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[FLAG LOGO]
Real Estate Securities
Fund, Inc.
(Class A and Class B Shares)
Prospectus
May 1, 2000 as supplemented
through October 13, 2000
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
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[FLAG LOGO]
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
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INVESTMENT SUMMARY
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Objectives and Strategies
The Fund seeks total return primarily through investments in common stocks
of companies that are principally engaged in the real estate industry. These
common stocks include stocks of real estate operating companies and real estate
investment trusts ("REITs"). Real estate investing may produce capital
appreciation and income - the two components of total return. In selecting
investments for the Fund, the investment advisor and sub-advisor (the
"Advisors") use a combination of industry and company analyses. Industry
analysis involves assessing the stage of the business cycle for each sector and
market. Company analysis seeks to identify companies that the Advisors believe
have strong 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
Class A Shares*
For years ended December 31,
1996 1997 1998 1999
------ ------ -------- -------
32.70% 22.01% (21.15)% (2.85)%
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.
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* The bar chart does not reflect sales charges. If it did, returns would be less
than those shown. For the period from December 31, 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>
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(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the current maximum sales charges,
which increased on January 18, 2000.
(2) The Wilshire Real Estate Securities Index is an unmanaged market
capitalization weighted index of publicly traded real estate securities,
such as 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
Alternative Alternative
--------------- ---------------
<S> <C> <C>
Shareholder Fees:
(fees paid directly from your investment)
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>
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(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.
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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
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(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
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common stocks of companies principally engaged in the real estate industry have
many of the same risks of directly investing in real estate. These risks include
declines in the value of real estate, risks related to general and local
economic conditions, overbuilding, increased competition and increases in
interest rates resulting in increased financing costs. The Fund's investments in
REITs are subject to special risks. Equity REITs may be affected by changes in
the value of the underlying property they own. Mortgage REITs may be affected by
the quality of the credit they extend. Hybrid REITs are affected by both types
of risk. REITs depend on specialized management skills, may invest in a limited
number of properties, and may concentrate in a particular region or property
type. REITs must also satisfy specific Internal Revenue Code provisions before
they are qualified to pass income through to shareholders without paying taxes.
When the Fund invests in REITs, shareholders will bear a share of the operating
expenses of the REIT in addition to similar expenses of the Fund.
As with any investment style, the method used by the Advisors in selecting
the Fund's core holdings may underperform another investment style. In addition,
the Fund's 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
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You may buy either class of the Fund's shares through your securities
dealer or through any financial institution that is authorized to act as a
shareholder servicing agent. Contact them for details on how to enter and pay
for your order. You may also buy shares by sending your check (along with a
completed Application Form) directly to the Fund.
4
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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
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You may redeem either class of the Fund's shares through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If you have an account with the
Fund that is in your name, you may also redeem shares by contacting the Transfer
Agent by mail or (if you are redeeming less than $50,000) by telephone. The
Transfer Agent will mail your redemption check within seven days after it
receives your order in proper form. Refer to the section on telephone
transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the number of
shares or dollar 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
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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
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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.
<PAGE>
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:
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.
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<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
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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.
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.
9
<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 $ 7,171
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%.
10
<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.
11
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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>
[FLAG LOGO]
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 (10/00)
