<PAGE>
As Filed With the Securities and Exchange Commission on September 26, 1996
File No. 33-86832
811-8886
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 3 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 6 [X]
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
(Exact Name of Registrant as Specified in Charter)
135 East Baltimore Street
Baltimore, MD 21202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
--------------
Edward J. Veilleux
135 East Baltimore Street
Baltimore, MD 21202
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(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on October 1, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragarph (a)(2
/ / on [date] pursuant to paragraph (a) of Rule 485.
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Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock, $.001 par value, pursuant to Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed its Rule 24f-2 Notice for its
fiscal year ended May 31, 1996, on July 19, 1996.
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
(Class A and Class B Shares)
September 26, 1996
Cross Reference Sheet
Items Required by Form N-1A
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Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights
Item 4. General Description of Registrant Investment Program;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor;
Custodian, Transfer
Agent, Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
the Fund; Distributor
Item 8. Redemption or Repurchase How to Redeem Shares
Item 9. Pending Legal Proceedings **
Part B Information Required in a Statement
- ------ of Additional Information
-----------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objectives
and Policies
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Holders Control Persons and
of Securities Principal Holders of
Securities
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent,
Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation Brokerage
</TABLE>
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<TABLE>
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Item 18. Capital Stock and Other Securities Capital Stock; Semi-Annual
Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund
Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C Other Information
- ------ -----------------
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
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* Information required by Item 5A is contained in Registrant's 1996 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
LOGO
FLAG INVESTORS
EQUITY PARTNERS FUND, INC.
(CLASS A AND CLASS B SHARES)
This mutual fund (the "Fund") is designed to seek long-term growth of
capital and, secondarily, current income. The Fund seeks to achieve this
objective primarily through a policy of diversified investments in equity
securities, including common stocks and convertible securities.
Shares of the Fund are available through Alex. Brown & Sons Incorporated
("Alex. Brown") as well as Participating Dealers and Shareholder Servicing
Agents. This Prospectus relates to Class A and Class B Shares of the Fund.
The separate classes provide investors with alternatives as to sales load and
fund expenses. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated October 1, 1996 has
been filed with the Securities and Exchange Commission (the "SEC") and is
hereby incorporated by reference. It is available upon request and without
charge by calling the Fund at (800) 767-FLAG.
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THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 1, 1996
PROSPECTUS
<PAGE>
FLAG INVESTORS
EQUITY PARTNERS FUND, INC.
(CLASS A AND CLASS B SHARES)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
------
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Page
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1. Fee Table .......................................... 2
2. Financial Highlights ............................... 3
3. Investment Program ................................. 4
Investment Objective, Policies
and Risk Considerations ............................. 4
4. Investment Restrictions ............................ 8
5. How to Invest in the Fund .......................... 8
6. How to Redeem Shares ............................... 16
7. Telephone Transactions ............................. 17
8. Dividends and Taxes ................................ 18
9. Management of the Fund ............................. 20
10. Investment Advisor and Sub-Advisor ................. 20
11. Distributor ........................................ 23
12. Custodian, Transfer Agent and Accounting Services .. 24
13. Performance Information ............................ 24
14. General Information ................................ 25
</TABLE>
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH ANY
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. SHARES MAY BE OFFERED ONLY TO RESIDENTS OF THOSE STATES
IN WHICH SUCH SHARES ARE ELIGIBLE FOR PURCHASE.
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1
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===============================================================================
1. FEE TABLE
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SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
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CLASS A CLASS B
SHARES SHARES
INITIAL SALES DEFERRED
CHARGE SALES CHARGE
ALTERNATIVE ALTERNATIVE
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Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) .................... 4.50%* None
Maximum Sales Charge Imposed on Reinvested Dividends .... None None
Maximum Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds,
whichever is lower) .................................... 0.50%* 4.00%**
</TABLE>
===============================================================================
ANNUAL FUND OPERATING EXPENSES (NET OF FEE WAIVERS):
(as a percentage of average daily net assets)
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<TABLE>
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Management Fees (net of fee waivers) ............. .75%*** .75%***
12b-1 Fees ....................................... .25% .75%
Other Expenses (including a .25% shareholder
servicing fee for Class B Shares) ............... .35% .60%****
---------- ----------
Total Fund Operating Expenses (net of fee waivers) 1.35%*** 2.10%***
========== ==========
</TABLE>
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* Purchases of $1 million or more of Class A Shares by persons not
otherwise eligible for sales load waivers are not subject to an initial
sales charge, however, a contingent deferred sales charge of .50% may be
imposed on such purchases. (See "How to Invest in the Fund -- Offering
Price.")
** A declining contingent deferred sales charge will be imposed on
redemptions of Class B Shares made within six years of purchase. Class B
Shares will automatically convert to Class A Shares six years after
purchase. (See "How to Invest in the Fund -- Class B Shares.")
*** The Fund's investment advisor intends, but is not obligated, to waive
its fee to the extent required so that Total Fund Operating Expenses do
not exceed 1.35% of the Class A Shares' average daily net assets and
2.10% of the Class B Shares' average daily net assets. Absent fee
waivers, Management Fees would be .95% of the Fund's average daily net
assets and Total Fund Operating Expenses would be 1.55% of the Class A
Shares' average daily net assets and 2.30% of the Class B Shares'
average daily net assets.
**** A portion of the shareholder servicing fee is allocated to member firms
of the National Association of Securities Dealers, Inc. and qualified
banks for continued personal service by such members to investors in
Class B Shares, such as responding to shareholder inquiries, quoting net
asset values, providing current marketing materials and attending to
other shareholder matters.
<PAGE>
<TABLE>
<CAPTION>
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EXAMPLE:
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of
each time period:* 1 year 3 years 5 years 10 years
---------- ----------- ----------- ------------
Class A Shares ....................... $58 $86 $116 $200
Class B Shares ....................... $61 $96 $133 $205
---------- ----------- ----------- ------------
</TABLE>
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You would pay the following expenses on the same
investment, assuming no redemption:* 1 year 3 years 5 years 10 years
---------- ----------- ----------- ------------
Class B Shares ....... $21 $66 $113 $205
---------- ----------- ----------- ------------
</TABLE>
* The Example is based on Total Fund Operating Expenses, net of fee waivers.
Absent fee waivers, expenses would be higher.
THE EXPENSES AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE>
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases shares of either class through a financial institution
may be charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in the
Fund", "Investment Advisor and Sub-Advisor" and "Distributor.") The Expenses
appearing in the table above have been restated to reflect current fees.
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, certain investors may qualify for reduced sales
charges or no sales charge at all. (See "How to Invest in the Fund -- Class A
Shares.") Due to the continuous nature of Rule 12b-1 fees, long-term
shareholders of the Fund may pay more than the equivalent of the maximum
front-end sales charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD Rules").
===============================================================================
2. FINANCIAL HIGHLIGHTS
The financial highlights included in the following tables are a part of
the Fund's financial statements for the periods indicated and have been
audited by Coopers & Lybrand L.L.P., independent accountants. The financial
statements and financial highlights for the fiscal year ended May 31, 1996
and the report thereon of Coopers & Lybrand L.L.P. are included in the
Statement of Additional Information. Additional performance information is
contained in the Fund's Annual Report for the fiscal year ended May 31, 1996
which can be obtained at no charge by calling the Fund at (800) 767-FLAG.
3
<PAGE>
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
------------------------- ---------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR PERIOD YEAR PERIOD
ENDED FEB. 13, 1995* ENDED FEB 13, 1995*
MAY 31, THROUGH MAY 31, THROUGH
1996 MAY 31, 1995 1996 MAY 31, 1995
--------- -------------- --------- ---------------
Per Share Operating Performance:
<S> <C> <C> <C> <C>
Net asset value at beginning of period . $ 10.77 $ 10.00 $10.75 $10.00
--------- -------------- --------- ---------------
Income from Investment Operations:
Net investment income ................ 0.17 0.12 0.07 0.07
Net realized and unrealized gain on
investments .......................... 2.29 0.65 2.31 0.68
--------- -------------- --------- ---------------
Total from Investment Operations ..... 2.46 0.77 2.38 0.75
Less Distributions:
Dividends from net investment income . (0.14) -- (0.10) --
--------- -------------- --------- ---------------
Total distributions .................. (0.14) -- (0.10) --
--------- -------------- --------- ---------------
Net asset value at end of period ..... $ 13.09 $ 10.77 $13.03 $10.75
========= ============== ========= ===============
Total Return** ........................ 23.05% 7.70% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses ............................. 1.35%(2) 1.35%(1,2) 2.10%(4) 2.10%(1,4)
Net investment income ................ 1.52%(3) 3.74%(1,3) 0.71%(5) 1.97%(1,5)
Supplemental Data:
Net assets at end of period (000) .... $64,230 $38,612 $5,302 $2,159
Portfolio turnover rate .............. 0.73% -- 0.73% --
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</TABLE>
*Commencement of operations.
**Total return excludes the effect of sales charge.
(1) Annualized.
(2) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 1.77% and 3.76% (annualized) for Class A
Shares for the year ended May 31, 1996 and the period ended May 31, 1995,
respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average daily net assets would have been 1.10% and 1.33% (annualized)
for Class A Shares for the year ended May 31, 1996 and the period ended
May 31, 1995, respectively.
(4) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 2.52% and 4.22% (annualized) for Class B
Shares for the year ended May 31, 1996 and the period ended May 31, 1995,
respectively.
(5) Without the waiver of advisory fees, the ratio of net investment income
to average daily net assets would have been 0.29% and (0.15)%
(annualized) for Class B Shares for the year ended May 31, 1996 and the
period ended May 31, 1995, respectively.
===============================================================================
3. INVESTMENT PROGRAM
- -------------------------------------------------------------------------------
Investment Objective, Policies
and Risk Considerations
The Fund's investment objective is to seek long-term growth of capital
and, secondarily, high current income. The Fund seeks to achieve this
4
<PAGE>
objective primarily through a policy of diversified investments in equity
securities, including common stocks and convertible securities. The Fund's
investment objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. There can be no assurance, however,
that the Fund will achieve its investment objective.
Investment Company Capital Corp. ("ICC"), the Fund's investment advisor,
and Alex. Brown Investment Management ("ABIM"), the Fund's sub-advisor
(collectively, the "Advisors"), are responsible for managing the Fund's
investments. (See "Investment Advisor and Sub-Advisor.") The Advisors
consider both the opportunity for gain and the risk of loss in making
investments.
Under normal market conditions, the Fund will invest as fully as feasible
in common stocks and other equity investments (including preferred stocks,
convertible debt, warrants and other securities convertible into or
exchangeable for common stocks). At least 65% of the Fund's total assets will
be so invested. Convertible securities are securities that may be converted
either at a stated price or rate within a specified period of time into a
specified number of shares of common stock. Preferred stock is a class of
capital stock that pays dividends at a specified rate and that has preference
over common stock in the payment of dividends and the liquidation of assets.
Warrants are instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period. In
selecting securities for the Fund's portfolio, the Advisors expect to apply a
"flexible value" approach to the selection of equity investments. Under this
approach, the Advisors will attempt to identify securities that are
undervalued in the marketplace but will also consider such factors as current
and expected earnings, dividends, cash flows and asset values in their
evaluation of a security's investment potential.
The Fund may invest up to 10% of its total assets in non-convertible debt
securities. Up to all of any such investments may be in securities that are
rated below investment grade. (See "Investments in Non-Investment Grade
Securities" below.) Any remaining assets of the Fund not invested as
described above may be invested in high quality money market instruments. For
temporary, defensive purposes, the Fund may invest up to 100% of its assets
in high quality short-term money market instruments, including repurchase
agreements, and in bills, notes or bonds issued by the U.S. Treasury
Department or by agencies of the U.S. Government. In addition, the Fund may
invest up to 10% of its net assets in illiquid securities.
The Fund may purchase Rule 144A Securities. Rule 144A Securities are
restricted securities in that they have not been registered under the
5
<PAGE>
Securities Act of 1933, but they may be traded between certain qualified
institutional investors, including investment companies. The presence or
absence of a secondary market may affect the value of the Rule 144A Secur-
ities. The Fund's Board of Directors has established guidelines and
procedures to be utilized to determine the liquidity of such securities.
- -------------------------------------------------------------------------------
INVESTMENTS IN NON-INVESTMENT GRADE SECURITIES
Where deemed appropriate by the Advisors, the Fund may invest up to 10% of
its total assets (measured at the time of the investment) in lower quality
non-convertible debt securities (securities rated BB or lower by Standard &
Poor's Ratings Group ("S&P") or Ba or lower by Moody's Investors Service,
Inc. ("Moody's") and unrated securities of comparable quality). Lower rated
debt securities, also known as "junk bonds," are considered to be speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness. Securities in the lowest rating category that the
Fund may purchase (securities rated C by either S&P or Moody's) may present a
particular risk of default, or may be in default and in arrears in payment of
principal and interest. In addition, C rated securities may be regarded as
having extremely poor prospects of ever attaining investment standing. Yields
and market values of these bonds will fluctuate over time, reflecting
changing interest rates and the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated bonds may decline in value, regardless of
prevailing interest rates. Accordingly, adverse economic developments,
including a recession or a substantial period of rising interest rates, may
disrupt the high yield bond market, affecting both the value and liquidity of
such bonds. An economic downturn could adversely affect the ability of
issuers of such bonds to make payments of principal and interest to a greater
extent than issuers of higher rated bonds might be affected. The ratings
categories of S&P and Moody's are described more fully in the Appendix to the
Statement of Additional Information. During the fiscal year ended May 31,
1996 the Fund held no below investment grade bonds.
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INVESTMENTS IN REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers deemed creditworthy under guidelines approved by the
Directors. A repurchase agreement is a short-term investment in which the
purchaser (i.e., 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 purchaser's holding period. The value of the
under-
6
<PAGE>
lying securities will be at least equal at all times to the total amount of
the repurchase agreement obligation, including the interest factor. If the
seller were to default on its obligation to repurchase the underlying
instrument, the Fund could experience loss due to delay in liquidating the
collateral and to adverse market action.
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INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS
In addition, from time to time, the Advisors may invest up to 10% of the
Fund's total assets in American Depository Receipts, which are U.S. exchange
listed interests in securities of foreign companies, and debt and equity
securities issued by foreign corporate and government issuers when the
Advisors believe that such investments provide good opportunities for
achieving income and capital gains without undue risk.
Foreign investments involve different risks from investments in the United
States. In general, less information is publicly available about foreign
companies than is available about companies in the United States. Most foreign
companies are not subject to uniform audit and financial reporting standards,
practices and requirements comparable to those in the United States. In most
foreign markets volume and liquidity are less than in the United States and, at
times, volatility of price can be greater than in the United States. Fixed
commissions on foreign stock exchanges are generally higher than the negotiated
commissions on U.S. exchanges. There is generally less government supervision
and regulation of foreign stock exchanges, brokers, and companies than in the
United States. The settlement period for foreign securities, which is often
longer than that for securities of U.S. issuers, may affect portfolio liquidity.
Portfolio securities held by the Fund which are listed on foreign exchanges may
be traded on days that the Fund does not value its securities, such as Saturdays
and the customary U.S. business holidays on which the New York Stock Exchange is
closed. As a result, the net asset value of Fund shares may be significantly
affected on days when shareholders do not have access to the Fund.
The Advisors intend to invest in securities of companies in, and governments
of, developed, politically stable nations, but there exists the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation which could adversely affect the investments of the Fund
in such foreign country. When considering whether to invest in foreign equity or
debt securities, the Advisors will consider the risk of investment in addition
to the criteria they apply to all investments in equity or debt securities.
7
<PAGE>
===============================================================================
4. INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. 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) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an industry);
2) With respect to 75% of its total assets, invest more than 5% of the value
of its total assets in the securities of any single issuer or purchase
more than 10% of the outstanding voting securities of any one issuer,
except the U.S. Government, its agencies and instrumentalities; or
3) Borrow money except as a temporary measure 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 equalling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase
securities.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
===============================================================================
5. HOW TO INVEST IN THE FUND
Class A and Class B Shares may be purchased from Alex. Brown, 135 East
Baltimore Street, Baltimore, Maryland 21202, through any securities dealer
which has entered into a dealer agreement with Alex. Brown ("Participating
Dealers") or through any financial institution which has entered into a
Shareholder Servicing Agreement with the Fund ("Shareholder Servicing
Agents"). Shares of either class may also be purchased by completing the
Application Form attached to this Prospectus and returning it, together with
payment of the purchase price (including any applicable front-end
8
<PAGE>
sales charge), to the address shown on the Application Form. Participating
Dealers or Shareholder Servicing Agents and their investment representatives
may receive different levels of compensation depending on which class of
shares they sell.
The Class A and Class B alternatives permit an investor to choose the
method of purchasing shares that is more beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and
other circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the combination of sales
charge and distribution fee on Class A Shares is more favorable than the
combination of distribution/service fees and contingent deferred sales charge
on Class B Shares. In almost all cases, investors planning to purchase
$100,000 or more of Fund shares will pay lower aggregate charges and expenses
by purchasing Class A Shares. Accordingly, the Fund will not accept purchases
for Class B Shares in excess of $100,000 per account. (See "Fee Table.")
The minimum initial investment in shares of either class is $2,000, except
that the minimum initial investment for shareholders of any other Flag
Investors fund or class is $500 and the minimum initial investment for
participants in the Fund's Automatic Investing Plan is $250. Each subsequent
investment must be at least $100 per class, except that the minimum
subsequent investment under the Fund's Automatic Investing Plan is $250 for
quarterly investments and $100 for monthly investments. (See "Purchases
Through Automatic Investing Plan" below.) There is no minimum investment
requirement for qualified retirement plans (i.e., 401(k) plans or pension and
profit sharing plans). IRA accounts are, however, subject to the $2,000
minimum initial investment requirement. There is no minimum investment
requirement for spousal IRA accounts.
The Fund reserves the right to suspend the sale of shares at any time at
the discretion of Alex. Brown and ICC. Orders for purchases of shares are
accepted on any day on which the New York Stock Exchange is open for business
(a "Business Day"). Purchase orders for shares will be executed at a per
share purchase price equal to the net asset value next determined after
receipt of the purchase order plus any applicable front-end sales charge (the
"Offering Price") on the date such net asset value is determined (the
"Purchase Date"). Purchases made by mail must be accompanied by payment of
the Offering Price. Purchases made through Alex. Brown or a Participating
Dealer or Shareholder Servicing Agent must be in accordance with such
entity's payment procedures. Alex. Brown may, in its sole discretion, refuse
to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern
9
<PAGE>
Time), on each Business Day. Net asset value per share of a class is
calculated by valuing its share of the Fund's assets, deducting liabilities
attributable to the specific class, and dividing the resulting amount by the
number of then outstanding shares of the class. For this purpose, portfolio
securities are given their market value where feasible. If a portfolio
security is traded on a national exchange or on an automated dealer quotation
system, such as NASDAQ, on the valuation date, the last quoted sale price is
generally used. Securities or other assets for which market quotations are
not readily available are valued at their fair value as determined in good
faith under procedures established from time to time and monitored by the
Fund's Board of Directors. Debt obligations with maturities of 60 days or
less are valued at amortized cost, which constitutes fair value as determined
by the Fund's Board of Directors. Because of differences between the classes
of shares in distribution/service fees, the net asset value per share of the
classes differs at times.
- -------------------------------------------------------------------------------
OFFERING PRICE
Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price which for Class A Shares
includes a sales charge which is calculated as a percentage of the Offering
Price and for Class B Shares is net asset value.
- -------------------------------------------------------------------------------
CLASS A SHARES
The sales charge on Class A Shares, which decreases as the amount of
purchase increases, is shown below:
<TABLE>
<CAPTION>
SALES CHARGE
AS % OF DEALER
------------------------------ RETENTION
OFFERING NET AMOUNT AS % OF
AMOUNT OF PURCHASE PRICE INVESTED OFFERING PRICE
-------------------------- ------------ -------------- ----------------
<S> <C> <C> <C>
Less than $ 50,000 ...... 4.50% 4.71% 4.00%
$50,000 $ 99,999 ...... 3.50% 3.63% 3.00%
$100,000 - $249,999 ...... 2.50% 2.56% 2.00%
$250,000 - $499,999 ...... 2.00% 2.04% 1.50%
$500,000 - $999,999 ...... 1.50% 1.52% 1.25%
$1,000,000 and over ...... None* None* None*
- -------------------------------------------------------------------------------
</TABLE>
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The distributor may make payments to dealers in
the amount of .50% of the Offering Price.
A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of
accumulation. In addition, an investor may obtain reduced sales charges as
set forth above through a right of accumulation of purchases of Class A
Shares and purchases of shares of other Flag Investors funds with the same
10
<PAGE>
sales charge and purchases of Class A shares of Flag Investors Intermediate-
Term Income Fund, Inc. and Flag Investors Maryland Intermediate Tax-Free
Income Fund, Inc. (the "Intermediate Funds"). The applicable sales charge
will be determined based on the total of (a) the shareholder's current
purchase plus (b) an amount equal to the then current net asset value or
cost, whichever is higher, of all Class A Shares and of all Flag Investors
shares described above and any Flag Investors Class D shares held by the
shareholder. To obtain the reduced sales charge through a right of
accumulation, the shareholder must provide Alex. Brown, either directly or
through a Participating Dealer or Shareholder Servicing Agent, as applicable,
with sufficient information to verify that the shareholder has such a right.
The Fund may amend or terminate this right of accumulation at any time as to
subsequent purchases.
The term "purchase" refers to an individual purchase by a single
purchaser, or to concurrent purchases, which will be aggregated, by a
purchaser, the purchaser's spouse and their children under the age of 21
years purchasing Class A Shares for their own account.
An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the
Offering Price applicable at the time of such purchase to the full amount
indicated on the Letter of Intent. A Letter of Intent is not a binding
obligation upon the investor to purchase the full amount indicated. The
minimum initial investment under a Letter of Intent is 5% of the full amount.
Shares purchased with the first 5% of the full amount will be held in escrow
(while remaining registered in the name of the investor) to secure payment of
the higher sales charge applicable to the Class A Shares actually purchased
if the full amount indicated is not invested. Such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if necessary. When
the full amount indicated has been purchased, the escrowed shares will be
released. An investor who wishes to enter into a Letter of Intent in
conjunction with an investment in Class A Shares may do so by completing the
appropriate section of the Application Form attached to this Prospectus.
No sales charge will be payable at the time of purchase on investments of
$1 million or more of Class A Shares. However, a contingent deferred sales
charge may be imposed on such investments in the event of a redemption within
24 months following the purchase, at the rate of .50% on the lesser of the
value of the Class A Shares redeemed or the total cost of such shares. No
contingent deferred sales charge will be imposed on purchases of
11
<PAGE>
$3 million or more of Class A Shares redeemed within 24 months of purchase if
the Participating Dealer and Alex. Brown have entered into an agreement under
which the Participating Dealer agrees to return any payments received on the
sale of such shares. In determining whether a contingent deferred sales
charge is payable, and, if so, the amount of the charge, it is assumed that
shares not subject to such charge are the first redeemed followed by other
Class A Shares held for the longest period of time.
