------------------
FOR COMPLIANCE DEPARTMENT USE ONLY
----------------------------------
Reviewed by:
Name: ______________________________
Signature: _________________________
19
<PAGE>
EXHIBIT F
DISCRETIONARY ACCOUNT CERTIFICATION FORM
I, ____________________ hereby certify that I am a representative of
the investment manager, trustee or outside bank at which the account described
below is maintained:
ACCOUNT NAME: ___________________________________________
ACCOUNT NUMBER: ___________________________________________
FIRM AT WHICH
MAINTAINED: ___________________________________________
BENEFICIARY(IES): ___________________________________________
I further certify that neither the Beneficiary named above nor any
close relative of the Beneficiary exercises investment discretion over the
account, participates in investment decisions with respect to the account or is
informed in advance of transactions in the account.
__________________________________
(Signature)
__________________________________
(Name)
__________________________________
(Title)
<PAGE>
LASALLE INVESTMENT MANAGEMENT (SECURITIES), L.P.
SECURITIES TRADING POLICY
I. Introduction
The following policies and procedures (collectively, the "Procedures") have been
adopted by LaSalle Investment Management (Securities), L.P. ("LaSalle") with
respect to securities trading by LaSalle employees described below (the
"Employees"). The Chairman of LaSalle's general partner shall appoint a
Securities Trading Committee (the "Committee") which shall have the
responsibility for interpreting these Procedures and for determining whether a
violation of these Procedures has occurred. The Committee shall follow the
procedures set forth in Exhibit A; and, in the event it determines that a
violation has occurred, the Committee shall take such action as it deems
appropriate. In addition, the Chariman of LaSalle's general partner shall
appoint a Senior Compliance Oficer, and any questions regarding these Procedures
should be referred to the Senior Compliance Officer.
II. Definitions
For purposes of these Procedures, the following terms shall have the meanings
set forth below:
A. "Beneficial Ownership" means:
1. the receipt of benefits substantially equivalent to those of
ownership through relationship, understanding, agreement,
contract or other arrangements; or
2. the power to vest ownership in oneself at once or at some future
time.
Generally a person will be regarded as having a direct or indirect
beneficial ownership interest in securities held in the name of himself, his
spouse, minor children who live with him, and any other relative (parents, adult
children, brothers, sisters, etc.) whose investments he directs or controls,
whether the person lives with him or not. See Exhibit B to these Procedures for
a more complete description of beneficial ownership as well as examples of
beneficial ownership.
B. "Employee" means any officer, director or employee of LaSalle who makes any
recommendation, who participates in the determination of which recommendation
shall be made, or whose functions or duties relate to the determination of which
recommendation shall be made, or who, in connection with his or her duties,
obtains any information concerning which securities are being recommended prior
to the effective dissemination of such recommendations or of the information
concerning such recommendations; and any of the following persons who obtain
information concerning securities recommendations being made by such investment
adviser prior to the effective dissemination of such recommendations or of the
information concerning such recommendations: (i) any person in a control
relationship to the investment adviser; (ii) any affiliated person of such
controlling person, and (iii) any affiliated person of such affiliated person.
C. "Restricted Security" means any Security issued by an issuer whose
primary business is investments in real estate; provided, however, the
following Securities will not be Restricted Securities even if they are
issued by, or represent indirect investments in securities of, issuers
whose primary business in investments in real estate:
(i) Securities issued or guaranteed by the U.S. Government;
(ii) Money Market instruments, such as banker's acceptances,
certificates of deposit or repurchase agreements;
(iii) Securities issued by an open-end investment company;
2
<PAGE>
(iv) Securities issued by Jones Lang LaSalle Incorporated;
(v) Options on a foreign currency; or
(vi) Securities acquired upon exercise of rights issued by an
issuer pro rata to all holders of a class of its securities to
the extent such rights are acquired from such issuer, and
sales of such rights so acquired.
