FLAG INVESTORS REAL ESTATE SECURITIES FUND INC, 497, 2000-05-03

FLAG INVESTORS REAL ESTATE SECURITIES FUND INC
497, 2000-05-03

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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.
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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
- --------------------------------------------------------------------------------

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).

1
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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 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.

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
- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------

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
- --------------------------------------------------------------------------------

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)
- --------------------------------------------------------------------------------

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

[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.

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

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 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 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.

There can be no guarantee that the Fund will achieve its goals.

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.

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.

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.

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.

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.

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
- --------------------------------------------------------------------------------

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.

Portfolio Managers

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.

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.

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
<PAGE>

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
<PAGE>

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.

Page 8
<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

Page 9
<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.

Page 10
<PAGE>

*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).

Page 11

<PAGE>

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
<PAGE>

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.

Page 13
<PAGE>

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>

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>

APPENDIX

The following descriptions or ratings have been published by Standard & Poor's
Ratings Group ("S&P") and Moody's Investors Service, Inc. ("Moody's").
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Description of Commercial Paper Ratings

S&P - Commercial paper rated A by S&P is regarded as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1+, 1, 2 and 3 to indicate the relative degree of safety. Issues rated
A-1+ are those with "extremely strong" safety characteristics. Those rated A-1
reflect a "strong" degree of safety regarding timely payment. Those rated A-2
reflect a safety regarding timely payment but not as high as A-1.

Moody's - Commercial paper issues rated Prime-1 by Moody's are judged by Moody's
to be of the highest quality on the basis of relative repayment capacity.

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Description of Corporate Bond Ratings

S&P - AAA - Highest rating assigned by Standard & Poor's to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.

AA - Also qualify as high-quality debt obligations. Capacity to pay principal
and interest is very strong, and in the majority of instances they differ from
AAA issues only to a small degree.

A - Have a strong capacity to pay interest and repay principal although they are
somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than bonds in higher rated categories.

BBB - Regarded as having an adequate capacity to pay interest and repay
principal. Whereas they normally exhibit adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for bonds in this category
than in higher rated categories.

Moody's- Aaa - Judged to be of the best quality. Carry the smallest degree of
investment risk and generally referred to as "gilt-edged." Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.

Aa - Judged to be of high quality by all standards. Together with the Aaa group
comprise what are generally known as high-grade bonds. Rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present that make the long-term risk appear somewhat larger than
Aaa securities.

A - Possess many favorable investment attributes and considered as
upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future.

Baa - Considered as medium-grade obligations i.e., neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.