The Fund may sell Class A Shares at net asset value (without sales charge)
to the following: (i) banks, bank trust departments, registered investment
advisory companies, financial planners and broker-dealers purchasing shares
on behalf of their fiduciary and advisory clients, provided such clients have
paid an account management fee for these services (investors may be charged a
fee if they effect transactions in Fund shares through a broker or agent);
(ii) qualified retirement plans; (iii) participants in a Flag Investors fund
payroll savings plan program; (iv) investors who have redeemed Class A
Shares, or shares of any other mutual fund in the Flag Investors family of
funds with the same sales charges, or who have redeemed Class A shares of the
Intermediate Funds which they had held for at least 24 months prior to
redemption, in an amount that is not more than the total redemption proceeds,
provided that the purchase is within 90 days after the redemption; and (v)
current or retired Directors of the Fund and directors and employees (and
their immediate families) of Alex. Brown, Participating Dealers and their
respective affiliates.
Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
- -------------------------------------------------------------------------------
CLASS B SHARES
No sales charge will be payable at the time of purchase of Class B Shares.
However, a contingent deferred sales charge will be imposed on certain Class
B Shares redeemed within six years of purchase. The charge is assessed on an
amount equal to the lesser of the then-current market value of the Class B
Shares redeemed or the total cost of such shares. Accordingly, the contingent
deferred sales charge will not be applied to dollar amounts representing an
increase in the net asset values above the initial purchase price of the
shares being redeemed. In addition, no charge is assessed on redemptions of
Class B Shares derived from reinvestment of dividends or capital gains
distributions.
In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in
12
<PAGE>
the lowest possible rate. Therefore, it is assumed that the redemption is
first of any Class B Shares in the shareholder's account that represent
reinvested dividends and distributions and second of Class B Shares held the
longest during the six year period. The amount of the contingent deferred
sales charge, if any, will vary depending on the number of years from the
time of payment for the purchase of Class B Shares until the redemption of
such shares (the "holding period"). For purposes of determining this holding
period, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates
of the contingent deferred sales charge.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED SALES CHARGE
YEAR SINCE PURCHASE (AS A PERCENTAGE OF THE DOLLAR AMOUNT
PAYMENT WAS MADE SUBJECT TO CHARGE)
----------------------- ----------------------------------------
<S> <C>
First ................. 4.0%
Second ................ 4.0%
Third ................. 3.0%
Fourth ................ 3.0%
Fifth ................. 2.0%
Sixth ................. 1.0%
Thereafter ............ None*
</TABLE>
* As described more fully below, Class B Shares automatically convert to
Class A Shares six years after the beginning of the calendar month in which
the purchase order was accepted.
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Class B Shares (i) following the
death or initial determination of disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder; or (ii) to the extent
that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who
has attained the age of 70 1/2. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the
name of an individual person, (b) as a joint tenancy with rights of
survivorship, (c) as community property or (d) in the name of a minor child
under the Uniform Gifts or Uniform Transfers to Minors Act. A shareholder, or
his or her representative, must notify the Fund's transfer agent (the
"Transfer Agent") prior to the time of redemption if such circumstances exist
and the shareholder is eligible for this waiver. For information on the
imposition and waiver of the contingent deferred sales charge, contact the
Transfer Agent at (800) 553-8080.
Automatic Conversion to Class A Shares. Six years after the beginning of
the calendar month in which the purchase order for Class B Shares is
accepted, such Class B Shares will automatically convert to Class A Shares
and will no longer be subject to the higher distribution and service fees.
13
<PAGE>
Such conversion will be on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or other charge.
The conversion is not a taxable event to the shareholder.
For purposes of conversion to Class A Shares, shares received as dividends
and other distributions paid on Class B Shares in the shareholder's account
will be considered to be held in a separate sub-account. Each time any Class
B Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares.
Class B Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
- -------------------------------------------------------------------------------
PURCHASES BY EXCHANGE
As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their shares of
those funds for an equal dollar amount of Fund shares of the same class with
the same sales load structure. Shares issued pursuant to this offer will not
be subject to the sales charges described above or any other charge. In
addition, shareholders of Class A shares of the Intermediate Funds may
exchange into Class A Shares upon payment of the difference in sales charges,
as applicable, except that the exchange will be made at net asset value if
the shares of such funds have been held for more than 24 months. Shareholders
of Flag Investors Cash Reserve Prime Class A Shares may exchange into Class A
Shares upon payment of the difference in sales charges, as applicable, or
into Class B Shares at net asset value, subject thereafter to any applicable
contingent deferred sales charge.
When a shareholder acquires Fund shares through an exchange from another
fund in the Flag Investors family of funds, the Fund will combine the period
for which the original shares were held prior to the exchange with the
holding period of the shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon
a redemption of any such shares.
The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time) or the close of the New York Stock Exchange, whichever is earlier.
Exchange requests received after 4:00 p.m. (Eastern Time) will be effected on
the next Business Day.
14
<PAGE>
Shareholders of any mutual fund not affiliated with the Fund, who have
paid a sales charge, may exchange shares of such fund for an equal dollar
amount of Class A Shares by submitting to Alex. Brown or a Participating
Dealer the proceeds of the redemption of such shares, together with evidence
of the payment of a sales charge and the source of such proceeds. Class A
Shares issued pursuant to this offer will not be subject to the sales charges
described above or any other charge.
The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below.) The exchange
privilege may be exercised only in those states where the class of shares of
such other funds may legally be sold. Investors should receive and read the
applicable prospectus prior to tendering shares for exchange. The Fund may
modify or terminate this offer of exchange at any time upon 60 days' prior
written notice to shareholders.
- -------------------------------------------------------------------------------
PURCHASES THROUGH AUTOMATIC INVESTING PLAN
Shareholders may purchase either Class A Shares or Class B Shares
regularly by means of an Automatic Investing Plan with a pre-authorized check
drawn on their checking accounts. Under this plan, the shareholder may elect
to have a specified amount invested monthly or quarterly in either Class A
Shares or Class B Shares. The amount specified by the shareholder will be
withdrawn from the shareholder's checking account using the pre-authorized
check. This amount will be invested in the class of shares selected by the
shareholder at the applicable Offering Price determined on the date the
amount is available for investment. Participation in the Automatic Investing
Plan may be discontinued either by the Fund or the shareholder upon 30 days'
prior written notice to the other party. A shareholder who wishes to enroll
in the Automatic Investing Plan or who wishes to obtain additional purchase
information may do so by completing the appropriate section of the
Application Form attached to this Prospectus.
- -------------------------------------------------------------------------------
PURCHASES THROUGH DIVIDEND REINVESTMENT
Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Fund shares of the
same class. Unless the shareholder elects otherwise, all income and capital
gains distributions will be reinvested in additional Fund shares at net asset
value, without a sales charge. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Transfer Agent (see "Custodian,
Transfer Agent and Accounting
15
<PAGE>
Services"), either directly or through their Participating Dealer or
Shareholder Servicing Agent, at least five days before the next date on which
dividends or distributions will be paid.
Alternately, shareholders may have their distributions invested in shares
of other funds in the Flag Investors family of funds. Shareholders who are
interested in this option should call (800) 553-8080 for additional
information.
===============================================================================
6. HOW TO REDEEM SHARES
Shareholders may redeem all or part of their investments on any Business
Day by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Transfer Agent. Shareholders may also redeem shares of either class by
telephone (in any amount up to $50,000). (See "Telephone Transactions"
below.) A redemption order is effected at the net asset value per share
(reduced by any applicable contingent deferred sales charge) next determined
after receipt of the order (or, if stock certificates have been issued for
the shares to be redeemed, after the tender of the stock certificates for
redemption). Redemption orders received after 4:00 p.m. (Eastern Time) will
be effected at the net asset value next determined on the following Business
Day. Payment for redeemed shares will be made by check and will be mailed
within seven days after receipt of a duly authorized telephone redemption
request or of a redemption order fully completed and, as applicable,
accompanied by the documents described below:
1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of shares or dollar
amount to be redeemed, signed by all owners of the shares in the exact
names in which their account is maintained;
2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency or savings
association;
3) If shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for shares to be
redeemed; and
4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.
16
<PAGE>
Dividends payable up to the date of redemption of shares will be paid on
the next dividend payable date. If all of the shares in a shareholder's
account have been redeemed on a dividend payable date, the dividend will be
remitted by check to the shareholder.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' written notice.
- -------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL PLAN
Shareholders who hold Class A Shares or Class B Shares having a value of
$10,000 or more may arrange to have a portion of their shares redeemed
monthly or quarterly under the Fund's Systematic Withdrawal Plan. Such
payments are drawn from income dividends, and to the extent necessary, from
share redemptions (which would be a return of principal and, if reflecting a
gain, would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because Class A Share purchases include a sales
charge that will not be recovered at the time of redemption, a shareholder
should not have a withdrawal plan in effect at the same time he is making
recurring purchases of Class A Shares. In addition, Class B Shares may be
subject to a contingent deferred sales charge upon redemption. (See "How to
Invest in the Fund -- Class B Shares.") A shareholder who wishes to enroll in
the Fund's Systematic Withdrawal Plan may do so by completing the appropriate
section of the Application Form attached to this Prospectus.
===============================================================================
7. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem shares of either class in amounts up to
$50,000, by notifying the Transfer Agent by telephone at (800) 553-8080 on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time)
or by regular or express mail at its address listed under "Custodian,
Transfer Agent and Accounting Services." Telephone transaction privileges are
automatic. Shareholders may specifically request that no telephone
redemptions or exchanges be accepted for their accounts. This election may be
made on the Application Form or at any time thereafter by completing and
returning appropriate documentation supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is
17
<PAGE>
effective that day. Telephone orders placed after 4:00 p.m. (Eastern Time)
will be effected at the net asset value (less any applicable contingent
deferred sales charge on redemptions) as next determined on the following
Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed, neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by regular or express
mail. Shares held in certificate form may not be exchanged or redeemed by
telephone. (See "How to Invest in the Fund -- Purchases by Exchange" and "How
to Redeem Shares.")
===============================================================================
8. DIVIDENDS AND TAXES
- -------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of semi-annual dividends. The
Fund may distribute to shareholders any taxable net capital gains on an
annual basis or, alternatively, may elect to retain net capital gains and pay
tax thereon.
Unless the shareholder elects otherwise, all income and capital gains
distributions will be reinvested in additional Fund shares of the same class at
net asset value. Shareholders may elect to terminate automatic reinvestment by
giving written notice to the Transfer Agent (see "Custodian, Transfer Agent and
Accounting Services"), either directly or through their Participating Dealer or
Shareholder Servicing Agent, at least five days before the next date on which
dividends or distributions will be paid.
18
<PAGE>
- -------------------------------------------------------------------------------
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which
may be changed by legislative, judicial, or administrative action. The
Statement of Additional Information sets forth further information concerning
taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund qualifies for this tax treatment, it
will be relieved of federal income tax on amounts distributed to shareholders.
Shareholders, unless otherwise exempt, generally will be subject to income tax
on the amounts so distributed regardless of whether such distributions are paid
in cash or reinvested in additional shares.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to shareholders as long-term capital gains regardless of the length of
time the shareholder has held the shares. All other income distributions will
be taxed to shareholders as ordinary income. Corporate shareholders may be
entitled to the dividends received deduction on a portion of dividends
received from the Fund. Shareholders will be advised annually as to the tax
status of all distributions.
Ordinarily, shareholders will include all dividends declared by the Fund
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
shareholders and paid by the Fund in the year in which the
dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
A sale, exchange, or redemption of shares is a taxable event for the
shareholder.
19
<PAGE>
Shareholders are encouraged to consult with their tax advisors concerning
the application of the rules described above to their particular
circumstances and the application of state and local taxes to an investment
in the Fund.
===============================================================================
9. MANAGEMENT OF THE FUND
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to
the Fund's executive officers, to the Fund's investment advisor, ICC, to its
sub-advisor, ABIM, and to the Fund's distributor, Alex. Brown. Three
Directors and all of the officers of the Fund are officers or employees of
ICC, ABIM or Alex. Brown. The other Directors of the Fund have no affiliation
with ICC, ABIM or Alex. Brown.
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*Truman T. Semans Chairman Lee S. Owen President
*Richard T. Hale Director J. Dorsey Brown, III Executive Vice President
*Charles W. Cole, Jr. Director Hobart C. Buppert, II Vice President
James J. Cunnane Director Bruce E. Behrens Vice President
John F. Kroeger Director Edward J. Veilleux Vice President
Louis E. Levy Director Gary V. Fearnow Vice President
Eugene J. McDonald Director Scott J. Liotta Vice President
Rebecca W. Rimel Director Joseph A. Finelli Treasurer
Carl W. Vogt Director Edward J. Stoken Secretary
Harry Woolf Director Laurie D. DePrine Assistant Secretary
</TABLE>
- -------
* Messrs. Semans, Hale and Cole are Directors who are "interested persons" of
the Fund within the meaning of Section 2(a)(19) under the Investment
Company Act.
===============================================================================
10. INVESTMENT ADVISOR AND SUB-ADVISOR
ICC is the Fund's investment advisor and ABIM is the Fund's sub-advisor.
ICC is also the investment advisor to, and Alex. Brown acts as distributor
for, other mutual funds in the Flag Investors family of funds and Alex. Brown
Cash Reserve Fund, Inc., which funds had approximately $5.0 billion of net
assets as of August 31, 1996. ABIM is a registered investment advisor with
approximately $4.9 billion under management as of August 31, 1996.
Pursuant to the terms of the Investment Advisory Agreement, ICC supervises
and manages all of the Fund's operations. Under the Investment
20
<PAGE>
Advisory and Sub-Advisory Agreements, ICC delegates to ABIM certain of its
duties, provided that ICC continues to supervise the performance of ABIM and
report thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. The Board has established procedures under which ABIM may
allocate transactions to Alex. Brown, provided that compensation to Alex.
Brown on each transaction is reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other broker-dealers
in connection with comparable transactions involving similar securities
during a comparable period of time. In addition, consistent with NASD Rules,
and subject to seeking the most favorable price and execution available and
such other policies as the Board may determine, ABIM may consider services in
connection with the sale of shares as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
As compensation for its services for the fiscal year ended May 31, 1996,
ICC received from the Fund a fee (net of fee waivers) equal to .57% of the
Fund's average daily net assets. From such amounts and from its own
resources, ICC paid ABIM a fee (net of fee waivers) equal to .65% of the
Fund's average daily net assets. ICC has voluntarily agreed to waive a
portion of the fee to which it is contractually entitled so that the total
operating expenses of the Fund do not exceed 1.35% of the Class A Shares'
average daily net assets and 2.10% of the Class B Shares' average daily net
assets. If ICC received the entire fee to which it is contractually entitled,
its fee would be higher than that paid by most mutual funds. (See "Fee
Table.") ABIM has also agreed to waive, on a voluntary basis, that portion of
its fee payable from ICC in excess of the amount equal to .65% of the Fund's
average daily net assets.
ICC is an indirect subsidiary of Alex. Brown Incorporated (described
below). ABIM is a limited partnership affiliated with Alex. Brown. Buppert,
Behrens & Owen, Inc., a company organized and owned by three employees of
ABIM, owns a 49% limited partnership interest and a 1% general partnership
interest in ABIM. Alex. Brown owns a 1% general partnership interest in ABIM
and Alex. Brown Incorporated owns the remaining 49% limited partnership
interest. The address of both ICC and ABIM is 135 East Baltimore Street,
Baltimore, Maryland 21202.
21
<PAGE>
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER
Lee S. Owen -- 24 Years Investment Experience
Lee S. Owen, the Fund's President, has been responsible for managing the
Fund's assets since inception. Mr. Owen joined ABIM as a Vice President in 1983.
From 1972 to 1983, Mr. Owen was a Vice President and Portfolio Manager for T.
Rowe Price Associates. Mr. Owen is a 1970 graduate of Williams College and
received his M.B.A. from the University of Virginia in 1972. He is a member of
the Baltimore Security Analysts Society and the Financial Analysts Federation.
PAST PERFORMANCE OF ABIM
ANNUALIZED RATES OF RETURN
OF EQUITY ACCOUNTS
FOR PERIODS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
ABIM
EQUITY ACCOUNTS** S&P 500***
--------------------- --------------
<S> <C> <C>
3 Years* 17.2% 17.2%
5 Years* 19.3% 15.7%
10 Years* 16.1% 13.8%
</TABLE>
- ------
* Annualized.
** The ABIM performance results described above are based on a composite of
all institutional accounts not subject to tax that have investment
objectives and policies similar to those of the Fund and that were
advised by ABIM during the periods shown. As of June 30, 1996, such
accounts totalled $1.848 billion. Performance results for taxable
accounts are not included because the objectives and policies of such
accounts differ from those of the Fund. Data from all accounts have been
continuous from their inception to the present or to the cessation of the
client relationship with ABIM. Effective January 1, 1993, composites have
been calculated in accordance with standards of the Association for
Investment Management and Research ("AIMR") and have been weighted for
the size of each account. Prior to January 1, 1993, accounts were equal
weighted, that is, every account was given equal weight with every other
account, regardless of size. Therefore, the performance of small accounts
will have a larger impact on the results than would be the case if the
results were dollar weighted. In the period prior to January 1, 1993,
there were from 17 to 33 accounts, ranging in size from $1 million to
$104.6 million. The results for each period reflect the reduction of the
highest management fees (.75%) charged to the composite accounts and assume
the reinvestment of dividends. The composite accounts are not subject to
the restrictions of the Investment Company Act or the Code which, if
applicable, might have adversely affected the performance of such
accounts.
*** Source: SEI Corporation.
THESE RESULTS ARE UNAUDITED.
PAST PERFORMANCE SHOULD NOT BE INTERPRETED AS
INDICATIVE OF FUTURE PERFORMANCE.
22
<PAGE>
===============================================================================
11. DISTRIBUTOR
Alex. Brown acts as distributor of each class of the Fund's shares. Alex.
Brown is an investment banking firm which offers a broad range of investment
services to individual, institutional, corporate and municipal clients. It is
a wholly-owned subsidiary of Alex. Brown Incorporated which has engaged
directly and through subsidiaries and affiliates in the investment business
since 1800. Alex. Brown is a member of the New York Stock Exchange and other
leading securities exchanges. Headquartered in Baltimore, Maryland, Alex.
Brown has offices throughout the United States and, through subsidiaries,
maintains offices in London, England, Geneva, Switzerland and Tokyo, Japan.
The Fund has adopted two separate Distribution Agreements and related
Plans of Distribution, one with respect to the Class A Shares and one with
respect to the Class B Shares (the "Plans"), pursuant to Rule 12b-1 under the
Investment Company Act. 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 Alex. Brown will
allocate a portion of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. Such financial institutions may
impose separate fees in connection with these services and investors should
review this Prospectus in conjunction with any such institution's fee
schedule. In addition, financial institutions may be required to register as
dealers pursuant to state securities laws. Amounts allocated to any
Participating Dealer or Shareholder Servicing Agent may not exceed amounts
payable to Alex. Brown under the Plans with respect to shares held by or on
behalf of customers of such entities.
As compensation for providing distribution services for the Class A Shares
for the fiscal year ended May 31, 1996, Alex. Brown received a fee equal to
.25% of the average daily net assets of the Class A Shares.
As compensation for providing distribution and shareholder service for the
Class B Shares for the fiscal year ended May 31, 1996, Alex. Brown received a
distribution fee equal to .75% of the Class B Shares' average daily net
assets and a shareholder servicing fee equal to .25% of the Class B Shares'
average daily net assets. The distribution fee is used to compensate Alex.
Brown for its services and expenses in distributing the Class B Shares. The
shareholder servicing fee is used to compensate Alex. Brown, Participating
Dealers and Shareholder Servicing Agents for services provided and expenses
incurred in maintaining shareholder accounts, responding to shareholder
inquiries and providing information on their investments.
23
<PAGE>
Payments under the Plans are made as described above regardless of Alex.
Brown's actual cost of providing distribution services and may be used to pay
Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Class A Shares is
less than .25% of the Class A Shares' average daily net assets for any period
or in connection with the sale of the Class B Shares is less than .75% of the
Class B Shares' average daily net assets for any period, the unexpended
portion of the distribution fees may be retained as profit by Alex. Brown.
Alex. Brown will from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Participating Dealers.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore,
Maryland 21202.
===============================================================================
12. CUSTODIAN, TRANSFER AGENT AND
ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), a national banking
association with offices at Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, acts as custodian of the Fund's assets. Investment
Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080), is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. As compensation for
providing accounting services to the Fund for the fiscal year ended May 31,
1996, ICC received a fee equal to .09% of the Fund's average daily net
assets. (See the Statement of Additional Information.) ICC also serves as the
Fund's investment advisor.
===============================================================================
13. PERFORMANCE INFORMATION
From time to time, the Fund may advertise its performance, including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the
average annual total return, net of the Fund's maximum sales charge imposed
on Class A Shares or including the contingent deferred sales charge imposed
on Class B Shares redeemed at the end of the specified period covered by the
total return figure, over one, five and ten year periods or, if such periods
have not yet elapsed, shorter periods corresponding to the life of the Fund.
Such total return quotations will be computed by finding average annual
compounded rates of return over such periods that would
24
<PAGE>
equate an assumed initial investment of $1,000 to the ending redeemable
value, net of the maximum sales charge and other fees according to the
required standardized calculation. The standardized calculation is required
by the SEC to provide consistency and comparability in investment company
advertising and is not equivalent to a yield calculation. If the Fund
compares its performance to other funds or to relevant indices, the Fund's
performance will be stated in the same terms in which such comparative data
and indices are stated, which is normally total return rather than yield. For
these purposes, the performance of the Fund, as well as the performance of
such investment companies or indices, may not reflect sales charges, which,
if reflected, would reduce performance results.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar
Inc. and SEI Corporation, independent services which monitor the performance
of mutual funds. The performance of the Fund may also be compared to the
Consumer Price Index, the Standard & Poor's 500 Stock Index and other market
indices such as NASDAQ and the Wilshire 500. The Fund may also use total
return performance data as reported in the following national financial and
industry publications that monitor the performance of mutual funds: Money
Magazine, Forbes, Business Week, Barron's, Investor's Daily, IBC/Donoghue's
Money Fund Report and The Wall Street Journal.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the Fund,
operating expenses and market conditions. Any fees charged by banks with respect
to customer accounts through which shares may be purchased, although not
included in calculations of performance, will reduce performance results.
===============================================================================
14. GENERAL INFORMATION
- -------------------------------------------------------------------------------
CAPITAL SHARES
The Fund is an open-end management investment company organized under the
laws of the State of Maryland on November 29, 1994 and is authorized to issue
thirty-five million shares of capital stock, with a par value of $.001 per
share. Shares of the Fund have equal rights with respect to voting. Voting
rights are not cumulative, so the holders of more than 50% of the outstanding
shares voting together for the election of Directors
25
<PAGE>
may elect all the members of the Board of Directors of the Fund. In the event
of liquidation or dissolution of the Fund, each share is entitled to its pro
rata portion of the Fund's assets after all debts and expenses have been
paid.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
Shares offered by this Prospectus have been designated "Flag Investors Equity
Partners Fund Class A Shares" and "Flag Investors Equity Partners Fund Class
B Shares." The Board has no present intention of establishing any additional
series of the Fund but the Fund does have another class of shares in addition
to the shares offered hereby, "Flag Investors Equity Partners Fund
Institutional Shares." Additional information concerning the Fund's
Institutional Shares may be obtained by calling Alex. Brown at (800)
767-FLAG. Different classes of the Fund may be offered to certain investors
and holders of such shares may be entitled to certain exchange privileges not
offered to Class A or Class B Shares. All classes of the Fund share a common
investment objective, portfolio of investments and advisory fee, but the
classes may have different distribution/service fees or sales load structures
and, accordingly, the net asset value per share of classes may differ at
times.