D. "Security" means any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in
any profit-sharing agreement, collateral-trust certificate,
pre-organization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of deposit
for a security, fractional undivided interest in oil, gas or other
mineral rights, or in general, any interest or instrument commonly
known as a "security," or any certificate of interest or participation
in, temporary or interim certificate for, receipt for, guarantee of, or
warrant or right to subscribe to or purchase, any of the foregoing.
III. Prohibitions
The Committee has determined that the following courses of conduct are
prohibited.
A. Transactions in Restricted Securities.
1. No Employee may personally acquire a Beneficial Ownership in a Restricted
Security.
2. No Employee shall cause or attempt to cause or participate in the decision
to cause client accounts to acquire or dispose of any Security (including
any option, warrant or other right or interest relating to such Security)
of a company with respect to which such Employee has obtained material,
inside information.
B. Boards of Directors
No Employee shall serve as a director of another company which issues Restricted
Securities. Notwithstanding the foregoing, if an Employee is a director of a
company which issues Restricted Securities as of the date these Procedures are
adopted or is the director of a company which becomes the issuer of Restricted
Securities after such Employee has already become a director of such company,
such Employee may continue to serve as such director as long as such Employee
resigns as such director as soon as reasonably possible; provided, however, such
Employee shall not participate in any discussions within LaSalle regarding that
company as long as such Employee continues to serve as a director of that
company.
C. Purchase of New Issues During the Initial Public Offering
No Employee may purchase, or cause a member of his or her "immediate family" to
purchase, a new issue of securities (other than securities issued by investment
companies) during the initial public offering thereof. This prohibition may be
waived by the Senior Compliance Officer in response to a written request,
provided that applicable regulatory requirements are met. For this purpose,
"immediate family" includes parents, mother-in-law or father-in-law, husband or
wife, brother or sister, brother-in-law or sister-in-law, son-in-law or
daughter-in-law and children. In addition, such term includes any other person
who is supported to a material extent by the Employee.
IV. Personal Securities Trading
A. Opening of Brokerage Accounts
Each Employee shall supply the Senior Compliance Officer with a
Brokerage Accounts Listing (see Exhibit C) identifying all active brokerage
accounts in which the Employee has a beneficial ownership interest (e.g.,
brokerage accounts in the name of the Employee, his or her spouse and minor
children, adults living in his or her household and in the name of trusts for
which the Employee is a trustee or in which the Employee has a beneficial
ownership interest). Each Employee is required to update his or her list and to
provide an updated list to the Senior Compliance Officer at the time the
Employee opens any new brokerage account with respect to which he or she has a
beneficial ownership interest.
3
<PAGE>
B. Reporting of Personal Securities Transactions
Each Employee shall request each broker-dealer identified on the Employee's
current Brokerage Accounts List to provide the Senior Compliance Officer with
duplicate confirmations for all transactions in Securities in the employee's
account. Therefore, it is incumbent upon each Employee to make certain that his
or her Brokerage Accounts List is maintained on a current basis and that all of
the Employee's brokerage accounts are identified on the Brokerage Accounts List
which has been provided to the Senior Compliance Officer. In cases where it is
not possible for the Employee's broker to provide duplicate confirmations to the
Senior Compliance Officer for the Employees' transactions in Securities, the
employee is required to furnish a transaction report, in the form of Exhibit D
attached hereto, to the Senior Compliance Officer, no later than 10 days after
each transaction in a Security. The transaction report shall state whether the
transaction was a purchase or sale and shall include the name of the Security,
the date of the transaction, quantity, price and the name of the broker-dealer
through which the transaction was effected.
V. Administrative Procedures
A. Distribution of these Procedures
The Senior Compliance Officer shall maintain a list of those persons who are
deemed Employees from time to time and shall inform the Employees that they are
subject to the terms of these Procdures. Each new Employee shall be given a copy
of these Procedures. Promptly thereafter, each such Employee shall file a
statement, in the form of Exhibit E attached hereto, with the Senior Compliance
Officer indicating that he or she has read and understands these Procedures and
agrees to be bound by them. On an annual basis, the Senior Compliance Officer
shall send a notice to all Employees reminding them of their obligations to
comply with these Procedures.