- -------------------------------------------------------------------------------
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
- -------------------------------------------------------------------------------
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants,
Coopers & Lybrand L.L.P.
26
<PAGE>
- -------------------------------------------------------------------------------
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
- -------------------------------------------------------------------------------
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their shares should contact Alex.
Brown at (800) 767-FLAG, the Transfer Agent at (800) 553-8080, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.
27
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------
Make check payable to "Flag Investors Equity Partners
Fund, Inc." and mail with this application to:
Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Equity Partners Fund, Inc.
FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL: 1-800-553-8080,
MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M. (EASTERN TIME).
TO OPEN AN IRA ACCOUNT, PLEASE CALL 1-800-767-3524 FOR AN IRA INFORMATION KIT.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate the amount of
purchase.)
[ ] CLASS A SHARES (4.5% maximum initial sales charge) in the amount of $______
[ ] CLASS B SHARES (4.0% maximum contingent deferred sales charge) in the amount
of $______
THE MINIMUM INITIAL PURCHASE FOR EACH CLASS OF SHARES IS $2,000, EXCEPT THAT THE
MINIMUM INITIAL PURCHASE FOR SHAREHOLDERS OF ANY OTHER FLAG INVESTORS FUND OR
CLASS IS $500 AND THE MINIMUM INITIAL PURCHASE FOR PARTICIPANTS IN THE FUND'S
AUTOMATIC INVESTING PLAN IS $250. EACH SUBSEQUENT PURCHASE REQUIRES A $100
MINIMUM PER CLASS, EXCEPT THAT THE MINIMUM SUBSEQUENT PURCHASE UNDER THE FUND'S
AUTOMATIC INVESTING PLAN IS $250 FOR QUARTERLY PURCHASES AND $100 FOR MONTHLY
PURCHASES. THE MAXIMUM INVESTMENT IN CLASS B SHARES IS $100,000 PER ACCOUNT. The
Fund reserves the right not to accept checks for more than $50,000 that are not
certified or bank checks.
- -----------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
Existing Account No., if any:________
<TABLE>
<S> <C>
INDIVIDUAL OR JOINT TENANT GIFTS TO MINORS
- ----------------------------------------------------------------------- --------------------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- ----------------------------------------------------------------------- --------------------------------------------------------
Social Security Number Minor's Name (only one)
- ----------------------------------------------------------------------- --------------------------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor
under the __________________ Uniform Gifts to Minors Act
State of Residence
CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC. MAILING ADDRESS
- ----------------------------------------------------------------------- --------------------------------------------------------
Name of Corporation, Trust or Partnership Street
- ------------------------------ -------------------------------------- --------------------------------------------------------
Tax ID Number Date of Trust City State Zip
( )
- ----------------------------------------------------------------------- --------------------------------------------------------
Name of Trustees (if to be included in the Registration) Daytime Phone
- -----------------------------------------------------------------------
For the Benefit of
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
LETTER OF INTENT -- CLASS A SHARES ONLY (OPTIONAL)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Equity
Partners Fund, Inc., in an aggregate amount at least equal to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
- -----------------------------------------------------------------------------
RIGHT OF ACCUMULATION (OPTIONAL)
[ ] I already own shares of the Flag Investors Fund(s) (except Class B shares)
set forth below to be applied for a reduced sales charge. List the Account
numbers of other Flag Investors Funds that you or your immediate family (spouse
and children under 21) already own that qualify for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
<PAGE>
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional shares of the same class of
the Fund at no sales charge.
INCOME DIVIDENDS CAPITAL GAINS
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
- -----------------------------------------------------------------------------
AUTOMATIC INVESTING PLAN (OPTIONAL)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $_______ in Class A Shares or $_______ in Class B Shares for me, on a
monthly or quarterly basis, on or about the 20th of each month or if quarterly,
the 20th of January, April, July and October, and to draw a bank draft in
payment of the investment against my checking account. (Bank drafts may be drawn
on commercial banks only.)
MINIMUM INITIAL INVESTMENT: $250 PER CLASS
SUBSEQUENT INVESTMENTS (CHECK ONE):
[ ] Monthly ($100 MINIMUM PER CLASS) PLEASE ATTACH A VOIDED CHECK.
[ ] Quarterly ($250 MINIMUM PER CLASS)
- --------------------------------------------------------------------------------
Bank Name
- --------------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any Date
- --------------------------------------------------------------------------------
Depositor's Signature
- --------------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)
[ ] Beginning the month of ______ , 19______ please send me checks on a monthly
or quarterly basis, as indicated below, in the amount of (complete as
applicable) $______ from Class A Shares and/or $ ______ from Class B Shares that
I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000.)
FREQUENCY (CHECK ONE):
[ ] Monthly
[ ] Quarterly (January, April, July and October)
- --------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I understand that I will automatically have telephone redemption privileges (for
amounts up to $50,000) and telephone exchange privileges (with respect to other
Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want:
[ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank: Bank Account No.:
-------------------------- -------------------------
Address: Bank Account Name:
-------------------------- -------------------------
--------------------------
<PAGE>
SIGNATURE AND TAXPAYER CERTIFICATION
I have received a copy of the Fund's prospectus dated October 1, 1996. Unless
the box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence: _______
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
- ------------------------------ -----------------------------------------------
Signature Date Signature (if joint acct., both must sign) Date
- --------------------------------------------------------------------------------
FOR DEALER USE ONLY
Dealer's Name: Dealer Code:
----------------------------- -------------
Dealer's Address: Branch Code:
----------------------------- -------------
----------------------------- -------------
Representative: Rep. No.:
----------------------------- -------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
(Institutional Shares)
September 26, 1996
Cross Reference Sheet
Items Required by Form N-1A
<TABLE>
<CAPTION>
<S> <C> <C>
Part A Information Required in Prospectus Registration Statement Heading
- ------ ---------------------------------- ------------------------------
Item 1. Cover Page Cover Page
Item 2. Synopsis Fee Table
Item 3. Condensed Financial Information Financial Highlights (for
Registrant's Class A Shares)
Item 4. General Description of Registrant Investment Program;
General Information
Item 5. Management of the Fund Management of the Fund;
Investment Advisor and
Sub-Advisor; Distributor;
Custodian, Transfer
Agent, Accounting Services
Item 5A. Management's Discussion of Fund *
Performance
Item 6. Capital Stock and Other Securities Cover Page;
Dividends and Taxes;
General Information
Item 7. Purchase of Securities Being Offered How to Invest in
Institutional Shares; Distributor
Item 8. Redemption or Repurchase How to Redeem Institutional
Shares
Item 9. Pending Legal Proceedings **
Part B Information Required in a Statement
- ------ of Additional Information
-----------------------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information
and History
Item 13. Investment Objectives and Policies Investment Objectives
and Policies
Item 14. Management of the Fund Management of
the Fund
Item 15. Control Persons and Principal Holders Control Persons and
of Securities Principal Holders of
Securities
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services;
Custodian, Transfer Agent,
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Capital Stock; Semi-Annual
Reports
Item 19. Purchase, Redemption and Pricing of Valuation of Shares
Securities Being Offered and Redemption
Item 20. Tax Status Federal Tax Treatment of
Dividends and
Distributions
Item 21. Underwriters Distribution of Fund
Shares
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C Other Information
- ------ ------------------
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
- -----------
* Information required by Item 5A is contained in Registrant's 1996 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
LOGO
FLAG INVESTORS
EQUITY PARTNERS FUND, INC.
(INSTITUTIONAL SHARES)
This mutual fund (the "Fund") is designed to seek long-term growth of
capital and, secondarily, current income. The Fund seeks to achieve this
objective primarily through a policy of diversified investments in equity
securities, including common stocks and convertible securities.
Flag Investors Institutional Shares of the Fund ("Institutional Shares")
are available through Alex. Brown & Sons Incorporated ("Alex. Brown") or
Participating Dealers and may be purchased only by eligible institutions or
by clients of investment advisory affiliates of Alex. Brown. (See "How to
Invest in Institutional Shares.")
This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated October 1, 1996, has
been filed with the Securities and Exchange Commission (the "SEC") and is
hereby incorporated by reference. It is available upon request and without
charge by calling the Fund at (800) 767-FLAG.
- --------------------------------------------------------------------------------
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 1, 1996
PROSPECTUS
<PAGE>
FLAG INVESTORS
EQUITY PARTNERS FUND, INC.
(INSTITUTIONAL SHARES)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. Fee Table .......................................... 2
2. Financial Highlights ............................... 3
3. Investment Program ................................. 5
Investment Objective, Policies
and Risk Considerations ............................ 5
4. Investment Restrictions ............................ 8
5. How to Invest in Institutional Shares .............. 8
6. How to Redeem Institutional Shares ................. 10
7. Telephone Transactions ............................. 11
8. Dividends and Taxes ................................ 12
9. Management of the Fund ............................. 13
10. Investment Advisor and Sub-Advisor ................. 14
11. Distributor ........................................ 16
12. Custodian, Transfer Agent and Accounting Services .. 17
13. Performance Information ............................ 17
14. General Information ................................ 18
</TABLE>
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH ANY
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND
OR BY ITS DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. INSTITUTIONAL SHARES MAY BE OFFERED ONLY TO RESIDENTS OF
THOSE STATES IN WHICH SUCH SHARES ARE ELIGIBLE FOR PURCHASE.
- --------------------------------------------------------------------------------
1
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
================================================================================
1. FEE TABLE
...............................................................................
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases .............. None
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Maximum Deferred Sales Charge .......................... None
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (NET OF FEE WAIVERS):
(as a percentage of average daily net assets)
- --------------------------------------------------------------------------------
Management Fees (net of fee waivers) ................. .75%
12b-1 Fees ........................................... None
Other Expenses ....................................... .35%
----
Total Fund Operating Expenses (net of fee waivers) ... 1.10%*
====
- --------------------------------------------------------------------------------
* The Fund's investment advisor intends, but is not obligated, to waive its
fee to the extent required so that Total Fund Operating Expenses do not
exceed 1.10% of the Institutional Shares' average daily net assets. Absent
fee waivers, Management Fees would be .95% of the Fund's average daily net
assets and Total Fund Operating Expenses would be 1.30% of the
Institutional Shares' average daily net assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE:
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:* 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------
$11 $35 $61 $134
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* The Example is based on Total Fund Operating Expenses, net of fee waivers.
Absent fee waivers, expenses would be higher.
THE EXPENSES AND EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Institutional Shares through a financial institution may
be charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in
Institutional Shares," "Investment Advisor and Sub-Advisor" and
"Distributor.") The Expenses appearing in the table above have been restated
to reflect current fees.
2
<PAGE>
================================================================================
2. FINANCIAL HIGHLIGHTS
The Fund has offered the Institutional Shares since February 12, 1996.
However, the Fund has offered another class of shares since February 13,
1995. Historical financial information is not fully applicable to the
Institutional Shares because the expenses paid by the Fund in the past differ
from those the Institutional Shares will incur. (See "Fee Table.")
Nevertheless, historical information about the Fund may be useful to
investors if they take into account the differences in expenses. Accordingly,
the financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements
and financial highlights for the fiscal year ended May 31, 1996 and the
report thereon of Coopers & Lybrand L.L.P. are included in the Statement of
Additional Information. Additional performance information is contained in
the Fund's Annual Report for the fiscal year ended May 31, 1996 which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.
3
<PAGE>
================================================================================
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES CLASS A SHARES
-------------- ---------------------------
FOR THE FOR THE FOR THE
PERIOD YEAR PERIOD
FEB. 12, 1996* ENDED FEB. 13, 1995*
THROUGH MAY 31, THROUGH
MAY 31, 1996 1996 MAY 31, 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value at beginning of period . $12.72 $ 10.77 $ 10.00
-------- --------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................ 0.04 0.17 0.12
Net realized and unrealized gain on
investments .......................... 0.34 2.29 0.65
-------- --------- --------------
Total from Investment Operations ..... 0.38 2.46 0.77
LESS DISTRIBUTIONS:
Dividends from net investment income . -- (0.14) --
-------- --------- --------------
Total distributions .................. -- (0.14) --
-------- --------- --------------
Net asset value at end of period ..... $13.10 $ 13.09 $ 10.77
======== ========= ==============
TOTAL RETURN** ........................ 3.23% 23.05% 7.70%
RATIOS TO AVERAGE DAILY NET ASSETS:
Expenses ............................. 1.10%(2) 1.35%(4) 1.35%(4)
Net investment income ................ 1.20%(3) 1.52%(5) 3.74%(5)
SUPPLEMENTAL DATA:
Net assets at end of period (000) .... $4,235 $64,230 $38,612
Portfolio turnover rate .............. 0.73% 0.73% --
--------------------------------------------------------------------------------------
</TABLE>
*Commencement of operations.
**Total return excludes the effect of sales charge.
(1) Annualized.
(2) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 1.55% (annualized) for Institutional
Shares for the period ended May 31, 1996.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average daily net assets would have been 0.75% (annualized) for
Institutional Shares for the period ended May 31, 1996.
(4) Without the waiver of advisory fees, the ratio of expenses to average
daily net assets would have been 1.77% and 3.76% (annualized) for Class A
Shares for the year ended May 31, 1996 and the period ended May 31, 1995,
respectively.
(5) Without the waiver of advisory fees, the ratio of net investment income
to average daily net assets would have been 1.10% and 1.33% (annualized)
for Class A Shares for the year ended May 31, 1996 and the period ended
May 31, 1995, respectively.
4
<PAGE>
================================================================================
3. INVESTMENT PROGRAM
...............................................................................
Investment Objective, Policies
and Risk Considerations
The Fund's investment objective is to seek long-term growth of capital
and, secondarily, high current income. The Fund seeks to achieve this
objective primarily through a policy of diversified investments in equity
securities, including common stocks and convertible securities. The Fund's
investment objective is a fundamental policy of the Fund and may not be
changed without shareholder approval. There can be no assurance, however,
that the Fund will achieve its investment objective.
Investment Company Capital Corp. ("ICC"), the Fund's investment advisor,
and Alex. Brown Investment Management ("ABIM"), the Fund's sub-advisor
(collectively, the "Advisors"), are responsible for managing the Fund's
investments. (See "Investment Advisor and Sub-Advisor.") The Advisors
consider both the opportunity for gain and the risk of loss in making
investments.
Under normal market conditions, the Fund will invest as fully as feasible
in common stocks and other equity investments (including preferred stocks,
convertible debt, warrants and other securities convertible into or
exchangeable for common stocks). At least 65% of the Fund's total assets will
be so invested. Convertible securities are securities that may be converted
either at a stated price or rate within a specified period of time into a
specified number of shares of common stock. Preferred stock is a class of
capital stock that pays dividends at a specified rate and that has preference
over common stock in the payment of dividends and the liquidation of assets.
Warrants are instruments giving holders the right, but not the obligation, to
buy shares of a company at a given price during a specified period. In
selecting securities for the Fund's portfolio, the Advisors expect to apply a
"flexible value" approach to the selection of equity investments. Under this
approach, the Advisors will attempt to identify securities that are
undervalued in the marketplace but will also consider such factors as current
and expected earnings, dividends, cash flows and asset values in their
evaluation of a security's investment potential.
The Fund may invest up to 10% of its total assets in non-convertible debt
securities. Up to all of any such investments may be in securities that are
rated below investment grade. (See "Investments in Non-Investment Grade
Securities" below.) Any remaining assets of the Fund not invested as
described above may be invested in high quality money market instru-
5
<PAGE>
ments. For temporary, defensive purposes, the Fund may invest up to 100% of
its assets in high quality short-term money market instruments, including
repurchase agreements, and in bills, notes or bonds issued by the U.S.
Treasury Department or by agencies of the U.S. Government. In addition, the
Fund may invest up to 10% of its net assets in illiquid securities.
The Fund may purchase Rule 144A Securities. Rule 144A Securities are
restricted in that they have not been registered under the Securities Act of
1933, but they may be traded between certain qualified institutional
investors, including investment companies. The presence or absence of a
secondary market may affect the value of the Rule 144A Securities. The Fund's
Board of Directors has established guidelines and procedures to be utilized
to determine the liquidity of such securities.
...............................................................................
INVESTMENTS IN NON-INVESTMENT GRADE SECURITIES
Where deemed appropriate by the Advisors, the Fund may invest up to 10% of
its total assets (measured at the time of the investment ) in lower quality
non-convertible debt securities (securities rated BB or lower by Standard &
Poor's Ratings Group ("S&P") or Ba or lower by Moody's Investors Service,
Inc. ("Moody's") and unrated securities of comparable quality). Lower rated
debt securities, also known as "junk bonds," are considered to be speculative
and involve greater risk of default or price changes due to changes in the
issuer's creditworthiness. Securities in the lowest rating category that the
Fund may purchase (securities rated C by either S&P or Moody's) may present a
particular risk of default, or may be in default and in arrears in payment of
principal and interest. In addition, C rated securities may be regarded as
having extremely poor prospects of ever attaining investment standing. Yields
and market values of these bonds will fluctuate over time, reflecting
changing interest rates and the market's perception of credit quality and the
outlook for economic growth. When economic conditions appear to be
deteriorating, lower rated bonds may decline in value, regardless of
prevailing interest rates. Accordingly, adverse economic developments,
including a recession or a substantial period of rising interest rates, may
disrupt the high yield bond market, affecting both the value and liquidity of
such bonds. An economic downturn could adversely affect the ability of
issuers of such bonds to make payments of principal and interest to a greater
extent than issuers of higher rated bonds might be affected. The ratings
categories of S&P and Moody's are described more fully in the Appendix to the
Statement of Additional Information. During the fiscal year ended May 31,
1996 the Fund held no below investment grade bonds.
6
<PAGE>
...............................................................................
INVESTMENTS IN REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers deemed creditworthy under guidelines approved by the
Directors. A repurchase agreement is a short-term investment in which the
purchaser (i.e., 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 purchaser's holding period. The value of the
underlying securities will be at least equal at all times to the total amount
of the repurchase agreement obligation, including the interest factor. If the
seller were to default on its obligation to repurchase the underlying
instrument, the Fund could experience loss due to delay in liquidating the
collateral and to adverse market action.
...............................................................................
INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS
In addition, from time to time, the Advisors may invest up to 10% of the
Fund's total assets in American Depository Receipts, which are U.S. exchange
listed interests in securities of foreign companies, and debt and equity
securities issued by foreign corporate and government issuers when the
Advisors believe that such investments provide good opportunities for
achieving income and capital gains without undue risk.
Foreign investments involve different risks from investments in the United
States. In general, less information is publicly available about foreign
companies than is available about companies in the United States. Most
foreign companies are not subject to uniform audit and financial reporting
standards, practices and requirements comparable to those in the United
States. In most foreign markets volume and liquidity are less than in the
United States and, at times, volatility of price can be greater than in the
United States. Fixed commissions on foreign stock exchanges are generally
higher than the negotiated commissions on U.S. exchanges. There is generally
less government supervision and regulation of foreign stock exchanges,
brokers, and companies than in the United States. The settlement period for
foreign securities, which is often longer than that for securities of U.S.
issuers, may affect portfolio liquidity. Portfolio securities held by the
Fund which are listed on foreign exchanges may be traded on days that the
Fund does not value its securities, such as Saturdays and the customary U.S.
business holidays on which the New York Stock Exchange is closed. As a
result, the net asset value of Fund shares may be significantly affected on
days when shareholders do not have access to the Fund.
7
<PAGE>
The Advisors intend to invest in securities of companies in, and
governments of, developed, politically stable nations, but there exists the
possibility of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation which could adversely affect the
investments of the Fund in such foreign country. When considering whether to
invest in foreign equity or debt securities, the Advisors will consider the
risk of investment described above in addition to the criteria they apply to
all investments in equity or debt securities.
================================================================================
4. INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. 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) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an industry);
2) With respect to 75% of its total assets, invest more than 5% of the value
of its total assets in the securities of any single issuer or purchase
more than 10% of the outstanding voting securities of any one issuer,
except the U.S. Government, its agencies and instrumentalities; or
3) Borrow money except as a temporary measure 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 equalling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase
securities.
The Fund is subject to further investment restrictions that are set forth
in the Statement of Additional Information.
================================================================================
5. HOW TO INVEST IN INSTITUTIONAL SHARES
Institutions (e.g., banks and trust companies, savings institutions,
corporations, insurance companies, investment counsellors, pension funds
8
<PAGE>
employee benefit plans, trusts, estates and educational, religious and
charitable institutions) and clients of investment advisory affiliates of
Alex. Brown may purchase Institutional Shares through Alex. Brown, 135 East
Baltimore Street, Baltimore, Maryland 21202 (telephone: (800) 553-8080),
through any securities dealer which has entered into a dealer agreement with
Alex. Brown ("Participating Dealers"), or by completing the Application Form
attached to this Prospectus and returning it, together with payment of the
purchase price, as instructed in the Application.
The minimum initial investment in Institutional Shares is $500,000, except
that the minimum initial investment is $1,000,000 for qualified retirement
plans. There is no minimum for clients of investment advisory affiliates of
Alex. Brown or for subsequent investments. The Fund reserves the right to
suspend the sale of Institutional Shares at any time at the discretion of
Alex. Brown and the Advisors.
Orders for purchases of Institutional Shares are accepted on any day on
which the New York Stock Exchange is open for business (a "Business Day").
Purchase orders for Institutional Shares will be executed at a per share
purchase price equal to the net asset value next determined after receipt of
the purchase order. Purchases made through Alex. Brown or a Participating
Dealer must be in accordance with such entity's payment procedures. Alex.
Brown may, in its sole discretion, refuse to accept any purchase order.
The net asset value per share is determined once daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share of a class is calculated by
valuing its share of the Fund's assets, deducting liabilities attributable to
that class, and dividing the resulting amount by the number of then
outstanding shares of the class. For this purpose, portfolio securities are
given their market value where feasible. If a portfolio security is traded on
a national exchange or on an automated dealer quotation system, such as
NASDAQ, on the valuation date, the last quoted sale price is generally used.
Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established from time to time and monitored by the Fund's Board of
Directors. Debt obligations with maturities of 60 days or less are valued at
amortized cost, which constitutes fair value as determined by the Fund's
Board of Directors.
...............................................................................
PURCHASES BY EXCHANGE
Shareholders of other Flag Investors funds that offer Institutional shares
may exchange their Institutional shares of those funds for an equal
9
<PAGE>
dollar amount of Institutional Shares. The net asset value of shares
purchased and redeemed in an exchange request received on a Business Day will
be determined on the same day, provided that the exchange request is received
prior to 4:00 p.m. (Eastern Time), or the close of the New York Stock
Exchange, whichever is earlier. Exchange requests received after 4:00 p.m.
(Eastern Time) will be effected on the next Business Day.
The exchange privilege may be exercised by notifying the Fund's transfer
agent (the "Transfer Agent") by telephone at (800) 553-8080 on any Business
Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time) (see
"Telephone Transactions" below) or by regular or express mail at its address
listed under "Custodian, Transfer Agent and Accounting Services." The
exchange privilege may be exercised only in those states where the
Institutional shares of such other funds may legally be sold. Investors
should receive and read the applicable prospectus prior to tendering shares
for exchange. The Fund may modify or terminate this offer of exchange at any
time upon 60 days' prior written notice to shareholders.
...............................................................................
OTHER INFORMATION
Periodic statements of account from the Fund will reflect all dividends,
purchases and redemptions of Institutional Shares.
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such
shares will not be issued. All purchases of Institutional Shares are
confirmed and credited to the shareholder's account on the Fund's books
maintained by ICC or its agents. Shareholders will have the same rights and
ownership with respect to such shares as if certificates had been issued.
================================================================================
6. HOW TO REDEEM INSTITUTIONAL SHARES
Shareholders may redeem all or part of their Institutional Shares on any
Business Day by transmitting a redemption order through Alex. Brown or a
Participating Dealer, or by regular or express mail to the Transfer Agent at
its address listed under "Custodian, Transfer Agent and Accounting Services."
Shareholders may also redeem Institutional Shares by telephone (in amounts up
to $500,000). (See "Telephone Transactions" below.) A redemption request is
effected at the net asset value per share next determined after receipt of
the order in proper form. Redemption orders received after 4:00 p.m. (Eastern
Time) or the close of the New York Stock Exchange, whichever is earlier, will
be effected at the net asset value next determined on the following Business
Day. Payment for redeemed Institu-
10
<PAGE>
tional Shares will be made by wire transfer of funds to the shareholder's
bank, or to a Participating Dealer, as appropriate, upon receipt of a duly
authorized redemption request as promptly as feasible and, under most
circumstances, within three Business Days.
Dividends payable up to the date of redemption of Institutional Shares
will be paid on the next dividend payable date. If all of the Institutional
Shares in an account have been redeemed on a dividend payment date, the
dividend will be remitted by wire to the shareholder's bank or to a
Participating Dealer, as appropriate.
The Fund has the power, under its Articles of Incorporation, to redeem
shareholder accounts amounting to less than $500 (as a result of redemptions)
upon 60 days' written notice.
================================================================================
7. TELEPHONE TRANSACTIONS
Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem Institutional Shares in amounts up to
$500,000, by notifying the Transfer Agent by telephone at (800) 553-8080 on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time)
or by regular or express mail at its address listed under "Custodian,
Transfer Agent and Accounting Services." Telephone transaction privileges are
automatic. Shareholders may specifically request that no telephone
redemptions or exchanges be accepted for their accounts. This election may be
made on the Application Form or at any time thereafter by completing and
returning appropriate documentation supplied by the Transfer Agent.
A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value as next determined on the following Business
Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These
procedures include requiring the investor to provide certain personal
identification information at the time an account is opened and prior to
effecting each transaction requested by telephone. In addition, all telephone
transaction requests will be recorded and investors may be required to
provide additional telecopied instructions of such transaction requests. The
Fund or the Transfer Agent may be liable for any losses due to unauthorized
or fraudulent telephone instructions if either of them does not employ these
procedures. If these procedures are employed, neither the Fund nor the
Transfer Agent will be responsible for any loss, liability, cost or expense
11
<PAGE>
for following instructions received by telephone that either of them
reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by express mail or
facsimile. (See "How to Invest in Institutional Shares -- Purchases by
Exchange" and "How to Redeem Institutional Shares.")
================================================================================
8. DIVIDENDS AND TAXES
...............................................................................
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of semi-annual dividends. The
Fund may distribute to shareholders any taxable net capital gains on an
annual basis or, alternatively, may elect to retain net capital gains and pay
tax thereon.
Unless the shareholder elects otherwise, all income and capital gains
distributions will be reinvested in additional Institutional Shares at net
asset value. Shareholders may elect to terminate automatic reinvestment by
giving written notice to the Transfer Agent (see "Custodian, Transfer Agent
and Accounting Services"), either directly or through Alex. Brown or a
Participating Dealer, at least five days before the next date on which
dividends or distributions will be paid.
...............................................................................
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Fund and the shareholders. No attempt is made to
present a detailed explanation of the tax treatment of the Fund or the
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary is based on current tax laws and regulations, which
may be changed by legislative, judicial, or administrative action. The
Statement of Additional Information sets forth further information concerning
taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As long as the Fund qualifies for this tax treatment, it
will be relieved of federal income tax on amounts distributed to shareholders.
Shareholders, unless otherwise exempt, generally will be subject to income tax
on the amounts so distributed regardless of whether such distributions are paid
in cash or reinvested in additional shares.
12
<PAGE>
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to shareholders as long-term capital gains regardless of the length of
time the shareholder has held the Institutional Shares. All other income
distributions will be taxed to shareholders as ordinary income. Corporate
shareholders may be entitled to the dividends received deduction on a portion
of dividends received from the Fund. Shareholders will be advised annually as
to the tax status of all distributions.
Ordinarily, shareholders will include all dividends declared by the Fund
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
shareholders and paid by the Fund in the year in which the dividends were
declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange, or redemption of Institutional Shares is a taxable
event for the shareholder.
Shareholders are encouraged to consult with their tax advisors concerning
the application of the rules described above to their particular
circumstances and the application of state and local taxes to an investment
in the Fund.
================================================================================
9. MANAGEMENT OF THE FUND
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, sub-advisor, distributor, custodian
and transfer agent. The day-to-day operations of the Fund are delegated to
the Fund's executive officers, to the Fund's investment advisor, ICC, to its
sub-advisor, ABIM, and to the Fund's distributor, Alex. Brown. Three
Directors and all of the officers of the Fund are officers or employees of
ICC, ABIM or Alex. Brown. The other Directors of the Fund have no affiliation
with ICC, ABIM or Alex. Brown.
13
<PAGE>
The Fund's Directors and officers are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*Truman T. Semans Chairman Lee S. Owen President
*Richard T. Hale Director J. Dorsey Brown, III Executive Vice President
*Charles W. Cole, Jr. Director Hobart C. Buppert, II Vice President
James J. Cunnane Director Bruce E. Behrens Vice President
John F. Kroeger Director Edward J. Veilleux Vice President
Louis E. Levy Director Gary V. Fearnow Vice President
Eugene J. McDonald Director Scott J. Liotta Vice President
Rebecca W. Rimel Director Joseph A. Finelli Treasurer
Carl W. Vogt Director Edward J. Stoken Secretary
Harry Woolf Director Laurie D. DePrine Assistant Secretary
</TABLE>
- ------
* Messrs. Semans, Hale and Cole are Directors who are "interested persons" of
the Fund within the meaning of Section 2(a)(19) under the Investment
Company Act.
================================================================================
10. INVESTMENT ADVISOR AND SUB-ADVISOR
ICC is the Fund's investment advisor and ABIM is the Fund's sub-advisor.
ICC is also the investment advisor to, and Alex. Brown acts as distributor
for, other mutual funds in the Flag Investors family of funds and Alex. Brown
Cash Reserve Fund, Inc., which funds had approximately $5.0 billion of net
assets as of August 31, 1996. ABIM is a registered investment advisor with
approximately $4.9 billion under management as of August 31, 1996.
Pursuant to the terms of the Investment Advisory Agreement, ICC supervises
and manages all of the Fund's operations. Under the Investment Advisory and
Sub-Advisory Agreements, ICC delegates to ABIM certain of its duties,
provided that ICC continues to supervise the performance of ABIM and report
thereon to the Fund's Board of Directors. Pursuant to the terms of the
Sub-Advisory Agreement, ABIM is responsible for decisions to buy and sell
securities for the Fund, for broker-dealer selection, and for negotiation of
commission rates under standards established and periodically reviewed by the
Board of Directors. The Board has established procedures under which ABIM may
allocate transactions to Alex. Brown, provided that compensation to Alex.
Brown on each transaction is reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other broker-dealers
in connection with comparable transactions involving similar securities
during a comparable period of time. In addition, consistent with NASD Rules,
and subject to seeking the most favorable price and execution available and
such other policies as the Board may determine, ABIM may consider services in
connection with the sale of shares as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
14
<PAGE>
As compensation for its services for the fiscal year ended May 31, 1996,
ICC received from the Fund a fee (net of fee waivers) equal to .57% of the
Fund's average daily net assets. From such amounts and from its own
resources, ICC paid ABIM a fee (net of fee waivers) equal to .65% of the
Fund's average daily net assets. ICC has voluntarily agreed to waive a
portion of the fee to which it is contractually entitled so that the total
operating expenses of the Fund do not exceed 1.10% of the Institutional
Shares' average daily net assets. If ICC received the entire fee to which it
is contractually entitled, its fee would be higher than that paid by most
mutual funds. (See "Fee Table.") ABIM has also agreed to waive, on a
voluntary basis, that portion of its fee payable from ICC in excess of the
amount equal to .65% of the Fund's average daily net assets.
ICC is an indirect subsidiary of Alex. Brown Incorporated (described
below). ABIM is a limited partnership affiliated with Alex. Brown. Buppert,
Behrens & Owen, Inc., a company organized and owned by three employees of
ABIM, owns a 49% limited partnership interest and a 1% general partnership
interest in ABIM. Alex. Brown owns a 1% general partnership interest in ABIM
and Alex. Brown Incorporated owns the remaining 49% limited partnership
interest. The address of both ICC and ABIM is 135 East Baltimore Street,
Baltimore, Maryland 21202.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
...............................................................................
PORTFOLIO MANAGER
Lee S. Owen -- 24 Years Investment Experience
Lee S. Owen, the Fund's President, has been responsible for managing the
Fund's assets since inception. Mr. Owen joined ABIM as a Vice President in 1983.
From 1972 to 1983, Mr. Owen was a Vice President and Portfolio Manager for T.
Rowe Price Associates. Mr. Owen is a 1970 graduate of Williams College and
received his M.B.A. from the University of Virginia in 1972. He is a member of
the Baltimore Security Analysts Society and the Financial Analysts Federation.
15
<PAGE>
PAST PERFORMANCE OF ABIM
ANNUALIZED RATES OF RETURN
OF EQUITY ACCOUNTS
FOR PERIODS ENDED JUNE 30, 1996.
<TABLE>
<CAPTION>
ABIM
EQUITY ACCOUNTS** S&P 500***
--------------------- --------------
<S> <C> <C>
3 Years* 17.2% 17.2%
5 Years* 19.3% 15.7%
10 Years* 16.1% 13.8%
</TABLE>
- ------
*Annualized.
**The ABIM performance results described above are based on a composite of
all institutional accounts not subject to tax that have investment
objectives and policies similar to those of the Fund and that were advised
by ABIM during the periods shown. As of June 30, 1996, such accounts
totalled $1.848 billion. Performance results for taxable accounts are not
included because the objectives and policies of such accounts differ from
those of the Fund. Data from all accounts have been continuous from their
inception to the present or to the cessation of the client relationship
with ABIM. Effective January 1, 1993, composites have been calculated in
accordance with standards of the Association for Investment Management and
Research ("AIMR") and have been weighted for the size of each account.
Prior to January 1, 1993, accounts were equal weighted, that is, every
account was given equal weight with every other account, regardless of
size. Therefore, the performance of small accounts will have a larger
impact on the results than would be the case if the results were dollar
weighted. In the period prior to January 1, 1993, there were from 17 to 33
accounts, ranging in size from $1 million to $104.6 million. The results
for each period reflect the reduction of the highest management fees (.75%)
charged to the composite accounts and assume the reinvestment of
dividends. The composite accounts are not subject to the restrictions of
the Investment Company Act or the Code which, if applicable, might have
adversely affected the performance of such accounts.
***Source: SEI Corporation.
THESE RESULTS ARE UNAUDITED.
PAST PERFORMANCE SHOULD NOT BE INTERPRETED AS
INDICATIVE OF FUTURE PERFORMANCE.
================================================================================
11. DISTRIBUTOR
Alex. Brown acts as distributor of each class of the Fund's shares. Alex.
Brown is an investment banking firm which offers a broad range of investment
services to individual, institutional, corporate and municipal clients. It is a
wholly-owned subsidiary of Alex. Brown Incorporated which has engaged directly
and through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan. Alex. Brown
receives no compensation for distributing the Institutional Shares.
16
<PAGE>
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other
than Fund shareholders.
The address of Alex. Brown is 135 East Baltimore Street, Baltimore, Maryland
21202.
================================================================================
12. CUSTODIAN, TRANSFER AGENT AND
ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), a national banking
association with offices at Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, acts as custodian of the Fund's assets. Investment
Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080), is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. As compensation for
providing accounting services to the Fund for the fiscal year ended May 31,
1996, ICC received a fee equal to .09% of the Fund's average daily net
assets. (See the Statement of Additional Information.) ICC also serves as the
Fund's investment advisor.
================================================================================
13. PERFORMANCE INFORMATION
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the
average annual total return over one, five and ten year periods or, if such
periods have not yet elapsed, shorter periods corresponding to the life of
the Fund. Such total return quotations will be computed by finding average
annual compounded rates of return over such periods that would equate an
assumed initial investment of $1,000 to the ending redeemable value according
to the required standardized calculation. The standardized calculation is
required by the SEC to provide consistency and comparability in investment
company advertising and is not equivalent to a yield calculation. If the Fund
compares its performance to other funds or to relevant indices, the Fund's
performance will be stated in the same terms in which such comparative data
and indices are stated, which is normally total return rather than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc., Morningstar
Inc. and SEI Corporation, independent services which monitor the performance
of mutual funds. The performance of the Fund may also be compared to the
Consumer Price Index, the Standard & Poor's 500 Stock Index and other market
indices such as NASDAQ and the Wilshire
17
<PAGE>
500. The Fund may also use total return performance data as reported in the
following national financial and industry publications that monitor the
performance of mutual funds: Money Magazine, Forbes, Business Week, Barron's,
Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall Street
Journal.
Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the Fund,
operating expenses and market conditions. Any fees charged by banks with respect
to customer accounts through which Institutional Shares may be purchased,
although not included in calculations of performance, will reduce performance
results.
================================================================================
14. GENERAL INFORMATION
...............................................................................
CAPITAL SHARES
The Fund is an open-end management investment company organized under the
laws of the State of Maryland on November 29, 1994 and is authorized to issue
thirty-five million shares of capital stock, with a par value of $.001 per
share. Shares have equal rights with respect to voting. Voting rights are not
cumulative, so the holders of more than 50% of the outstanding shares voting
together for the election of Directors may elect all the members of the Board
of Directors of the Fund. In the event of liquidation or dissolution of the
Fund, each share is entitled to its pro rata portion of the Fund's assets
after all debts and expenses have been paid.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Flag Investors Equity
Partners Fund Institutional Shares." The Board has no present intention of
establishing any additional series of the Fund but the Fund does have two
other classes of shares in addition to the shares offered hereby: "Flag
Investors Equity Partners Fund Class A Shares," and "Flag Investors Equity
Partners Fund Class B Shares." Additional information concerning the Fund's
Class A Shares and Class B Shares may be obtained by calling Alex. Brown at
(800) 767-FLAG. Different classes of the Fund may be offered to certain
investors and holders of such shares may be entitled to certain exchange
privileges not offered to Institutional Shares. All classes of the Fund share
a common investment objective, portfolio of
18
<PAGE>
investments and advisory fee, but the classes may have different distribution
fees or sales load structures and, accordingly, the net asset value per share
of the classes may differ at times.
...............................................................................
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund
retain the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting.
...............................................................................
REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants,
Coopers & Lybrand L.L.P.
...............................................................................
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
...............................................................................
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their Institutional Shares should
contact Alex. Brown at (800) 767-FLAG, the Transfer Agent at (800) 553-8080,
or a Participating Dealer, as appropriate.
19
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- ------------------------------------------------------------------------------
SEND COMPLETED APPLICATION BY OVERNIGHT CARRIER TO:
Alex. Brown & Sons Incorporated/Flag Investors Funds
1004 Baltimore Avenue, 4th Floor
Kansas City, MO 64105
Attn: Flag Investors Equity Partners Fund, Inc.
IF YOU ARE PAYING BY CHECK, MAKE CHECK PAYABLE TO "FLAG INVESTORS EQUITY
PARTNERS FUND, INC." AND MAIL WITH THIS APPLICATION. IF YOU ARE PAYING BY
WIRE, SEE INSTRUCTIONS BELOW.
FOR ASSISTANCE IN COMPLETING THIS APPLICATION PLEASE CALL: 1-800-553-8080,
MONDAY THROUGH FRIDAY, 8:30 A.M. TO 5:30 P.M. (EASTERN TIME).
- -------------------------------------------------------------------------------
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
NAME ON ACCOUNT
- -----------------------------------------
Name of Corporation, Trust or Partnership
- -----------------
Tax ID Number
/ / Corporation / / Partnership / / Trust
/ / Non-Profit or Charitable Organization / / Other _______________
If a Trust, please provide the following:
- -----------------------------------------------------------------------------
Date of Trust For the Benefit of
- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
MAILING ADDRESS
- -----------------------------------------------------------------------------
Name of Individual to Receive Correspondence
- -----------------------------------------------------------------------------
Street
- -----------------------------------------------------------------------------
City State Zip
( )
- ------------------------------------------------
Daytime Phone
- -------------------------------------------------------------------------------
INITIAL INVESTMENT
THE MINIMUM INITIAL PURCHASE FOR THE INSTITUTIONAL SHARES OF THE FUND IS
$500,000, EXCEPT THAT THE MINIMUM INITIAL PURCHASE IS $1,000,000 FOR QUALIFIED
RETIREMENT PLANS. THERE IS NO MINIMUM FOR CLIENTS OF INVESTMENT ADVISORY
AFFILIATES OF ALEX. BROWN OR FOR SUBSEQUENT INVESTMENTS.
Indicate the amount to be invested and the method of payment:
_____ A. By Mail: Enclosed is a check in the amount of $ ______ payable to
Flag Investors Equity Partners Fund, Inc.
_____ B. By Wire: A bank wire in the amount of $________ has been sent from
______________________________________ _____________________
Name of Bank Wire Control Number
WIRE INSTRUCTIONS
Follow the instructions below to arrange for a wire transfer for
initial investment:
o Send completed Application by overnight carrier to Alex. Brown &
Sons Incorporated/Flag Investors Funds at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust
Company ("IFTC"), as follows:
IFTC
a/c Alex. Brown & Sons Incorporated/Flag Investors Funds
Acct. # 7528353
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Equity Partners Fund, Inc. -- Institutional Shares
o The amount to be invested
o "For further credit to _______________________________."
(Investor's Fund Account Number)
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<PAGE>
DISTRIBUTION OPTIONS
Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional Institutional Shares of the Fund.
INCOME DIVIDENDS CAPITAL GAINS
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
- -------------------------------------------------------------------------------
TELEPHONE TRANSACTIONS
I UNDERSTAND THAT I WILL AUTOMATICALLY HAVE TELEPHONE REDEMPTION
PRIVILEGES (FOR AMOUNTS UP TO $500,000) AND EXCHANGE PRIVILEGES (WITH RESPECT
TO INSTITUTIONAL SHARES OF OTHER FLAG INVESTORS FUNDS) UNLESS I MARK ONE OR
BOTH OF THE BOXES BELOW:
No, I do not want:
/ / Telephone redemption privileges
/ / Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank
account designated below.
- -------------------------------------------------------------------------------
BANK ACCOUNT DESIGNATION
(THIS SECTION MUST BE COMPLETED)
Please attach a blank, voided check to provide account and bank routing
information.
- -------------------------------------------------------------------------------
Name of Bank Branch
- -------------------------------------------------------------------------------
Bank Address City/State/Zip
- -------------------------------------------------------------------------------
Name(s) on Account
- -------------------------------------------------------------------------------
Account Number A.B.A. Number
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ACKNOWLEDGEMENT, CERTIFICATE AND SIGNATURE
I have received a copy of the Fund's prospectus dated October 1, 1996. Unless
the box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and (2)
that I am not subject to backup withholding as a result of a failure to report
all interest or dividends, or the Internal Revenue Service has notified me that
I am no longer subject to backup withholding. [ ] Check here if you are subject
to backup withholding.
If a non-resident alien, please indicate country of residence:
- -------------------------------------------------------------------------------
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk of
loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.
- -------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- -------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- -------------------------------------------------------------------------------
<PAGE>
PERSON(S) AUTHORIZED TO CONDUCT TRANSACTIONS
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
______* of the Authorized Person(s) is, by lawful and appropriate action of
the investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- ---------------------------------- --------------------------------------
Name/Title Signature Date
- ---------------------------------- --------------------------------------
Name/Title Signature Date
- ---------------------------------- --------------------------------------
Name/Title Signature Date
- ---------------------------------- --------------------------------------
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that
person's signature. Investment Company Capital Corp. ("ICC") may, without
inquiry, act upon the instructions (whether verbal, written, or provided by
wire, telecommunication, or any other process) of any person claiming to be
an Authorized Person. Neither ICC nor any entity on behalf of which ICC is
acting shall be liable for any claims or expenses (including legal fees) or
for any losses resulting from actions taken upon any instructions believed to
be genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended
Application. Provisions of this Application shall be equally Applicable to
any successor of ICC.
* If this space is left blank, any one Authorized Person is authorized to
give instructions and make inquiries. Verbal instructions will be accepted
from any one Authorized Person. Written instructions will require
signatures of the number of Authorized Persons indicated in this space.
- -------------------------------------------------------------------------------
CERTIFICATE OF AUTHORITY
INVESTORS MUST COMPLETE ONE OF THE FOLLOWING TWO CERTIFICATES OF AUTHORITY.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I __________________________, Secretary of the above-named investor, do hereby
certify that at a meeting on ______________, at which a quorum was present
throughout, the Board of Directors (Board of Trustees) of the investor duly
adopted a resolution which is in full force and effect and in accordance with
the investor's charter and by-laws, which resolution did the following:
(1) empowered the officers/trustees executing this Application (or amendment)
to do so on behalf of the investor; (2) empowered the above-named Authorized
Person(s) to effect securities transactions for the investor on the terms
described above; (3) authorized the Secretary to certify, from time to time, the
names and titles of the officers of the investor and to notify ICC when changes
in officers occur; and (4) authorized the Secretary to certify that such a
resolution has been duly adopted and will remain in full force and effect
until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
this ___ day of ____________, 199__ Secretary ______________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
- -------------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf
of the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If
there are not enough spaces here for all necessary signatures, complete a
separate certificate containing the language of this Certificate B and attach
it to the Application).
- -------------------------------------------------------------------------------
Signature and title Date
- -------------------------------------------------------------------------------
Signature and title Date
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
----------
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
135 E. Baltimore 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 PARTICIPATING DEALER OR SHAREHOLDER
SERVICING AGENT OR BY WRITING OR CALLING ALEX. BROWN & SONS
INCORPORATED, 135 EAST BALTIMORE STREET, BALTIMORE, MARYLAND
21202, (800) 767-FLAG.