B. Record keeping Responsibilities
The Senior Compliance Officer shall be responsible for maintaining custody of
the following records for a period of five years:
o All Brokerage Accounts Lists supplied to the Senior Compliance Officer
by Employees;
o All duplicate confirmations and any other securities transaction
reports supplied to the Senior Compliance Officer pursuant to the
requirements of Section IV of these Procedures;
o All lists of Employees who are subject to these Procedures;
o A written record of each violation of these Procedures and a written
record of any action taken as a result of each such violation; and
o All Employee statements referred to in Section V.A. of these
Procedures.
C. Monitoring of Securities Transactions of Employees
The duplicate confirmations supplied to the Senior Compliance Officer pursuant
to Section IV of these Procedures shall be reviewed by the Senior Compliance
Officer in order to monitor compliance with these Procedures.
4
<PAGE>
EXHIBITS
Exhibit A - Securities Trading Committee
Exhibit B - Beneficial Ownership
Exhibit C - Brokerage Accounts Listing
Exhibit D - Employee Stock Transactions
Exhibit E - Code of Ethics Acknowledgment
5
<PAGE>
Exhibit A
SECURITIES TRADING COMMITTEE OF LASALLE PARTNERS
------------------------------------------------
Meetings of the Committee may be called by the Senior
Compliance Officer or any member of the Committee when such person believes that
a possible violation of these Procedures has occurred or that the Committee
should meet for other purposes, such as to consider interpretations of or
changes to these Procedures. A majority of the members of the Committee will
constitute a quorum, provided, that the Senior Compliance Officer must be
present in order to have a quorum. A majority of the members present at a
meeting constitutes the vote required for any action taken by the Committee.
<PAGE>
Exhibit B
BENEFICIAL OWNERSHIP
A. General Description of Beneficial Ownership
As used in the Procedures, "beneficial ownership will be interpreted in the same
manner as it would be in determining whether a person is subject to Section 16
of the Securities Exchange Act of 1934, except that the determination of such
ownership shall apply to all securities, including equity securities. For the
purpose of that Act, "beneficial ownership" means:
o the receipt of benefits substantially equivalent to those of ownership
through relationship, understanding, agreement, contract or other
arrangements; or
o the power to vest such ownership in oneself at once, or at some future
time.
Using the above general definition as abroad guidelines, the ultimate
determination of "beneficial ownership" will be made in light of the facts of
the particular case. Key factors are the degree of the individual's ability to
exercise control over the security and the ability of the individual to benefit
from the proceeds of the security. Employees are encouraged to seek the advice
of the Senior Compliance Officer if they have any questions concerning whether
or not they have beneficial ownership of any security.
B. General Rules
1. Securities Held by Family Members
As a general rule, a person is regarded as the beneficial owner of securities
held in his or her name, as well as the name of his or her spouse and their
minor children. These relationships ordinarily confer to the holders benefits
substantially equivalent to ownership. In addition, absent countervailing facts,
it is expected that securities held by relatives who share the same home as the
reporting person will be reported as beneficially owned by such person.
2. Securities Held by a Corporation or Partnership
Generally, ownership of securities in a company (i.e., corporation, partnership,
etc.) does not constitute beneficial ownership with respect to the holdings of
the company in the securities of another issuer. However, an owner of securities
issued by a company will be deemed to have beneficial ownership in the
securities holdings of the company where:
o the company is merely a medium through which one or several persons in
a small group invest or trade in securities:
o the owner owns 25% or more of the outstanding voting securities of,
or a 25% or more equity interest in, the company; and
o the company has no other substantial business.
In such cases, the person or persons who are in a position of control of the
company are deemed to have a beneficial ownership interest in the securities of
the company.
<PAGE>
3. Securities Held in Trust
Beneficial ownership of securities in a private trust includes:
o the ownership of securities as a trustee where either the trustee or
members of his "immediate family" have a vested interest in the income
or corpus of the trust;
o the ownership of a vested beneficial interest in a trust; and
o the ownership of securities as a settlor of a trust in which the
settlor has the owner to revoke the trust without obtaining the consent
of all beneficiaries.