Statement of Additional Information Dated:
October 1, 1996
Relating to Prospectuses Dated:
October 1, 1996, relating to the Class A, Class B
and Institutional Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History.............................. 1
2. Investment Objectives, Policies and Risk Considerations...... 1
3. Valuation of Shares and Redemption........................... 6
4. Federal Tax Treatment of Dividends and
Distributions.............................................. 7
5. Management of the Fund....................................... 10
6. Investment Advisory and Other Services....................... 14
7. Distribution of Fund Shares.................................. 16
8. Brokerage.................................................... 20
9. Capital Stock................................................ 21
10. Semi-Annual Reports.......................................... 22
11. Custodian, Transfer Agent and Accounting Services............ 22
12. Independent Accountants...................................... 23
13. Performance Information...................................... 23
14. Control Persons and Principal Holders of
Securities................................................. 25
15. Financial Statements......................................... 25
Appendix A................................................... A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Equity Partners Fund, Inc. (the "Fund") is an
open-end management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information concerning the activities
of the company being considered for investment. The Fund currently offers three
classes of shares: Flag Investors Equity Partners Fund Class A Shares (the
"Class A Shares"), Flag Investors Equity Partners Fund Class B Shares (the
"Class B Shares") and Flag Investors Equity Partners Fund Institutional Shares
(the "Institutional Shares") (collectively, the "Shares"). As used herein, the
"Fund" refers to Flag Investors Equity Partners 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 Prospectuses which may be obtained without charge from Alex. Brown & Sons
Incorporated ("Alex. Brown"), 135 East Baltimore Street, Baltimore, Maryland
21202 (telephone: (800) 767-FLAG), or from Participating Dealers that offer
Shares to prospective investors. Prospectuses for the Class A Shares and the
Class B Shares may also be obtained from Shareholder Servicing Agents. 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 respecting the Fund and its Shares filed with the SEC.
Copies of the Registration Statement as filed, including such omitted items, may
be obtained from the SEC by paying the charges prescribed under its rules and
regulations.
The Fund was incorporated under the laws of the State of Maryland
on November 29, 1994. The Fund filed a registration statement with the SEC
registering itself as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and commenced operations on February 13, 1995. The Fund has
offered the Institutional Shares since February 12, 1996.
Under a license agreement dated January 31, 1995 between the Fund
and Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund the
"Flag Investors" name and logo but retains the rights to the name and logo,
including the right to permit other investment companies to use them.
2. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund has the investment objective of seeking long-term growth
of capital and, secondarily, current income. The Fund seeks to achieve this
objective primarily through a policy of diversified investments in equity
securities, including common stocks and convertible securities. Under normal
market conditions, the Fund will invest as fully as feasible in equity
securities and at least 65% of the Fund's total assets will be so invested, all
as more fully described in the Prospectus. There can be no assurance that the
Fund's investment objective will be achieved.
In addition, the Fund may purchase a limited amount, up to 10% of
its total assets in non-convertible debt securities. Up to all of any such
investments may be in securities that are rated below investment grade by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") or are unrated and of similar quality. A description of the rating
categories of S&P and Moody's is set forth in Appendix A to this Statement of
Additional Information. Any remaining assets of the Fund not invested as
described above may be invested in high quality money market instruments. For
temporary, defensive purposes, the Fund may invest up to 100% of its assets in
high quality short-term
1
<PAGE>
money market instruments, including repurchase agreements, and in bills, notes
or bonds issued by the U.S. Treasury Department or by other agencies of the U.S.
Government.
Additional information about certain of the Fund's investment
policies and practices are described below.
Convertible Securities
As described in the Prospectus, the Fund may invest in
convertible securities. In general, the market value of a convertible security
is at least the higher of its "investment value" (i.e., its value as a
fixed-income security) or its "conversion value" (i.e., the value of the
underlying shares of common stock if the security is converted). As a
fixed-income security, a convertible security tends to increase in market value
when interest rates decline and tends to decrease in value when interest rates
rise. However, the price of a convertible security also is influenced by the
market value of the security's underlying common stock. Thus, the price of a
convertible security tends to increase as the market value of the underlying
common stock increases, whereas it tends to decrease as the market value of the
underlying stock declines. Investments in convertible securities generally
entail less risk than investment in common stock of the same issuer.
Below Investment Grade Corporate Bonds
The Fund may purchase corporate bonds, including convertible
securities, that carry ratings lower than those assigned to investment grade
bonds by Moody's or S&P, or that are unrated if such bonds, in the Advisors'
judgment, meet the quality criteria established by the Board of Directors. These
bonds are generally known as "junk bonds." These securities may trade at
substantial discounts from their face values. Accordingly, if the Fund is
successful in meeting its objectives, investors may receive a total return
consisting not only of income dividends but, to a lesser extent, capital gain
distributions. Appendix A to this Statement of Additional Information sets forth
a description of the S&P and Moody's rating categories, which indicate the
rating agency's opinion as to the probability of timely payment of interest and
principal. These ratings range in descending order of quality from AAA to D, in
the case of S&P, and from Aaa to C, in the case of Moody's. Generally,
securities which are rated lower than BBB by S&P or Baa by Moody's are described
as below investment grade. Securities rated lower than investment grade may be
of a predominantly speculative character and their future cannot be considered
well-assured. The issuer's ability to make timely payments of principal and
interest may be subject to material contingencies. Securities in the lowest
rating categories may be unable to make timely interest or principal payments
and may be in default and in arrears in interest and principal payments.
The following summarizes the Moody's and S&P definitions for
speculative grade debt obligations in which the Fund may invest (securities
rated, at the time of purchase, C or higher by S&P or Moody's). Bonds which are
rated Ba by Moody's are judged to have speculative elements; their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times. Uncertainty of position characterizes bonds in this class. Bonds
rated B generally lack characteristics of a desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small. Caa rated bonds are of poor standing.
Such issues may be in default or there may be present elements of danger with
respect to principal or interest. Bonds rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings. Bonds rated C are the lowest rated class of bonds and can
be regarded as having extremely poor prospects of ever attaining any real
investment standing. In the case of S&P, BB rated bonds have less near-term
vulnerability to default than other speculative issues. However, it faces major
ongoing uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely interest and
principal payments. The
2
<PAGE>
BB rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating. B rated bonds have a greater
vulnerability to default but currently have the capacity to meet interest
payments and principal repayments. Adverse business, financial or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating. CCC rated bonds
have a currently identifiable vulnerability to default and, without favorable
business, financial and economic conditions, will be unable to repay interest
and principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and repay
principal. The CCC rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied B or B- rating. The rating CC
typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC rating. The rating C typically is applied to debt
subordinated to senior debt which is assigned an actual or implied CCC- debt
rating. The C rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
Ratings of S&P and Moody's represent their opinions of the
quality of bonds and other debt securities they undertake to rate at the time of
issuance. However, these ratings are not absolute standards of quality and may
not reflect changes in an issuer's creditworthiness. Accordingly, the Advisors
do not rely exclusively on ratings issued by S&P or Moody's in selecting
portfolio securities but supplement such ratings with independent and ongoing
review of credit quality. In addition, the total return the Fund may earn from
investments in high yield securities will be significantly affected not only by
credit quality but by fluctuations in the markets in which such securities are
traded. Accordingly, selection and supervision by the Advisors of investments in
lower rated securities involves continuous analysis of individual issuers,
general business conditions, activities in the high yield bond market and other
factors. The analysis of issuers may include, among other things, historic and
current financial conditions, strength of management, responsiveness to business
conditions, credit standing and current and anticipated results of operations.
Analysis of general business conditions and other factors may include
anticipated changes in economic activity in interest rates, the availability of
new investment opportunities and the economic outlook for specific industries.
Investing in higher yield, lower rated bonds entails
substantially greater risk than investing in investment grade bonds, including
not only credit risk, but potentially greater market volatility and lower
liquidity. Yields and market values of high yield bonds will fluctuate over
time, reflecting not only changing interest rates but also the bond market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, lower rated bonds may decline in value
due to heightened concern over credit quality, regardless of prevailing interest
rates. In addition, in adverse economic conditions, the liquidity of the
secondary market for junk bonds may be significantly reduced. In addition,
adverse economic developments could disrupt the high yield market, affecting
both price and liquidity, and could also affect the ability of issuers to repay
principal and interest, thereby leading to a default rate higher than has been
the case historically. Even under normal conditions, the market for high yield
bonds may be less liquid than the market for investment grade corporate bonds.
There are fewer securities dealers in the high yield market and purchasers of
high yield bonds are concentrated among a smaller group of securities dealers
and institutional investors. In periods of reduced market liquidity, the market
for high yield bonds may become more volatile and there may be significant
disparities in the prices quoted for high yield securities by various dealers.
Under conditions of increased volatility and reduced liquidity, it would become
more difficult for the Fund to value its portfolio securities accurately because
there might be less reliable, objective data available.
Finally, prices for high yield bonds may be affected by
legislative and regulatory developments. For example, from time to time,
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation may significantly
depress the prices of outstanding high yield bonds.
3
<PAGE>
Repurchase Agreements
The Fund may enter into repurchase agreements with domestic banks
or broker-dealers deemed to be creditworthy by ICC, and the Fund's sub-advisor,
ABIM under guidelines approved by the Board of Directors. A repurchase agreement
is a short-term investment in which the purchaser (i.e., 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 purchaser'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 are securities
of the U.S. Government only, 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.
Foreign Investment Risk Considerations
Although the Fund intends to invest in securities of companies and
governments of developed, stable nations, there is also the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets,
political or social instability, or diplomatic developments which could
adversely affect investments, assets or securities transactions of the Fund in
some foreign countries. The dividends and interest payable on certain of the
Fund's foreign portfolio securities may be subject to foreign withholding taxes,
thus reducing the net amount available for distribution to the Fund's
shareholders. When the Fund invests directly in foreign securities, investors
should understand that the expense ratio of the Fund can be expected to be
higher than those of investment companies investing in domestic securities due
to the additional cost of custody of foreign securities. When considering
whether to invest in foreign equity or debt securities, the Advisor will
consider the risk of foreign investment in addition to the criteria it applies
to all investments in equity or debt securities, as described above.
Investment Restrictions
The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
and state regulatory limitations. The investment 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 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. Invest in real estate or mortgages on real estate;
2. Purchase or sell commodities or commodities contracts,
including financial futures contracts;
4
<PAGE>
3. 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;
4. Issue senior securities;
5. Make loans, except that the Fund may purchase or hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies;
6. Effect short sales of securities;
7. Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of transactions);
8. Purchase participations or other direct interests in oil, gas
or other mineral leases or exploration or development programs; or
9. Invest more than 10% of its net assets in illiquid securities
(defined as securities that cannot be sold in the ordinary course of business
within seven days at approximately the value at which the Fund is carrying the
securities), including securities that the Fund is restricted from selling to
the public without registration under the Securities Act (excluding restricted
securities eligible for resale pursuant to Rule 144A under the Securities Act
("Rule 144A Securities") that have been determined to be liquid by the Fund's
Board of Directors based upon the trading markets for such securities).
The following are investment restrictions that may be changed by
a vote of the majority of the Board of Directors. The Fund will not:
1. Purchase any securities of unseasoned issuers which have been
in operation directly or through predecessors for less than three years;
2. Invest in shares of any other investment company other than in
connection with a merger, consolidation, reorganization or acquisition of
assets;
3. Purchase or retain the securities of any issuer if any officer
or Director of the Fund or its investment advisor owns beneficially more than
.5% of the outstanding securities of such issuer and together they own
beneficially more than 5% of the securities of such issuer;
4. Invest in companies for the purpose of exercising management
or control;
5. Invest in puts, calls or any combination thereof;
6. Purchase warrants, if by reason of such purchase more than 5%
of the Fund's net assets (taken at market value) will be invested in warrants,
valued at the lower of cost or market. Included within this amount, but not to
exceed 2% of the value of the Fund's net assets, may be warrants that are not
listed on the New York or American Stock Exchange. For the purpose of the
foregoing calculations, warrants acquired by the Fund in units or attached to
securities will be deemed to be without value and therefore not included within
the preceding limitations; or
7. Invest in real estate limited partnerships.
The percentage limitations contained in these restrictions apply
at the time of purchase of securities.
5
<PAGE>
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined once 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
("Business Day"). The New York Stock Exchange is open for business on all
weekdays except for the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Net asset value per share of a class is calculated by valuing all
assets held by the Fund, deducting liabilities attributable to all shares and
any liabilities attributable to the specific class, and dividing the resulting
amount by the number of then outstanding shares of the class. For this purpose,
portfolio securities will be given their market value where feasible. If a
portfolio security is traded on a national exchange or on an automated dealer
quotation system, such as NASDAQ, on the valuation date, the last quoted sale
price will generally be used. Securities or other assets for which market
quotations are not readily available are valued at their fair value as
determined in good faith under procedures established from time to time and
monitored by the Fund's Board of Directors. Debt obligations with maturities of
60 days or less are valued at amortized cost which constitutes fair value as
determined by the Fund's Board of Directors.
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 Class A Shares
and Class B Shares by check and Institutional Shares by wire transfer of funds,
as described in the Prospectuses relating to such Shares. However, if the Board
of Directors determines that it would be in the best interests of the remaining
shareholders to make payment of the redemption price in whole or in part by a
distribution in kind of readily marketable securities from the portfolio of the
Fund in lieu of cash, in conformity with applicable rules of the SEC, the Fund
will make such distributions in kind. If Shares are redeemed in kind, the
redeeming shareholder will incur brokerage costs in later converting the assets
into cash. The method of valuing portfolio securities is described under
"Valuation of Shares" and such valuation will be made as of the same time the
redemption price is determined. The Fund has elected to be governed by Rule
18f-1 under the Investment Company Act pursuant to which the Fund is obligated
to redeem Shares solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund during any 90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. 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 Prospectus is not intended as a substitute for
careful tax planning.
6
<PAGE>
The summary of 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. Subsequent 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 expects to be taxed as a regulated investment company
under Subchapter M of the Code. However, in order to qualify as a regulated
investment company for any taxable year, the Fund generally must (1) derive at
least 90% of its gross income from dividends, interest, certain payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and other income (including, but not limited
to, gains from options, futures or forward contracts) derived with respect to
its business of investing in stocks, securities or currencies (the "Income
Requirement"), and (2) derive less than 30% of its gross income (exclusive of
certain gains from designated hedging transactions that are offset by realized
or unrealized losses on offsetting positions) from gains on the sale or other
disposition of any of the following investments if such investments are held for
less than three months (the "Short-Short Gain Test"): (a) stock or securities
(as defined in Section 2(a)(36) of the Investment Company Act); (b) options,
futures or forward contracts (other than options, futures, or forward contracts
on foreign currencies), and (c) foreign currencies (or options, futures, or
forward contracts on foreign currencies) but only if such currencies (or
options, futures, or forward contracts) are not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities).
In addition, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its assets must consist of cash and cash
items, U.S. government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Fund has not
invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses or related trades or
businesses (the "Asset Diversification Test"). Generally, the Fund will not lose
its status as a regulated investment company if it fails to meet the Asset
Diversification Test solely as a result of a fluctuation in value of portfolio
assets not attributable to a purchase.
Under Subchapter M, the Fund is exempt from federal income tax on
its net investment income and capital gains which it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (net investment income and the excess of net short term
capital gains over net long-term capital losses) for the year (the "Distribution
Requirement") and complies with the other requirements of the Code described
above. Distributions of investment company taxable income made during the
taxable year or, under certain specified circumstances, within twelve months
after the close of the taxable year will satisfy the Distribution Requirement.
The Distribution Requirement for any year may be waived if a regulated
investment company establishes to the satisfaction of the Internal Revenue
Service that it is unable to satisfy the Distribution Requirement by reason of
distributions previously made for the purpose of avoiding liability for Federal
excise tax.
Although the Fund intends to distribute substantially all of its
net investment income and may distribute its capital gains for any taxable year,
the Fund will be subject to federal income taxation to the extent any such
income or gains are not distributed.
If for any taxable year, the Fund does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate income tax rates without any deduction for
7
<PAGE>
distributions to shareholders, and all such distributions generally will be
taxable to shareholders as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions generally will
be eligible for the 70% 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 invested in additional Shares. The Fund
anticipates that it will distribute substantially all of its investment company
taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its
excess of net long-term capital gains over net short-term capital losses ("net
capital gains"). If such gains are distributed as a capital gains distribution,
they are taxable to shareholders as long-term capital gains, regardless of the
length of time the shareholder has held Shares. Conversely, if the Fund elects
to retain its net capital gains, it will be taxed thereon (except to the extent
of any available capital loss carryovers) at the applicable corporate capital
gains tax rate. In this event, it is expected that the Fund also will elect to
have shareholders treated as having received a distribution of such gains, with
the result that shareholders will be required to report such gains on their
returns as long-term capital gains, will receive a tax credit for their
allocable share of capital gains tax paid by the Fund on the gains, and will
increase the tax basis for their Shares by an amount equal to 65 percent of such
gains.
In the case of corporate shareholders, Fund distributions (other
than capital gains distributions) generally qualify for the 70% 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. For purposes of the alternative minimum
tax and the environmental tax, corporate shareholders generally will be required
to take the full amount of any dividend received from the Fund into account in
determining their adjusted current earnings for purposes of computing
"alternative minimum taxable income."
Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend received, even though the net asset value per
Share on the date of such purchase reflected the amount of such distribution.
Generally, gain or loss on the sale or exchange of a Share will
be capital gain or loss which will be long-term if the Share has been held for
more than one year and otherwise will be short-term. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a Share held for six
months or less and has previously received a capital gains distribution with
respect to the Share (or any undistributed net capital gains of the Fund with
respect to such Share are included in determining the shareholder's long-term
capital gains), the shareholder must treat the loss as a long-term capital loss
to the extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund which 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). Investors should
particularly note that this loss disallowance rule will apply to Shares received
through the reinvestment of dividends during the 61-day period.
8
<PAGE>
The Fund will provide a statement annually 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.
The Fund will be required in certain cases to withhold and remit
tax to the United States Treasury on distributions payable to any shareholder
who (1) has provided either an incorrect taxpayer identification number or no
number at all, (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 the shareholder is not subject to backup
withholding.
Federal Excise Tax; Miscellaneous Considerations
The Code imposes a nondeductible 4% excise tax on regulated
investment companies that do not distribute in each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the one-year period ending on October 31 of such
calendar year. The excise tax is imposed on the undistributed part of this
required distribution. In addition, the balance of such income must be
distributed during the next calendar year to avoid liability for the excise tax
in that year. For the foregoing purposes, an investment company is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. For this purpose, in determining its
capital gain net income for the one-year period ending on October 31 of such
calendar year, the Fund must reduce its capital gain net income by the amount of
any net ordinary loss for the calendar year (but not below the net capital gain
for the one-year period ending on October 31). Because the Fund intends to
distribute all of its income currently (or to retain, at most its net capital
gains and pay tax thereon), the Fund does not anticipate incurring any liability
for this excise tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments in order to make
sufficient distributions to avoid excise tax liability and, in addition, that
the liquidation of such investments in such circumstances may affect the ability
of the Fund to satisfy the Short-Short Gain Test.
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 advisers as to the consequences of these and other state and local tax
rules affecting an investment in the Fund.
5. MANAGEMENT OF THE FUND
Directors and Officers
The 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 135 East Baltimore Street, Baltimore, Maryland
21202.
*TRUMAN T. SEMANS, Chairman (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Chartered Financial
Analyst; Director, Investment Company Capital Corp. (registered
investment advisor).
*RICHARD T. HALE, Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; Chartered Financial
Analyst; President, Investment Company Capital Corp. (registered
investment advisor).
9
<PAGE>
*CHARLES W. COLE, JR., Director (11/11/35)
Vice Chairman, Alex. Brown Capital Advisory & Trust Company (registered
investment advisor); Director, Provident Bankshares Corporation and
Provident Bank of Maryland; Formerly, President, Chief Executive
Officer, Chief Administrative Officer and Director, First Maryland
Bancorp, The First National Bank of Maryland and First Omni Bank;
Formerly, Director, York Bank and Trust Company.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (a merchant banking firm), 1993-Present; Formerly,
Senior Vice President and Chief Financial Officer, General Dynamics
Corporation (defense), 1989-1993, and Director, The Arch Fund
(registered investment company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds (registered investment companies); Formerly, Consultant, Wendell &
Stockel Associates, Inc. (consulting firm); and General Manager, Shell
Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (banking and finance); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and health care).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, PA 19103. President and Chief Executive
Officer, The Pew Charitable Trusts; Director and Executive Vice
President, The Glenmede Trust Company; Formerly, Executive Director, The
Pew Charitable Trusts.
CARL W. VOGT, Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604; Senior Partner, Fulbright & Jaworski L.L.P. (law);
Formerly, Chairman, National Transportation Safety Board; Director,
National Railroad Passenger Corporation (Amtrak) and Member, Aviation
System Capacity Advisory Committee (Federal Aviation Administration).
HARRY WOOLF, Director (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, ATL and Spacelabs Medical Corp. (medical equipment) and Family
Health International (non-profit research and education); Trustee, Reed
College (education); Director, Research America (non-profit medical
research); Formerly, Trustee, Rockefeller Foundation and Director,
Merrill Lynch Cluster C Funds (registered investment companies).
LEE S. OWEN, President (10/27/47)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor); Vice President and Secretary, Buppert,
Behrens & Owen, Inc.
10
<PAGE>
J. DORSEY BROWN, III, Executive Vice President (8/26/39)
Managing Director, Alex. Brown & Sons Incorporated; Chief Executive
Officer and Formerly, General Partner, Alex. Brown Investment
Management.
HOBART C. BUPPERT, Vice President (8/1/46)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor), 1984-Present; President, Buppert,
Behrens & Owen, Inc. 1987-Present.
BRUCE E. BEHRENS, Vice President (4/20/44)
Vice President and Portfolio Manager, Alex. Brown Investment Management
(registered investment advisor); Vice President and Treasurer, Buppert,
Behrens & Owen, Inc.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Executive Vice President,
Investment Company Capital Corp. (registered investment advisor); Vice
President, Armata Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated; Manager, Special
Products Department, Alex. Brown & Sons Incorporated.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated, September 1995-Present;
Formerly, Vice President and Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice President, Delaware
Management Company Inc., 1980-1995.
EDWARD J. STOKEN, Secretary (8/7/47)
Compliance Officer, Alex. Brown & Sons Incorporated, April 1995-Present;
Formerly, Legal Advisor, Federated Investors (registered investment
advisor), 1991-1995.
LAURIE D. DePRINE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present; Formerly, Student 1989-1991.
- ---------------------
* Messrs. Semans, Hale and Cole are directors who are "interested persons",
as defined in the Investment Company Act.
Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, administered,
advised or distributed by Alex. Brown or its affiliates. There are currently 12
funds in the Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc.
fund complex (the "Fund Complex"). Mr. Semans serves as a Director of eight
funds in the Fund Complex. Mr. Hale serves as President and Director of one fund
and as Director of each of the other funds in the Fund Complex. Messrs. Cunnane,
Kroeger, Levy, McDonald and Woolf serve as Directors of each fund in the Fund
Complex. Mr. Cole serves as a director of four funds, Ms. Rimel serves as a
director of six funds and Mr. Vogt serves as a director of five funds in the
Fund Complex. Mr. Owen serves as President of one fund, Executive Vice President
of one fund, and Vice President of one fund in the Fund Complex. Mr. Brown
serves as President of one fund and Executive Vice President of two funds in the
Fund Complex. Mr. Buppert serves as Executive Vice President of one fund and
Vice
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<PAGE>
President of two funds in the Fund Complex. Mr. Behrens serves as President of
one fund and Vice President of two funds in the Fund Complex. Mr. Fearnow serves
as Vice President of ten funds in the Fund Complex. Mr. Veilleux serves as
Executive Vice President of one fund and Vice President of eleven funds in the
Fund Complex. Mr. Finelli serves as Treasurer, Mr. Stoken serves as Secretary
and Ms. DePrine serves as Assistant Secretary, respectively, of each of the
funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have had
normal brokerage transactions with, 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 Alex. Brown may be considered to have received remuneration
indirectly. As compensation for his or her services, each Director who is not an
"interested person" of the Fund (as defined in the Investment Company Act) (a
"Non-Interested 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 all Flag Investors/ISI Funds
and Alex. Brown Cash Reserve Fund, Inc. for which he or she serves. In addition,
the Chairman of the Fund Complex's Audit Committee receives an aggregate annual
fee from the Fund Complex. Payment of such fees and expenses are allocated among
all such funds described above in proportion to their relative net assets. For
the fiscal year ended May 31, 1996, Non-Interested Directors' fees attributable
to the assets of the Fund totaled approximately $3,904. The following table
shows aggregate compensation and retirement benefits paid to each of the Fund's
Directors by the Fund and the Fund Complex, respectively, in the fiscal year
ended May 31, 1996.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Pension or Retirement Estimated Annual Total Compensation
From the Fund in the Benefits Accrued as Benefits Upon from the Fund
Fiscal Year Ended Part of Fund Expenses Retirement and Fund Complex
May 31, 1996 Paid to Directors
in the Fiscal Year
Ended May 31, 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
*Truman T. Semans, $0 $0 $0 $0
Chairman and Director
*Richard T. Hale, Director $0 $0 $0 $0
*Charles W. Cole, Director(1) $0 $0 $0 $0
James J. Cunnane, Director $421(3) $+ $19,500 ++ $39,000 for service on 12
Boards in the Fund Complex
N. Bruce Hannay, Director(2) $384(3) $+ $19,500 $35,786 for service on 12
Boards in the Fund Complex
John F. Kroeger, Director $499(3) $+ $22,975 $45,950 for service on 12
Boards in the Fund Complex
Louis E. Levy, Director $421(3) $+ $19,500 ++ $39,000 for service on 12
Boards in the Fund Complex
12
<PAGE>
Eugene J. McDonald, Director $421(3) $+ $19,500 ++ $39,000 for service on 12
Boards in the Fund Complex
Rebecca W. Rimel, Director $455(3) $+ $19,500 ++ $29,250 for service on 6
Boards in the Fund Complex
Carl W. Vogt, Director(4) $137(3) $+ $19,500 ++ $29,250 for service on 5
Boards in the Fund Complex
Harry Woolf, Director $421(3) $+ $19,500 $39,000 for service on 12
Boards in the Fund Complex
</TABLE>
* A Director who is an "interested person" as defined in the Investment
Company Act.
+ The Fund Complex has adopted a retirement plan for eligible Directors,
as described below. The actuarially computed pension expense for the
Fund for the year ended May 31, 1996 was approximately $565.
++ Has not yet qualified for the Retirement Plan.
1 Elected by the Board on December 13, 1995.
2 Retired, effective January 31, 1996 and is now deceased.
3 Of this amount, $225, $110, $0, $0, $225, $455, $137 and $225 has been
deferred by Directors Cunnane, Hannay, Kroeger, Levy, McDonald, Rimel,
Vogt and Woolf, respectively, pursuant to a deferred compensation plan.
4 Elected by the Board on January 30, 1996.
The Fund Complex has adopted a Retirement Plan (the "Retirement
Plan") for Directors who are not employees of the Fund, the Fund's Advisor or
their respective affiliates (the "Participants"). After completion of six years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which he or she serves. The Retirement Plan is
unfunded and unvested. Messrs. Kroeger and Woolf have qualified but have not
received benefits. The Fund has one Participant, a Director who retired
effective December 31, 1994, who has qualified for the Retirement Plan and who
will be paid a quarterly fee of $4,875 by the Fund Complex for the rest of his
life. Such fee is allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Beginning in December 1994, any Director who receives fees from
the Fund is permitted to defer a minimum of 50%, or up to all, of his or her
annual compensation pursuant to a Deferred Compensation Plan. Messrs. Cunnane,
Kroeger, Levy, McDonald, Vogt and Woolf and Ms. Rimel have each executed a
Deferred Compensation Agreement. Currently, the deferring Directors may select
various Flag Investors and Alex. Brown Cash Reserve Funds 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
quarterly installments over a period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
significantly restricts the personal investing activities of all employees of
ICC and the directors and officers of Alex. Brown. As described below, the Code
of Ethics imposes additional, more onerous, restrictions on the Fund's
investment personnel, including the portfolio managers and employees who execute
or help execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of ICC, any
director or officer of Alex. Brown, and all Directors, preclear any personal
securities investments (with certain exceptions, such as non-
13
<PAGE>
volitional purchases or purchases which are part of an automatic dividend
reinvestment plan). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to the
proposed investment. The substantive restrictions applicable to investment
personnel include a ban on acquiring any securities in an initial public
offering, a prohibition from profiting on short-term trading in securities and
preclearance of the acquisition of securities in private placements.
Furthermore, the Code of Ethics provides for trading "blackout periods" that
prohibit trading by investment personnel and certain other employees within
periods of trading by the Fund in the same security.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On December 14, 1994, the Board of Directors of the Fund,
including a majority of the Non-Interested Directors, approved an Investment
Advisory Agreement between the Fund and ICC and a Sub-Advisory Agreement among
the Fund, ICC and ABIM, both of which contracts are described in greater detail
below. The Investment Advisory Agreement and the Sub-Advisory Agreement were
approved by the sole shareholder of the Fund on January 30, 1995. ICC, the
investment advisor, is a wholly-owned subsidiary of Alex. Brown Financial
Corporation and an indirect subsidiary of Alex. Brown Incorporated. ICC is also
the investment advisor to Alex. Brown Cash Reserve Fund, Inc., Flag Investors
Telephone Income Fund, Inc., Flag Investors International Fund, Inc., Flag
Investors Emerging Growth Fund, Inc., Flag Investors Intermediate-Term Income
Fund, Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Maryland
Intermediate Tax-Free Income Fund, Inc. and Flag Investors Real Estate
Securities Fund, Inc., which are distributed by Alex. Brown, the Fund's
distributor.
ABIM is a limited partnership affiliated with Alex. Brown.
Buppert, Behrens & Owens, Inc., a company organized and owned by three employees
of ABIM, owns a 49% limited partnership interest and a 1% general partnership
interest in ABIM. Alex. Brown owns a 1% general partnership interest in ABIM and
Alex. Brown Incorporated owns the remaining 49% limited partnership interest.
ABIM, also the sub-advisor to Flag Investors Telephone Income Fund, Inc. and
Flag Investors Value Builder Fund, Inc., is a registered investment advisor with
approximately $4.9 billion under management as of August 31, 1996.
Under the Investment Advisory Agreement, ICC obtains and
evaluates economic, statistical and financial information to formulate and
implement investment policies for the Fund. ICC has delegated this
responsibility to ABIM, provided that ICC continues to supervise the performance
of ABIM and report thereon to the Fund's Board of Directors. Any investment
program undertaken by ICC or ABIM will at all times be subject to policies and
control of the Fund's Board of Directors. ICC will provide the Fund with office
space for managing its affairs, with the services of required executive
personnel and with certain clerical and bookkeeping services and facilities.
These services are provided by ICC without reimbursement by the Fund for any
costs. Neither ICC nor ABIM shall be liable to the Fund or its shareholders for
any act or omission by ICC or ABIM or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duty. The services of ICC and ABIM to the
Fund are not exclusive and ICC and ABIM are free to render similar services to
others.
As compensation for its services, ICC is entitled to receive an
annual fee from the Fund, calculated daily and paid monthly, at the annual rate
of 1.00% of the first $50 million of the Fund's average daily net assets, .85%
of the next $50 million of the Fund's average daily net assets, .80% of the next
$100 million of the Fund's average daily net assets and .70% of the Fund's
average daily net assets in excess of $200 million. As compensation for its
services, ABIM is entitled to receive a fee from ICC, payable from its advisory
fee, calculated daily and payable monthly, at the annual rate of .75% of the
first $50 million of the Fund's average daily net assets, .60% of the next $150
million of the Fund's average daily net assets, and .50% of the Fund's average
daily net assets in excess of $200 million.
14
<PAGE>
This fee is higher than that paid by most mutual funds, but ICC
has voluntarily agreed to waive a portion of its fee from time to time so that
the total operating expenses of the Fund do not exceed 1.35% of the Class A
Shares' average daily net assets, 2.10% of the Class B Shares' average daily net
assets and 1.10% of the Institutional Shares' average daily net assets. ABIM has
also agreed to waive, on a voluntary basis, that portion of its fee payable from
ICC for sub-advisory services in excess of the amount equal to .65% of the
Fund's average daily net assets. As compensation for providing investment
advisory services for the fiscal year ended May 31, 1996, ICC received fees of
$551,124 and from such amount waived fees of $232,890. Absent such fee waivers,
the Fund's total operating expenses would have been 1.77% for Class A Shares,
2.52% for Class B Shares and 1.55% (annualized) for Institutional Shares. As
compensation for sub-advisory services for the fiscal year ended May 31, 1996,
ICC paid ABIM fees of $431,490 and ABIM waived fees of $45,124. For the period
from February 13, 1995 (commencement of operations) through May 31, 1995, ICC
waived all advisory fees and reimbursed expenses aggregating $30,753. Absent
such fee waivers and reimbursements, the Fund's total operating expenses would
have been 3.76% (annualized) for Class A Shares and 4.22% (annualized) for Class
B Shares. During this period, ICC paid ABIM fees of $11,870 and ABIM waived fees
of $1,826.
In addition, ICC has agreed to reduce its aggregate fees on a
monthly basis for any fiscal year to the extent required so that the amount of
the ordinary expenses of the Fund (excluding brokerage commissions, interest,
taxes and extraordinary expenses such as legal claims, liabilities, litigation
costs and indemnification related thereto) paid or incurred by the Fund for such
fiscal year does not exceed the expense limitations applicable to the Fund
imposed by the securities laws or regulations of the states in which the Fund's
Shares are registered or qualified for sale, as such limitations may be raised
or lowered from time to time. Currently, the most restrictive of such expense
limitations requires ICC to reduce its fees to the extent required so that
ordinary expenses of the Fund (excluding brokerage commissions, interest, taxes,
and extraordinary expenses such as legal claims, liabilities, litigation costs
and indemnification related thereto) do not exceed 2.5% of the first $30 million
of the Fund's average daily net assets, 2.0% of the next $70 million of the
Fund's average daily net assets and 1.5% of the Fund's average daily net assets
in excess of $100 million. In addition, if required to do so by any applicable
state securities laws or regulations, ICC will reimburse the Fund to the extent
required to prevent the expense limitations of any state law or regulation from
being exceeded.
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
Non-Interested 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 (as defined under "Capital
Stock"). The Investment Advisory Agreement and the Sub-Advisory Agreement were
most recently approved for continuance by the Board of Directors on October 1,
1996. The Fund or ICC may terminate the Investment Advisory Agreement on sixty
days' written notice without penalty. The Investment Advisory Agreement will
terminate automatically in the event of assignment (as defined in the Investment
Company Act).
ICC also serves as the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. (See "Custodian, Transfer
Agent, Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
Alex. Brown serves as the exclusive distributor of the Fund's
Shares pursuant to three separate Distribution Agreements, one for each class of
the Fund's Shares.
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The Class A Shares and the Class B Shares
The Distribution Agreements for the Class A Shares and the Class
B Shares (collectively, the "Class A and Class B Distribution Agreements")
provide that Alex. Brown has the exclusive right to distribute the related class
of Flag Investors Equity Partners Fund Shares either directly or through other
broker-dealers and further provide that Alex. Brown will: (a) solicit and
receive orders for the purchase of Shares; (b) accept or reject such orders on
behalf of the Fund in accordance with the Fund's currently effective prospectus
and transmit such orders as are accepted to the Fund's transfer agent as
promptly as possible; (c) receive requests for redemptions and transmit such
redemption requests to the Fund's transfer agent as promptly as possible; and
(d) respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. Alex. Brown has not undertaken to sell
any specific number of Shares. The Class A and Class B Distribution Agreements
further provide that, in connection with the distribution of Shares, Alex. Brown
will be responsible for all of the promotional expenses. The services provided
by Alex. Brown to the Fund are not exclusive, and Alex. Brown is free to provide
similar services to others. Alex. Brown shall not be liable to the Fund or its
shareholders for any act or omission by Alex. Brown 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.
Alex. Brown 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.
As compensation for providing distribution services as described
above for the Class A Shares, Alex. Brown receives an annual fee, paid monthly,
equal to .25% of the average daily net assets of the Class A Shares. As
compensation for providing distribution services as described above for the
Class B Shares, Alex. Brown receives an annual fee, paid monthly, equal to .75%
of the average daily net assets of the Class B Shares. With respect to the Class
A Shares, Alex. Brown expects to allocate most of its annual distribution fee to
its investment representatives and up to all of its fee to Participating
Dealers. With respect to the Class B Shares, Alex. Brown expects to retain the
entire distribution fee as reimbursement for front-end payments to its
investment representatives and to Participating Dealers. As compensation for
providing distribution services for the Class A Shares for the fiscal year ended
May 31, 1996 and for the period from February 13, 1995 (commencement of
operations) through May 31, 1995, Alex. Brown received from the Fund aggregate
commissions and fees in the amount of $130,140 and $5,976, respectively, and
from such fees paid $____ and $873 to its investment representatives and $______
and $130 to Participating Dealers as compensation.
As compensation for providing distribution services for the
Class B Shares for the fiscal year ended May 31, 1996 and for the period from
February 13, 1995 (commencement of operations) through May 31, 1995, Alex. Brown
received from the Fund aggregate commissions and fees in the amount of $27,369
and $4,220, respectively, and retained such amounts as reimbursement for
front-end payments to its investment representatives and to Participating
Dealers.
In addition, with respect to the Class B Shares, the Fund pays
Alex. Brown a shareholder servicing fee at an annual rate of .25% of the average
daily net assets of the Class B Shares. (See the Prospectus.) For the fiscal
year ended May 31, 1996 and for the period from February 13, 1995 (commencement
of operations) through May 31, 1995, Alex. Brown received shareholder servicing
fees of $9,123 and $1,406, respectively. Alex. Brown expects to allocate most of
its shareholder servicing fee to its investment representatives or to
Participating Dealers.
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<PAGE>
Pursuant to Rule 12b-1 under the Investment Company Act, which
provides that investment companies may pay distribution expenses, directly or
indirectly, only pursuant to a plan adopted by the investment company's board of
directors and approved by its shareholders, the Fund has adopted two separate
Plans of Distribution, one for the Class A Shares and one for the Class B Shares
(collectively, the "Plans"). Under the Plans, the Fund pays a fee to Alex. Brown
for distribution and other shareholder servicing assistance as set forth in the
Class A and Class B Distribution Agreements, and Alex. Brown is authorized to
make payments out of its fee to its investment representatives and to
participating broker-dealers. Each of the Class A and Class B Distribution
Agreements has an initial term of two years. The Class A and Class B
Distribution Agreements and the Plans encompassed therein will remain in effect
from year to year thereafter as specifically approved (a) at least annually by
the Fund's Board of Directors and (b) by the affirmative vote of a majority of
the Non-Interested Directors by votes cast in person at a meeting called for
such purpose. The Class A and Class B Distribution Agreements including the
Plans and forms of Sub-Distribution Agreements, were approved by the Fund's
Board of Directors, including a majority of the Non-Interested Directors, on
December 14, 1994 and by the sole shareholder of the respective classes on
January 30, 1995. The Class A and Class B Distribution Agreements and related
Plans were most recently approved for continuance in the foregoing manner on
October 1, 1996.
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 increase materially the fee to be paid pursuant to
the Class A and Class B Distribution Agreements without the approval of the
shareholders of the Fund. The Plans may be terminated at any time and the Class
A and Class B Distribution Agreements may be terminated at any time upon sixty
days' notice, in either case without penalty, by the vote of a majority of the
Fund's Non-Interested Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock"). Any
Sub-Distribution Agreement may be terminated in the same manner at any time. The
Class A and Class B Distribution Agreements and any Sub-Distribution Agreement
shall automatically terminate in the event of assignment.
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 Plan to Alex. Brown pursuant to
the Class A and Class B Distribution Agreements, to broker-dealers pursuant to
any Sub-Distribution Agreements and to Shareholder Servicing Agents pursuant to
Shareholder Servicing Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plans, the selection and nomination of the Fund's Non-Interested Directors shall
be committed to the discretion of the Non-Interested Directors then in office.
For the fiscal year ended May 31, 1996, the Fund paid $166,632
to Alex. Brown, the Fund's distributor, pursuant to the Plan. Alex. Brown, in
turn, 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.
In addition, with respect to the Class A and Class B Shares, the
Fund may enter into Shareholder Servicing Agreements with certain financial
institutions, such as banks, to act as Shareholder Servicing Agents, pursuant to
which Alex. Brown will allocate a portion of its distribution fee as
compensation for such financial institutions' ongoing shareholder services.
Although banking laws and regulations prohibit banks from distributing shares of
open-end investment companies such as the Fund, according to interpretations by
various bank regulatory authorities, financial institutions are not prohibited
from acting in other capacities for investment companies, such as the
shareholder servicing capacities described above. Should future legislative,
judicial or administrative action prohibit or restrict the activities of the
Shareholder Servicing Agents in connection with the Shareholder Servicing
Agreements, the Fund may
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<PAGE>
be required to alter materially or discontinue its arrangements with the
Shareholder Servicing Agents. 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. In addition, state securities laws on this
issue may differ from the interpretations of federal law expressed herein, and
banks and financial institutions may be required to register as dealers pursuant
to state law.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
such Plans. Payments under the Plans are made as described above regardless of
Alex. Brown's actual cost of providing distribution services and may be used to
pay Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Class A Shares is less than .25% of the average daily net assets
invested in that Class or Class B Shares is less than .75% of the average daily
net assets invested in that Class for any period, the unexpended portion of the
distribution fees may be retained by Alex. Brown. The Plans do not provide for
any charges to the Fund for excess amounts expended by Alex. Brown and, if
either of the Plans is terminated in accordance with its terms, the obligation
of the Fund to make payments to Alex. Brown pursuant to such Plan will cease and
the Fund will not be required to make any payments past the date the
Distribution Agreement terminates with respect to such Plan.
The Institutional Shares
The Institutional Distribution Agreement provides that Alex.
Brown has the exclusive right to distribute the Institutional Shares, either
directly or through other broker-dealers and further provides that Alex. Brown
will solicit and receive orders for the purchase of Institutional Shares, accept
or reject such orders on behalf of the Fund in accordance with the Fund's
currently effective Prospectus for the Institutional Shares and transmit such
orders as are accepted to the Fund's transfer agent as promptly as possible,
receive requests for redemption and transmit such redemption requests to the
Fund's transfer agent as promptly as possible, respond to inquiries from the
Fund's shareholders concerning the status of their accounts with the Fund,
maintain such accounts, books and records as may be required by law or be deemed
appropriate by the Fund's Board of Directors, and take all actions deemed
necessary to carry into effect the distribution of the Institutional Shares.
Alex. Brown has not undertaken to sell any specific number of Institutional
Shares. The Institutional Distribution Agreement further provides that, in
connection with the distribution of Institutional Shares, Alex. Brown will be
responsible for all of the promotional expenses. The services provided by Alex.
Brown to the Fund are not exclusive, and Alex. Brown is free to provide similar
services to others. Alex. Brown shall not be liable to the Fund or its
shareholders for any act or omission by Alex. Brown 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.
Alex. Brown receives no compensation for distributing the
Institutional Shares.
Alex. Brown and Participating Dealers have entered into
Sub-Distribution Agreements under which such Participating 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.
The Institutional Distribution Agreement was approved by the
Fund's Board of Directors on December 13, 1995 and by the sole shareholder of
the class on February 9, 1996. It has an initial term of two years and will
remain in effect from year to year thereafter, if specifically approved at least
annually by the Fund's Board of Directors and by the affirmative vote of a
majority of the Non-Interested Directors by votes cast at a meeting called for
such purpose. It may be terminated at any time upon sixty days' written notice,
without penalty, by the vote of a majority of the Fund's Non-Interested
Directors or by a vote of a majority of the outstanding Institutional Shares (as
defined under Capital Stock). The Institutional
18
<PAGE>
Distribution Agreement and any Sub-Distribution Agreement shall automatically
terminate in the event of assignment.
General Information
For the fiscal year ended May 31, 1996, and for the period from
February 13, 1995 through May 31, 1995, Alex. Brown received sales commissions
on the Class A Shares of $173,816 and $167,000, respectively, and from such
amounts retained $163,936 and $157,507 for each such period, respectively. For
the fiscal year ended May 31, 1996 and for the period from February 13, 1995
through May 31, 1995, Alex. Brown received contingent deferred sales loads on
the Class B Shares of $114,113 and $109,638, respectively, and from such amounts
retained $114,113 and $109,638, respectively.
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all continuing
expenses of the Fund, including, without limitation: investment advisory and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with 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
Non-Interested Directors, and of independent auditors, in connection with any
matter relating to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
assumed by Alex. Brown, ICC or ABIM.
The address of Alex. Brown is 135 East Baltimore Street,
Baltimore, Maryland 21202.
8. BROKERAGE
ABIM is responsible for decisions to buy and sell securities for
the Fund, for the broker-dealer selection and for negotiation of commission
rates, subject to the supervision of ICC. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a commission
for their services. Brokerage commissions are subject to negotiation between
ABIM and the broker-dealers. ABIM may direct purchase and sale orders to any
broker-dealer, including, to the extent and in the manner permitted by
applicable law, Alex. Brown.
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
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<PAGE>
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 Alex. Brown in any transaction in which Alex. Brown acts as a
principal; that is, an order will not be placed with Alex. Brown if execution of
the trade involves Alex. Brown serving as a principal with respect to any part
of the Fund's order, nor will the Fund buy or sell over-the-counter securities
with Alex. Brown acting as market maker.
If Alex. Brown is 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.
ABIM's primary consideration in effecting securities
transactions is to obtain best price and execution of orders on an overall
basis. As described below, however, ABIM may, in its discretion, effect agency
transactions with broker-dealers that furnish statistical, research or other
information or services which are deemed by ABIM to be beneficial to the Fund's
investment program. Certain research services furnished by broker-dealers may be
useful to ABIM with clients other than the Fund. Similarly, any research
services received by ABIM through placement of portfolio transactions of other
clients may be of value to ABIM in fulfilling its obligations to the Fund. No
specific value can be determined for research and statistical services furnished
without cost to ABIM by a broker-dealer. ABIM is of the opinion that because the
material must be analyzed and reviewed by its staff, its receipt does not tend
to reduce expenses, but may be beneficial in supplementing ABIM's research and
analysis. Therefore, it may tend to benefit the Fund by improving ABIM's
investment advice. In over-the-counter transactions, ABIM will not pay any
commission or other remuneration for research services. ABIM's policy is to pay
a broker-dealer higher commissions effected on an agency (but not on a
principal) basis for particular transactions than might be charged if a
different broker-dealer had been chosen when, in ABIM's opinion, this policy
furthers the overall objective of obtaining best price and execution. Subject to
periodic review by the Fund's Board of Directors, ABIM is also authorized to pay
broker-dealers other than Alex. Brown higher commissions on brokerage
transactions for the Fund in order to secure research and investment services
described above. The allocation of orders among broker-dealers and the
commission rates paid by the Fund will be reviewed periodically by the Board.
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 Alex. Brown. At the time of such authorization, the Board adopted
certain policies and procedures incorporating the standards of Rule 17e-1 under
the Investment Company Act which requires that the commissions paid Alex. Brown
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 ICC and ABIM to furnish
reports and to maintain records in connection with such reviews. The
Distribution Agreement between Alex. Brown and the Fund does not provide for any
reduction in the distribution fee to be received by Alex. Brown from the Fund as
a result of profits from brokerage commissions on transactions of the Fund
effected through Alex. Brown. In the fiscal year ended May 31, 1996 and the
fiscal period ended May 31, 1995, the Fund paid no brokerage commissions to
Alex. Brown.
ABIM manages 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
20
<PAGE>
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
ABIM. ABIM 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 which it seeks to
purchase or sell.
During the fiscal year ended May 31, 1996 and the fiscal period
ended May 31, 1995, ABIM directed $25,187,450 and $27,535,000, respectively,
principal amount of transactions to broker-dealers and paid $64,808 and $17,724
in related commissions because of research services provided.
The Fund is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the Investment Company Act)
which the Fund has acquired during its most recent fiscal year. As of May 31,
1996, the Fund held a 5.15% repurchase agreement issued by Goldman Sachs & Co.
valued at $9,928,000 and 52,500 shares of Travelers Group Inc., parent company
of Smith Barney, valued at $2,178,750.
9. CAPITAL STOCK
The Fund is authorized to issue thirty-five 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 without shareholder approval. The Fund currently has one Series and
the Board has designated three classes of Shares: Flag Investors Equity Partners
Fund Class A Shares, Flag Investors Equity Partners Fund Class B Shares and Flag
Investors Equity Partners Fund Institutional Shares. In the event separate
series or classes 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. 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, each
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. In such event, the remaining holders cannot elect any
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
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<PAGE>
meeting, if the holders of more than 50% of the outstanding Shares are present
or represented by proxy, or (ii) more than 50% of the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports
containing information about the Fund and its operations, including a list of
investments held in the Fund's portfolio and financial statements. The annual
financial statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, has been retained to act as
custodian of the Fund's investments. PNC Bank receives such compensation from
the Fund for its services as Custodian as may be agreed to from time to time by
PNC Bank and the Fund. Investment Company Capital Corp., 135 East Baltimore
Street, Baltimore, Maryland 21202, has been retained to act as transfer and
dividend disbursing agent. As compensation for providing these services, the
Fund pays ICC up to $9 per account per year, plus reimbursement for
out-of-pocket expenses incurred in connection therewith. For the fiscal year
ended May 31, 1996 and for the fiscal period from February 13, 1995
(commencement of operations ) through May 31, 1995, ICC received transfer agency
fees of $70,414 and $1,670, respectively.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
Average Net Assets Incremental Fee
- ------------------ ---------------
0 - $10,000,000 $13,000 (fixed fee)
$10,000,000 - $20,000,000 .100%
$20,000,000 - $30,000,000 .080%
$30,000,000 - $40,000,000 .060%
$40,000,000 - $50,000,000 .050%
$50,000,000 - $60,000,000 .040%
$60,000,000 - $70,000,000 .030%
$70,000,000 - $100,000,000 .020%
$100,000,000 - $500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
For the fiscal year ended May 31, 1996 and for the period from
February 13, 1995 (commencement of operations) through May 31, 1995, ICC
received accounting fees of $49,269 and $4,570, respectively.
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's performance of its
services under the Master Services Agreement: express delivery service,
independent pricing and storage.
ICC also serves as the Fund's investment advisor.
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<PAGE>
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers
& Lybrand L.L.P., whose report thereon appears elsewhere herein, and have been
included herein in reliance upon the report of such firm of accountants given on
their authority as experts in accounting and auditing. Coopers & Lybrand L.L.P.
has offices at 2400 Eleven Penn Center, Philadelphia, Pennsylvania 19103.
13. PERFORMANCE INFORMATION
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 in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than in
terms of yield. 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 date the Fund (or a
class or series) commenced operations (provided such date is subsequent to the
date the registration statement became effective). In calculating the ending
redeemable value, the maximum sales load (for the Class A Shares: 4.5%, and for
the Class B Shares: 4.0% for the one year period, 2.0% for the five year period
and no sales charge thereafter) 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. "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. The Institutional Shares are sold without a sales load.
The Fund may also from time to time include in such advertising
total return figures that are not calculated according to the formula set forth
above to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies Inc.,
Morningstar Inc., or SEI Corporation or with the performance of the Consumer
Price Index, the Standard and Poor's 500 Stock Index and other market indices
such as NASDAQ and the Wilshire 5000, 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
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<PAGE>
assumes that the $10,000 invested in Shares is net of all sales charges (as
distinguished from the computation required by the SEC where the $1,000 payment
is reduced by sales charges before being invested in Shares). 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.
Calculated according to SEC rules for the one year period ended
May 31, 1996, the ending redeemable value of a hypothetical $1,000 payment for
Class A Shares was $1,175, resulting in an annual total return equal to
17.51%. For the period from February 13, 1995 (commencement of operations)
through May 31, 1996, the ending redeemable value of a hypothetical $1,000
payment for Class A Shares was $1,199, resulting in an average annual total
return equal to 19.98%.
Calculated according to SEC rules for the one year period ended
May 31, 1996, the ending redeemable value of a hypothetical $1,000 payment for
Class B Shares was $1,184, resulting in an annual total return equal to
18.45%. For the period from February 13, 1995 (commencement of operations)
through May 31, 1996, the ending redeemable value of a hypothetical $1,000
payment for Class B Shares was $1,205, resulting in an average annual total
return equal to 20.55%.
Calculated according to SEC rules for the period from February
12, 1996 (commencement of operations) through May 31, 1996, the ending
redeemable value of a hypothetical $1,000 payment for Institutional Shares was
$1,032, resulting in an aggregate total return equal to 3.23%.
Calculated according to the alternative computation, which
assumes no sales charges and reinvestment of all distributions, for the one year
period ended May 31, 1996, the ending redeemable value of a hypothetical $10,000
investment in Class A Shares was $12,305, resulting in an annual total return
equal to 23.05%. For the period from February 13, 1995 (commencement of
operations) through May 31, 1996, the ending redeemable value of a hypothetical
$10,000 investment in Class A Shares was $12,433, resulting in an average annual
total return equal to 24.33%.
Calculated according to the alternative computation, which
assumes no sales charges and reinvestment of all distributions, for the one year
period ended May 31, 1996, the ending redeemable value of a hypothetical $10,000
investment in Class B Shares was $12,217, resulting in an annual total return
equal to 22.17%. For the period from February 13, 1995 (commencement of
operations) through May 31, 1996, the ending redeemable value of a hypothetical
$10,000 investment in Class B Shares was $12,347, resulting in an average
annual total return equal to 23.47%.
Calculated according to the alternative computation for the
period from February 12, 1996 (commencement of operations) through May 31, 1996,
the ending redeemable value of a hypothetical $10,000 investment in
Institutional Shares was $10,323, resulting in an aggregate total return equal
to 3.23%.
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. In
24
<PAGE>
the fiscal periods ended May 31, 1996 and May 31, 1995 the Fund's portfolio
turnover rate was .73% and 0%, respectively.
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 16, 1996, to Fund management's knowledge, the
following persons held beneficially or of record 5% or more of the Fund's
outstanding shares:
T. Rowe Price, Trustee for Alex. Brown & Sons Incorporated, Plan
100460, Attn: Asset Recon, P.O. Box 17215, Baltimore, MD 21203-7215, owned of
record 7.99% of the Fund's outstanding Shares.
Alex. Brown & Sons Incorporated, 135 E. Baltimore Street,
Baltimore, MD 21202, owned of record 71.09% of the Fund's outstanding Shares.*
- ---------------------
* As of such date, Alex. Brown owned beneficially less than 5% of such
shares.
As of such date, Directors and officers as a group owned less
than 1% of the Fund's total outstanding Shares.
15. FINANCIAL STATEMENTS
See next page.
25
<PAGE>
Statement of Net Assets May 31, 1996
Market Value
Shares (Note A)
- --------------------------------------------------------------------------------
COMMON STOCK: 89.9%
Banking: 8.9%
30,600 Citicorp $ 2,570,400
34,400 KeyCorp 1,333,000
11,000 Wells Fargo & Co. 2,651,000
6,554,400
Basic Industry: 4.4%
100,000 Arcadian Corp. 2,000,000
7,500 Georgia-Pacific Corp. 541,875
30,000 James River Corp. of Virginia 746,250
3,288,125
Capital Goods: 6.4%
29,900 Briggs & Stratton Corp. 1,285,700
24,200 Caterpillar, Inc. 1,588,125
32,500 Eaton Corp. 1,880,938
4,754,763
Consumer Durables/Non-Durables: 7.5%
48,000 Ford Motor Co. 1,752,000
27,000 Philip Morris Cos., Inc. 2,683,125
35,500 Reebok International Ltd. 1,078,312
5,513,437
Consumer Services/Retail: 10.2%
100,000 Eckerd Corp.* 2,275,000
25,000 Gannett Co., Inc. 1,743,750
70,000 Kmart Corp.* 813,750
21,800 J. C. Penney Co., Inc. 1,130,875
36,000 Times Mirror Co.-- Class A 1,570,500
7,533,875
Defense/Aerospace: 1.4%
2,200 Lockheed Martin Corp. 184,525
8,300 McDonnell Douglas Corp. 838,300
1,022,825
Energy: 4.9%
18,000 Burlington Resources Inc. 684,000
24,000 MAPCO, Inc. 1,386,000
45,500 Noble Affiliates, Inc. 1,541,313
3,611,313
7
<PAGE>
Statement of Net Assets (continued) May 31, 1996
Market Value
Shares (Note A)
- -------------------------------------------------------------------------------
COMMON STOCK (continued)
Financial Services: 9.2%
51,200 American Express Co. $ 2,342,400
27,000 Federal Home Loan Mortgage Corp. 2,230,875
52,500 Travelers Group Inc. 2,178,750
6,752,025
Health Care: 0.8%
15,000 Mallinckrodt Group, Inc. 564,375
Hotels/Lodging: 3.6%
15,400 Hilton Hotels Corp. 1,659,350
16,400 ITT Corp.* 1,008,600
2,667,950
Housing: 3.9%
37,000 Ryland Group Inc. 605,875
83,300 USG Corp.* 2,280,337
2,886,212
Insurance: 7.9%
41,000 Alexander & Alexander Services Inc. 814,875
50,000 Conseco Inc. 1,812,500
16,400 ITT Hartford Group, Inc. 848,700
32,200 Leucadia National Corp. 792,925
37,800 Mid Ocean Ltd. 1,578,150
5,847,150
Multi-Industry: 6.7%
56,400 ITT Industries, Inc. 1,543,950
14,000 Loews Corp. 1,116,500
24,200 Tenneco, Inc. 1,300,750
8,900 United Technologies Corp. 973,438
4,934,638
Technology: 11.5%
28,000 International Business Machines Corp. 2,989,000
45,500 Millipore Corp. 1,996,312
50,000 SEI Corp. 1,087,500
15,500 Xerox Corp. 2,439,313
8,512,125
Transportation: 2.6%
45,800 Canadian National Railway Co. 847,300
15,400 Conrail Inc. 1,081,850
1,929,150
Total Common Stocks (Cost $55,131,423) 66,372,363
8
<PAGE>
Statement of Net Assets (concluded) May 31, 1996
Market Value
Par (Note A)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 13.5%
$9,928,000 Goldman Sachs & Co., 5.15%
Dated 5/31/96, to be repurchased on 6/3/96,
collateralized by U.S. Treasury
Notes with a market value of $10,127,392.
(Cost $9,928,000) $ 9,928,000
Total Investment in Securities: 103.4%
(Cost $65,059,423)** 76,300,363
Liabilities in Excess of Other Assets, Net: (3.4)% (2,533,114)
Net Assets: 100.0% $73,767,249
Net Asset Value and Redemption Price Per:
Class A Share
($64,229,555 / 4,907,747 shares outstanding) $13.09
Class B Share
($5,302,099 / 407,054 shares outstanding) $13.03(1)
Institutional Share
($4,235,595 / 323,377 shares outstanding) $13.10
Maximum Offering Price Per:
Class A Share
($13.09 / .955) $13.71
CLASS B SHARE $13.03
Institutional Share $13.10
- --------------------------------------------------------------------------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
(1) Redemption value is $12.51 following a maximum 4.00% contingent deferred
sales charge.
See accompanying Notes to Financial Statements.
9
<PAGE>
Statement of Operations For the Year Ended May 31, 1996
INVESTMENT INCOME (NOTE A):
Interest $ 818,014
Dividends 788,693
Total income 1,606,707
EXPENSES:
Investment advisory fee (Note B) 551,124
Distribution fee (Note B) 166,632
Legal 77,622
Transfer agent fee (Note B) 70,414
Accounting fee (Note B) 49,269
Printing and postage 30,927
Audit 29,922
Registration fees 18,652
Organizational expense (Note A) 10,029
Custodian fees 8,603
Directors' fees 3,904
Insurance 1,253
Total expenses 1,018,351
Less: Fees waived (Note B) (232,890)
Net expenses 785,461
Net investment income 821,246
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized loss from security transactions (24,094)
Change in unrealized appreciation of investments 10,744,023
Net gain on investments 10,719,929
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $11,541,175
- -------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Period
Ended Feb. 13, 1995*
May 31, 1996 to May 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income $ 821,246 $97,746
Net realized loss from security transactions (24,094) --
Change in unrealized appreciation of investments 10,744,023 496,917
Net increase in net assets resulting from operations 11,541,175 594,663
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income:
Class A Shares (598,906) --
Class B Shares (27,629) --
Institutional Shares -- --
Total distributions (626,535) --
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of shares 28,046,908 40,494,354
Value of shares issued in reinvestment of dividends 560,846 --
Cost of shares repurchased (6,525,825) (418,337)
Increase in net assets derived from capital share transactions 22,081,929 40,076,017
Total increase in net assets 32,996,569 40,670,680
NET ASSETS:
Beginning of period 40,770,680 100,000**
End of period $73,767,249 $40,770,680
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** On January 26, 1995, the Fund sold 10,000 shares to a subsidiary of Alex.
Brown & Sons Incorporated for $100,000.
See accompanying Notes to Financial Statements.
11
<PAGE>
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Institutional
Class A Shares Class B Shares Shares
For the For the For the For the For the
Year Period Year Period Period
Ended Feb. 13, 1995* Ended Feb. 13, 1995* Feb. 12, 1996*
May 31, through May 31, through through
1996 May 31, 1995 1996 May 31, 1995 May 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of period $ 10.77 $ 10.00 $10.75 $10.00 $12.72
Income from Investment Operations:
Net investment income 0.17 0.12 0.07 0.07 0.04
Net realized and unrealized gain
on investments 2.29 0.65 2.31 0.68 0.34
Total from Investment Operations 2.46 0.77 2.38 0.75 0.38
Less Distributions:
Dividends from net investment
income (0.14) -- (0.10) -- --
Total distributions (0.14) -- (0.10) -- --
Net asset value at end of period $ 13.09 $ 10.77 $13.03 $10.75 $13.10
Total Return** 23.05% 7.70% 22.17% 7.50% 3.23%
Ratios to Average Daily Net Assets:
Expenses 1.35%(2) 1.35%(1,2) 2.10%(4) 2.10%(1,4) 1.10%(1,6)
Net investment income 1.52%(3) 3.74%(1,3) 0.71%(5) 1.97%(1,5) 1.20%(1,7)
Supplemental Data:
Net assets at end of period (000) $64,230 $38,612 $5,302 $2,159 $4,235
Portfolio turnover rate 0.73% -- 0.73% -- 0.73%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
** Total return excludes the effect of sales charge.
(1) Annualized.
(2) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 1.77% and 3.76% (annualized) for
Class A Shares for the year ended May 31, 1996 and the period ended May 31,
1995, respectively.
(3) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 1.10% and 1.33%
(annualized) for Class A Shares for the year ended May 31, 1996 and the
period ended May 31, 1995, respectively.
(4) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 2.52% and 4.22% (annualized) for
Class B Shares for the year ended May 31, 1996 and the period ended May 31,
1995, respectively.
(5) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 0.29% and (0.15)%
(annualized) for Class B Shares for the year ended May 31, 1996 and the
period ended May 31, 1995, respectively.
(6) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 1.55% (annualized) for
Institutional Shares for the period ended May 31, 1996.
(7) Without the waiver of advisory fees (Note B), the ratio of net investment
income to average daily net assets would have been 0.75% (annualized) for
Institutional Shares for the period ended May 31, 1996.
See accompanying Notes to Financial Statements.
12
<PAGE>
Notes to Financial Statements
A. Significant Accounting Policies - Flag Investors Equity Partners Fund, Inc.
("the Fund") was organized as a Maryland Corporation on November 30, 1994
and commenced operations on February 13, 1995, consisting of Class A Shares
and Class B Shares. The Fund is registered under the Investment Company Act
of 1940 as a diversified, open-end Management Investment Company designed to
seek long-term growth of capital and, secondarily, current income through a
policy of diversified investments in equity securities, including common
stocks and convertible securities. On February 12, 1996, the Fund began
offering Institutional Shares, which are not subject to a front-end sales
charge or a distribution fee.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Security Valuation - Portfolio securities are valued on the basis of their
last sale price. In the event that there are no sales or the security is not
listed, it is valued at its latest bid quotation. Short-term obligations
with maturities of 60 days or less are valued at amortized cost.
Repurchase Agreements - The Fund may agree to enter into tri-party
repurchase agreements. Securities held as collateral for tri-party
repurchase agreements are maintained by the broker's custodial bank in a
segregated account until maturity of the repurchase agreement. The agreement
ensures that the market value of the collateral, including accrued interest
thereon, is sufficient in the event of default. If the counterparty defaults
and the value of the collateral declines or if the counterparty enters into
an insolvency proceeding, realization of the collateral by the Fund may be
delayed or limited.
Federal Income Tax - No provision is made for federal income taxes as it is
the Fund's intention to continue to qualify as a regulated investment
company and to make requisite distributions to the shareholders that will be
sufficient to relieve it from all or substantially all federal income and
excise taxes. The Fund's policy is to distribute to shareholders
substantially all of its taxable net investment income and net realized
capital gains.
The Fund has a capital loss carryforward of $24,094 (which may be carried
forward to offset future taxable capital gains, if any), which begins to
expire in 2004 if not previously utilized.
Other - Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Costs
incurred by the Fund in connection with its organization, registration and
the initial public offering of shares have been deferred and are being
amortized on the straight-line method over a five-year period beginning on
the date on which the Fund commenced its investment activities.
B. Investment Advisory Fees, Transactions with Affiliates and Other Fees -
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., is the Fund's investment advisor and Alex. Brown Investment
Management ("ABIM") is the Fund's subadvisor. As compensation for its
advisory services, ICC receives a fee from the Fund, calculated daily and
paid monthly, at the following annual rates based upon the Fund's average
daily net assets: 1.00% of the first $50 million, 0.85% of the next $50
million, 0.80% of the next $100 million and 0.70% of that portion in excess
of $200 million.
13
<PAGE>
Notes to Financial Statements (continued)
As compensation for its subadvisory services, ABIM receives a fee from ICC,
payable from its advisory fee, calculated daily and paid monthly, at the
following annual rates based upon the Fund's average daily net assets: .75%
of the first $50 million, .60% of the next $150 million and .50% of that
portion in excess of $200 million.
ICC has voluntarily agreed to waive a portion of its fees and reimburse
expenses so that the total operating expenses of the Fund do not exceed
1.35% of the Fund's average daily net assets for Class A Shares, 2.10% for
Class B Shares and 1.10% for Institutional Shares. For the year ended May
31, 1996, ICC waived fees of $232,890.
ICC also serves as the Fund's accounting and transfer agent. As compensation
for its accounting services, ICC receives from the Fund an annual fee,
calculated daily and paid monthly, from the Fund's average daily net assets.
ICC received $49,269 for accounting services for the year ended May 31,
1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated daily and paid monthly. ICC received $70,414
for transfer agent services for the year ended May 31, 1996.
As compensation for providing distribution services, Alex. Brown & Sons
Incorporated ("Alex. Brown") receives from the Fund an annual fee,
calculated daily and paid monthly, at an annual rate equal to .25% of the
average daily net assets for Class A Shares, and 1.00% (including a .25%
shareholder servicing fee) of the average daily net assets of Class B
Shares. For the year ended May 31, 1996, distribution fees aggregated
$166,632, of which $130,140 were attributable to Class A Shares and $36,492
were attributable to Class B Shares.
The fund complex of which the Fund is a part has adopted a retirement plan
for eligible Directors. The actuarially computed pension expense allocated
to the Fund for the year ended May 31, 1996 was $565.
C. Capital Share Transactions - The Fund is authorized to issue up to 35
million shares of $.001 par value capital stock (20 million Class A, 5
million Class B, 5 million Institutional and 5 million undesignated).
Transactions in shares of the Fund were as follows:
Class A Shares
For the Year For the Period
Ended Feb. 13, 1995*
May 31, 1996 to May 31, 1995
Shares sold 1,801,793 3,614,724
Shares issued to share-
holders on reinvest-
ment of dividends 46,324 --
Shares redeemed (526,068) (39,025)
Net increase in shares
outstanding 1,322,049 3,575,699
Proceeds from sale
of shares $21,242,051 $38,469,554
Reinvested dividends 537,705 --
Net asset value of
shares redeemed (6,296,438) (418,337)
Net increase from
capital share
transactions $15,483,318 $38,051,217
Class B Shares
For the Year For the Period
Ended Feb. 13, 1995*
May 31, 1996 to May 31, 1995
Shares sold 221,303 200,772
Shares issued to share-
holders on reinvest-
ment of dividends 2,003 --
Shares redeemed (17,025) --
Net increase in shares
outstanding are- 206,281 200,772
Proceeds from sale
of shares $2,641,798 $2,038,171
Reinvested dividends 23,141 --
Net asset value of
shares redeemed (208,673) --
Net increase from
capital share
transactions $2,456,266 $2,038,171
- -------------------------------------------------------------------------------
*Commencement of operations.
14
<PAGE>
Notes to Financial Statements (concluded)
Institutional Shares
For the Period
Feb. 12, 1996* to
May 31, 1996
Shares sold 324,964
Shares issued to share-
holders on reinvest-
ment of dividends --
Shares redeemed (1,587)
Net increase in shares
outstanding 323,377
Proceeds from sale
of shares $4,163,059
Reinvested dividends --
Net asset value of
shares redeemed (20,714)
Net increase from
capital share
transactions $4,142,345
- ------------------------------------------------------------------------------
*Commencement of operations.
D. Investment Transactions - Purchases and sales of investment securities,
other than short-term obligations, aggregated $44,457,277 and $303,618,
respectively, for the year ended May 31, 1996. At May 31, 1996, aggregate
gross unrealized appreciation for all securities in which there was an
excess of value over tax cost was $11,680,368 and aggregate gross unrealized
depreciation of all securities in which there was an excess of tax cost over
value was $439,428.