As used in this section, the "immediate family" of a trustee means:
o a son or daughter of the trustee, or a descendent of either;
o a stepson or stepdaughter of the trustee;
o the father or mother of the trustee; and
o a spouse of the trustee.
For the purpose of determining whether any of the foregoing relations exists, a
legally adopted child of a person shall be considered a child of such person by
blood.
2
<PAGE>
Exhibit C
BROKERAGE ACCOUNTS LISTING
OF: ____________________________________ DATE: _________________________
(print employee name)
I have a beneficial ownership interest* in the following brokerage accounts:
<TABLE>
<CAPTION>
===================================================================================================================
Name of Your Name in Which
Name of Address of Registered Account is
Broker-Dealer Broker-Dealer Representative Registered Account No.
<S> <C> <C> <C> <C>
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
====================================================================================================================
</TABLE>
I have identified above all brokerage accounts in which I have a beneficial
ownership interest. I understand that I must call the Senior Compliance Officer
at the time any new brokerage accounts are opened which are not shown on this
list.
______________________________
Signature of Employee
*Brokerage accounts in which you have a beneficial ownership interest include,
for example, your own accounts, as well as accounts of your spouse or minor
children, adults living in your home and trusts for which you are a trustee or
in which you have a beneficial ownership interest. Please call the Senior
Compliance Officer if you are not sure if you have a beneficial ownership
interest in a brokerage account.
KEEP A COPY OF THIS FORM FOR YOUR RECORDS AND CALL THE COMPLIANCE STAFF AT THE
TIME A NEW BROKERAGE ACCOUNT IS OPENED.
<PAGE>
Exhibit D
EMPLOYEE STOCK TRANSACTIONS
Exhibit E
SECURITIES TRADING POLICY ACKNOWLEDGMENT
I have read the Securities Trading Policy of LaSalle Investment Management
(Securities) Limited and understand the requirements thereof and will comply
with such requirements.
Dated: _______________________ Signature: ______________________________
_____________________________________
Please print your name here
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard R. Burt, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard R. Burt
---------------------------
Richard R. Burt
Date: April 15, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as Chairman
and a director of the Fund such Registration Statement and any and all such pre-
and post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
---------------------------
Richard T. Hale
Date: April 15, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, 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: April 15, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
---------------------------
Louis E. Levy
Date: April 15, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
----------------------
Eugene J. McDonald
Date: April 15, 2000
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, William K. Morrill, Jr.,
whose signature appears below, does hereby constitute and appoint Edward J.
Veilleux, Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true
and lawful attorney-in-fact and agent, with full power of substitution or
resubstitution, to do any and all acts and things and to execute any and all
instruments, in his name, place and stead, which said attorney-in-fact and agent
may deem necessary or advisable or which may be required to enable Flag
Investors Real Estate Securities Fund, Inc. (the "Fund") to comply with the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), and any rules, regulations or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the Fund's Registration Statement on Form N-1A pursuant to the
1933 Act and the 1940 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as President of the Fund such Registration Statement and any and
all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ William K. Morrill, Jr.
---------------------------
William K. Morrill, Jr.
Date: April 15, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
---------------------------
Truman T. Semans
Date: April 15, 2000
<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,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in her
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
---------------------------
Rebecca W. Rimel
Date: April 15, 2000
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Robert H. Wadsworth, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Real Estate
Securities Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as
amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the
"1940 Act"), and any rules, regulations or requirements of the Securities and
Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned as a director
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Robert H. Wadsworth
---------------------------
Robert H. Wadsworth
Date: April 15, 2000
<PAGE>
FLAG INVESTORS REAL ESTATE SECURITIES FUND, INC.
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that, Charles A. Rizzo, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux,
Amy M. Olmert and Daniel O. Hirsch, 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 Treasurer
of the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Charles A. Rizzo
---------------------------
Charles A. Rizzo
Date: April 15, 2000