E. Net Assets - At March 31, 1996, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $53,621,154
Flag Investors Class B Shares 4,494,447
Flag Investors Institutional Shares 4,142,345
Undistributed net
investment income 292,457
Accumulated net realized loss
from security transactions (24,094)
Unrealized appreciation of
investments 11,240,940
$73,767,249
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Equity Partners Fund, Inc.:
We have audited the accompanying statement of net assets of Flag Investors
Equity Partners Fund, Inc. as of May 31, 1996 and the related statement of
operations for the year then ended, and the statement of changes in net assets
and the financial highlights for the year then ended and for the period February
13, 1995 (commencement of operations) through May 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of May
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flag Investors Equity Partners Fund, Inc. as of May 31, 1996, the results of its
operations for the year then ended and the changes in its net assets and its
financial highlights for the year then ended and for the period February 13,
1995 (commencement of operations) through May 31, 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
June 28, 1996
15
<PAGE>
APPENDIX A
BOND AND COMMERCIAL PAPER RATINGS
Standard & Poor's Commercial Paper Ratings
S & P - Commercial paper rated A-1+ or A-1 by S&P has the
following characteristics. Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better, although in some
cases "BBB" credits may be allowed. The issuer has access to at least two
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management is unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's commercial paper
is rated A-1, A-2 or A-3.
Moody's Commercial Paper Ratings
Moody's - The rating Prime-1 (P-1) is the highest commercial
paper rating assigned by Moody's. Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationship which exists with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations. These
factors are all considered in determining whether the commercial paper is rated
P-1, P-2 or P-3.
CORPORATE BOND RATINGS
Standard & Poor's Bond Ratings
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits 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
debt in this category than in higher rated categories.
BB, B, CCC, CC, C -- Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the lowest degree of speculation and
C the highest. While such debt will likely have some quality and
A-1
<PAGE>
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
CI -- The rating CI is reserved for income bonds on which no interest is being
paid.
D -- Debt rated D is in default. The D rating category is used when interest
payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
Moody's Bond Ratings
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or 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 -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
"high-grade" bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in the case of Aaa securities, or the
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be 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 -- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are 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.
Ba -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterize bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C -- Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
A-2
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Parts A and B of the Registration Statement:
-- Financial Highlights for the period February 13,
1995 (commencement of operations) through May 31,
1995 and the fiscal year ended May 31, 1996
-- Statement of Net Assets for the fiscal year ended
May 31, 1996
-- Statement of Operations for the fiscal year ended
May 31, 1996
-- Statement of Changes in Net Assets for the period
February 13, 1995 (commencement of operations)
through May 31, 1995 and the fiscal year ended May
31, 1996
-- Notes to Financial Statements
-- Report of Independent Accountants
(2) All required financial statements are included in parts A
and B hereof. All other financial statements and
schedules are inapplicable.
(b) Exhibits:
(1) (a) Registrant's Articles of Incorporation.(1)
(b) Registrant's Articles Supplementary, filed
herewith.
(2) By-Laws.(1)
(3) Not Applicable.
(4) (a) Form of Specimen Security for Class A Shares.(2)
(b) Form of Specimen Security for Class B Shares.(2)
(5) (a) Investment Advisory Agreement between
Registrant and Investment Company Capital
Corp.(1)
(b) Sub-Advisory Agreement among Registrant,
Investment Company Capital Corp. and Alex.
Brown Investment Management.(1)
-1-
<PAGE>
(6) (a) Distribution Agreement between Registrant
and Alex. Brown & Sons Incorporated with
respect to Class A Shares.(1)
(b) Distribution Agreement between Registrant
and Alex. Brown & Sons Incorporated with
respect to Class B Shares.(1)
(c) Form of Sub-Distribution Agreement between
Alex. Brown & Sons Incorporated and
Participating Broker-Dealers.(1)
(d) Form of Shareholder Servicing Agreement
between Alex. Brown & Sons Incorporated and
Shareholder Servicing Agents.(1)
(e) Distribution Agreement between Registrant
and Alex. Brown & Sons Incorporated with
respect to Institutional Shares, filed
herewith.
(7) Not Applicable.
(8) Custodian Agreement between Registrant and PNC
Bank, National Association.(1)
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp.(1)
(10) Opinion of Counsel.(1)
(11) Consent of Coopers & Lybrand L.L.P., filed
herewith.
(12) Not Applicable.(1)
(13) Subscription Agreement.(1)
(14) Not Applicable.
(15) (a) Distribution Plan with respect to Flag
Investors Class A Shares.(1)
(b) Distribution Plan with respect to Flag
Investors Class B Shares.(1)
(16) Schedule of Computation of Performance
Quotations.(1)
(17) Directors' Consents.(1)
(18) 18f-3 Plan, filed herewith.
(24) (a) Powers of Attorney.(1)
-2-
<PAGE>
(b) Additional Powers of Attorney, filed
herewith.
(27) Financial Data Schedule, filed herewith.
- ------------------------
1 Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-86832), filed with the Securities and Exchange Commission via EDGAR on
September 22, 1995.
2 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (File No. 33- 86832) filed with the Securities and Exchange
Commission on November 30, 1994.
Item 25. Persons Controlled by or under Common Control with Registrant
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders of
each class of securities of the Registrant.
The following information is given as of September 16, 1996:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of Capital Stock
Class A 2077
Class B 273
Institutional 34
Item 27. Indemnification
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability which
may be incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, included as Exhibit 1 to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General
Corporation Law, no director or officer of the Corporation shall have
any liability to the Corporation or its shareholders for damages. This
limitation on liability applies to events occurring at the time a
person serves as a director or officer of the Corporation whether or
not such person is a director or officer at the time of any proceeding
in which liability is asserted.
-3-
<PAGE>
Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as to its directors and to such
further extent as is consistent with law. The Board of Directors of
the Corporation may make further provision for indemnification of
directors, officers, employees and agents in the By-Laws of the
Corporation or by resolution or agreement to the fullest extent
permitted by the Maryland General Corporation Law.
Section 3. No provision of this Article VIII shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may
expand, any right of any person under this Article VIII based on any
event, omission or proceeding prior to such amendment.
Sections 1, 2, 3, 4 and 5 of Article XIII of Registrant's By-Laws,
included as Exhibit 2 to this Registration Statement and incorporated herein by
reference, provide as follows:
Section 1. Indemnification. The Corporation shall indemnify its
Directors to the fullest extent that indemnification of Directors is
permitted by the Maryland General Corporation Law. The Corporation
shall indemnify its officers to the same extent as its Directors and
to such further extent as is consistent with law. The Corporation
shall indemnify its Directors and officers who while serving as
Directors or officers also serve at the request of the Corporation as
a Director, officer, partner, trustee, employee, agent or fiduciary of
another corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent consistent
with law. This Article XIII shall not protect any such person against
any liability to the Corporation or any shareholder thereof to which
such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article
XIII shall be entitled to advances from the Corporation for payment of
the reasonable expenses incurred by him in connection with proceedings
to which he is a party in the manner and to the full extent
permissible under the Maryland General Corporation Law, the Securities
Act of 1933 (the "1933 Act") and the 1940 Act, as such statutes are
now or hereafter in force.
Section 3. Procedure. On the request of any current or former Director
or officer requesting indemnification or an advance under this Article
XIII, the Board of Directors shall determine, or cause to be
determined, in a manner consistent with the Maryland General
Corporation Law, the 1933 Act and the 1940 Act, as such statutes are
now or hereafter in force, whether the standards required by this
Article XIII have been met.
-4-
<PAGE>
Section 4. Other Rights. The indemnification provided by this Article
XIII shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such
indemnification may be entitled under any insurance or other
agreement, vote of shareholders or disinterested Directors or
otherwise, both as to action by a Director or officer of the
Corporation in his official capacity and as to action by such person
in another capacity while holding such office or position, and shall
continue as to a person who has ceased to be a Director or officer and
shall inure to the benefit of the heirs, executors and administrators
of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from time to
time amended.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1940 Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1940 Act
and will be governed by the final adjudication of such issue. In the absence of
a determination by a court of competent jurisdiction, the determinations that
indemnification against such liabilities is proper, and advances can be made,
are made by a majority of a quorum of the disinterested, non-party directors of
the Fund, or an independent legal counsel in a written opinion, based on review
of readily available facts.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's investment advisor, has engaged in any
other business, profession, vocation or employment of a substantial nature other
than that of the business of investment management and, through affiliates,
investment banking.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment sub-advisor of the Registrant, and
each director, officer or partner of any such investment sub-advisor, is or has
been, at any time during the past two fiscal years, engaged for his own account
or in the capacity of director, officer, employee, partner or trustee.
The list required by this Item 28 of officers and directors of Alex.
Brown Investment Management ("ABIM"), together with information as to any other
business, profession, vocation or employment of a substantial nature engaged in
by such officers and directors during the past two years, is incorporated by
reference to Schedules A and D of Form ADV, filed by ABIM pursuant to the
Investment Advisors Act of 1940 (SEC File No. 801-21616).
-5-
<PAGE>
Item 29. Principal Underwriters
Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor or
investment advisor:
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc.,
Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Flag Investors Total Return U.S. Treasury Fund
Shares of Total Return U.S. Treasury Fund, Inc., Flag Investors
Managed Municipal Fund Shares of Managed Municipal Fund, Inc., Flag
Investors Intermediate-Term Income Fund, Inc., Flag Investors Value
Builder Fund, Inc., Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc. and Flag Investors Real Estate Securities Fund,
Inc., all registered open-end management investment companies.
Furnish information with respect to each director, officer or partner
of each principal underwriter named in answer to Item 21 of Part B
(Underwriters):
<TABLE>
<CAPTION>
(b) Position and
Offices Position and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
------------------ --------------- -------------
<S> <C> <C>
Alvin B. Krongard Chief Executive None
Officer, Chairman
and Director
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial Officer None
and Treasurer
Robert F. Price Secretary and None
General Counsel
</TABLE>
- ----------------------
* 135 East Baltimore Street
Baltimore, MD 21202
(c) Not applicable.
Item 30. Location of Accounts and Records
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document
Investment Company Capital Corp. ("ICC"), Registrant's investment
advisor, transfer agent and dividend disbursing agent, 135 E. Baltimore Street,
Baltimore, Maryland 21202, maintains physical possession of each such account,
book or other document of the Fund, except for those maintained by ABIM, the
-6-
<PAGE>
Registrant's sub-advisor, 135 E. Baltimore Street, Baltimore, Maryland 21202,
and by PNC Bank, the Registrant's custodian, Airport Business Park, 200 Stevens
Drive, Lester, Pennsylvania 19113.
In particular, with respect to the records required by Rule
31a-1(b)(1), ICC and ABIM each maintains physical possession of all journals
containing itemized daily records of all purchases and sales of securities,
including sales and redemptions of Fund securities, and PNC Bank maintains
physical possession all receipts and deliveries of securities (including
certificate numbers if such detail is not recorded by custodian or transfer
agent), all receipts and disbursements of cash, and all other debts and credits.
Item 31. Management Services
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B of this
Form (because the contract was not believed to be of interest to a purchaser of
securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid and
by whom, for the last three fiscal years.
Not Applicable.
Item 32. Undertakings
Furnish the following undertakings in substantially the following form
in all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) Registrant hereby undertakes to furnish each prospective person to
whom a prospectus will be delivered with a copy of the Registrant's
latest annual report to shareholders, when such annual report is
issued containing information called for by Item 5A of Form N-1A, upon
request and without charge.
-7-
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 3 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 26th day of September, 1996.
FLAG INVESTORS EQUITY
PARTNERS FUND, INC.
By: /s/ Lee S. Owen
--------------------------
Lee S. Owen,
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
*/s/ Truman T. Semans Director September 26 , 1996
- --------------------------- --------------------
Truman T. Semans Date
*/s/ Richard T. Hale Director September 26 , 1996
- --------------------------- --------------------
Richard T. Hale Date
/s/ Charles W. Cole, Jr. Director September 26 , 1996
- --------------------------- --------------------
Charles W. Cole, Jr. Date
*/s/ James J. Cunnane Director September 26 , 1996
- --------------------------- --------------------
James J. Cunnane Date
*/s/ John F. Kroeger Director September 26 , 1996
- --------------------------- --------------------
John F. Kroeger Date
*/s/ Louis E. Levy Director September 26 , 1996
- --------------------------- --------------------
Louis E. Levy Date
*/s/ Eugene J. McDonald Director September 26 , 1996
- --------------------------- --------------------
Eugene J. McDonald Date
*/s/ Rebecca W. Rimel Director September 26 , 1996
- --------------------------- --------------------
Rebecca W. Rimel Date
/s/ Carl W. Vogt Director September 26 , 1996
- --------------------------- --------------------
Carl W. Vogt Date
*/s/ Harry Woolf Director September 26 , 1996
- --------------------------- --------------------
Harry Woolf Date
/s/ Lee S. Owen President September 26 , 1996
- --------------------------- --------------------
Lee S. Owen Date
/s/ Joseph A. Finelli Chief Financial September 26 , 1996
- --------------------------- and Accounting --------------------
Joseph A. Finelli Officer Date
* By: /s/ Brian C. Nelson
- ---------------------------
Brian C. Nelson
Attorney-In-Fact
</TABLE>
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Document
------ ----------------------------------------------------
<S> <C> <C>
(1) (a) Registrant's Articles of Incorporation.(2)
EX-99.B (1) (b) Registrant's Articles Supplementary, filed herewith.
(2) Registrant's By-Laws.(2)
(4) (a) Form of Registrant's Specimen Security for Class A
Shares.(1)
(4) (b) Form of Registrant's Specimen Security for Class B
Shares.(1)
(5) (a) Investment Advisory Agreement between Registrant and
Investment Company Capital Corp.(2)
(5) (b) Sub-Advisory Agreement among Registrant, Investment
Company Capital Corp. and Alex. Brown Investment
Management.(2)
(6) (a) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Class A
Shares.(2)
(6) (b) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Class B
Shares.(2)
(6) (c) Registrant's Form of Sub-Distribution Agreement between
Alex. Brown & Sons Incorporated and Participating
Broker-Dealers, filed herewith.(2)
(6) (d) Registrant's Form of Shareholder Servicing Agreement
between Registrant and Shareholder Servicing Agents.(2)
</TABLE>
- --------
1 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (File No. 33-86832), filed with the Securities and Exchange
Commission on November 30, 1994.
2 Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-86832), filed with the Securities and Exchange Commission via EDGAR on
September 22, 1995.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
EX-99.B (6) (e) Distribution Agreement between Registrant
and Alex. Brown & Sons Incorporated with respect
to Institutional Shares, filed herewith.
(8) Custodian Agreement between Registrant and PNC.(2)
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp.(2)
(10) Opinion of Counsel.(2)
EX-99.B (11) Consent of Coopers & Lybrand L.L.P., filed herewith.
(13) Subscription Agreement.(2)
(15) (a) Registrant's Distribution Plan with respect to Flag Investors
Class A Shares.(2)
(15) (b) Registrant's Distribution Plan with respect to Flag Investors
Class B Shares.(2)
(16) Schedule of Computation of Performance Quotations.(2)
(17) Directors' Consents.(2)
EX-99.B (18) 18f-3 Plan, filed herewith.
(24) (a) Powers of Attorney.(2)
EX-99.B (24) (b) Additional Power of Attorney, filed herewith.
EX-27 Financial Data Schedule, filed herewith.
</TABLE>
- ---------
1 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (File No. 33-86832), filed with the Securities and Exchange
Commission on November 30, 1994.
2 Incorporated herein by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-86832), filed with the Securities and Exchange Commission via EDGAR on
September 22, 1995.
<PAGE>
EX-99.B(1)(b)
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS EQUITY PARTNERS FUND, INC. (the "Corporation"), having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of capital stock which the
Corporation has the authority to issue to thirty-five million (35,000,000)
shares of Common Stock, of the par value of 1 mil ($.001) per share and of the
aggregate par value of thirty-five thousand dollars ($35,000), all of which
shares are designated as follows: twenty million (20,000,000) shares are
designated "Flag Investors Equity Partners Fund Class A Shares," five million
(5,000,000) shares are designated "Flag Investors Equity Partners Fund Class B
Shares," five million (5,000,000) shares are designated "Flag Investors Equity
Partners Fund Institutional Shares" and five million (5,000,000) shares remain
undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue thirty million (30,000,000) shares of Common Stock, of the
par value of 1 mil ($.001) per share and of the aggregate par value of thirty
thousand dollars ($30,000), all of which shares were designated as follows:
twenty million (20,000,000) shares were designated "Flag Investors Equity
Partners Fund Class A Shares," five million (5,000,000) shares were designated
"Flag Investors Equity Partners Fund Class B Shares" and five million
(5,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Equity Partners Fund, Inc. has
caused these Articles Supplementary to be executed by one of its Vice Presidents
and its corporate seal to be affixed and attested by its Secretary on this 14th
day of December, 1995.
[CORPORATE SEAL]
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
By: /s/ Edward J. Veilleux
---------------------------
Vice President
Attest: /s/ Brian C. Nelson
-----------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS EQUITY PARTNERS
FUND, INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/ Edward J. Veilleux
------------------------
Vice President
<PAGE>
EX-99.B(6)(e)
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
FLAG INVESTORS INSTITUTIONAL SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 13th day of December, 1995, by and
between FLAG INVESTORS EQUITY PARTNERS FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on November 29, 1994 (the
"Articles"), authorize the Board of Directors of the Fund to increase or
decrease the number of shares of capital stock of the Fund and the number of
shares of any class of capital stock of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the
designation of two classes of shares of the Fund known respectively as the Flag
Investors Equity Partners Fund Class A Shares and the Flag Investors Equity
Partners Fund Class B Shares; and
WHEREAS, the Fund's Board of Directors has further authorized
the creation of an institutional class of shares of the Fund known as the Flag
Investors Equity Partners Fund Institutional Shares (the "Shares") ; and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the Shares and Alex. Brown wishes to become the
distributor of the Shares.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and of other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement.
Alex. Brown accepts such appointment and agrees to render the services set forth
herein.
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto
(such By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as
filed with the Securities and Exchange Commission (the "SEC") on November 30,
1994;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
33-86832) and under the 1940 Act as filed with the SEC on November 30, 1994
relating to the Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares
(such prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; and
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown. Notwithstanding the
provisions of the foregoing sentence,
(a) the Fund may issue its Shares at their net asset
value to any shareholder of the Fund purchasing such Shares with dividends or
other cash distributions received from the Fund pursuant to an offer made to all
shareholders;
(b) Alex. Brown may enter into shareholder processing
and servicing agreements;
(c) Alex. Brown may, and when requested by the Fund
shall, suspend its efforts to effectuate sales of the Shares at any time when in
the opinion of Alex. Brown or of the Fund no sales should be made because of
market or other economic considerations or abnormal circumstances of any kind;
and
(d) the Fund may withdraw the offering of the Shares
(i) at any time with the consent of Alex. Brown, or (ii) without such consent
when so required by the provisions of any statute or of any order, rule or
regulation of any governmental body having jurisdiction.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
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<PAGE>
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of
the Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any
promotional or sales literature used by Alex. Brown or furnished by Alex. Brown
to purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid
all other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar, custodian
or depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock 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
corporate fees payable by the Fund to Federal, State or other governmental
agencies; all costs and expenses in connection with maintenance of registration
of the Fund and the Shares with the SEC and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above; the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or 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; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or
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<PAGE>
assumption by Alex. Brown of any Fund expense that Alex. Brown is not required
to pay or assume under this Agreement shall not relieve Alex. Brown of any of
its obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. Alex. Brown shall receive no compensation for
the services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters of
transmittals and applications and withdrawal and redemption orders, responding
to inquiries from Fund shareholders concerning the status of their accounts and
the operations of the Fund, and communicating with the Fund and its transfer
agent on behalf of the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its own
resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that Directors,
officers or employees of Alex. Brown may serve as Directors or officers of the
Fund, and that Directors or officers of the Fund may serve as Directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
Directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, Directors or officers of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the Shares (as
defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement, by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute
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<PAGE>
willful misfeasance, bad faith or gross negligence on the part of Alex. Brown
or reckless disregard by Alex. Brown of its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation.
Any question of interpretation of any term or provision of
this Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the United
States courts or in the absence of any controlling decision of any such court,
by rules, regulations or orders of the SEC issued pursuant to the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is revised by rule, regulation or order of the SEC,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS EQUITY PARTNERS FUND, INC.
Attest: /s/ Laurie D. DePrine By /s/ Edward J. Veilleux
----------------------- ----------------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Laurie D. DePrine By /s/ Richard T. Hale
---------------------- ----------------------------
Title:
-5-
<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a
Participating Dealer and as such are authorized (i) to accept orders for the
purchase of Shares and to transmit to the Funds such orders and the payment made
therefore, (ii) to accept orders for the redemption of Shares and to transmit to
the Funds such orders and all additional material, including any certificates
for Shares, as may be required to complete the redemption and (iii) to assist
shareholders with the foregoing and other matters relating to their investments
in each Fund, in each case subject to the terms and conditions set forth in the
Prospectus of each Fund. You are to review each Share purchase or redemption
order submitted through you or with your assistance for completeness and
accuracy. You further agree to undertake from time to time certain shareholder
servicing activities for customers of yours who have purchased Shares and who
use your facilities to communicate with the Funds or to effect redemptions or
additional purchases of Shares.
2. Limitation of Authority. No person is authorized to make
any representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will
look solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
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<PAGE>
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"). Your expulsion or suspension from the NASD will automatically terminate
this Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered under,
or are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of
Shares under the Securities Act. The Funds intend to register or qualify in
certain states where registration or qualification is required. We will inform
you as to the states or other jurisdictions in which we believe the Shares have
been qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states. You agree that you will offer Shares
to your customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the Department of State in New York a State Notice and a Further State
Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required
by law to be kept by you relating to transactions in Shares and, upon request by
any Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to
you except for lack of good faith and for obligations expressly assumed by it
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
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<PAGE>
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to
the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
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<PAGE>
[Letterhead of Coopers & Lybrand L.L.P.]
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated June
28, 1996 on our audit of the financial statements and financial highlights of
Flag Investors Equity Partners Fund, Inc. in the Statement of Additional
Information with respect to Post-Effective Amendment No. 3 to the Registration
Statement on Form N-1A (No. 33-86832) under the Securities Act of 1933 of Flag
Investors Equity Partners Fund, Inc. We also consent to the references to our
Firm under the headings "Financial Highlights" and "General Information" in the
Prospectus and "Independent Accountants" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
September 25, 1996
<PAGE>
EX-99.B(18)
Flag Investors Equity Partners Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B and Institutional Class
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Equity
Partners Fund, Inc. (the "Fund"), including a majority of the Directors of the
Fund who are not "interested persons" of the Fund (the "Independent Directors")
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). At its organizational meeting held on December 13, 1995, the Fund
elected to rely on Rule 18f-3 rather than the Order, as permitted by Rule 18f-3
subject to certain conditions, and created a multiple class distribution
arrangement for three classes of shares of the common stock of the Fund's one
existing series (the "Series"). The multiple class distribution arrangement will
be effective on the date of effectiveness of the post-effective amendment to the
Fund's registration statement that incorporates the arrangement. The multi-class
distribution arrangement will apply to all existing (Flag Investors Class A,
Flag Investors Class B and Institutional Class) and future classes of Fund
shares. The Flag Investors Class A Shares and Class B Shares have been offered
since the Fund's inception on February 13, 1995. The Institutional Shares have
been offered since February 12, 1996.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant to
Rule 18f-3, the Fund is required to create a written plan specifying all of the
differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of
1
<PAGE>
the Independent Directors, that the Plan as proposed to be amended, including
the expense allocations, is in the best interests of each class individually and
the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")(1); and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
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(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
2
<PAGE>
III. Expense Allocations
Expenses of each class created after the date hereof must be allocated as
follows: (i) distribution and shareholder servicing payments associated with any
Rule 12b-1 Plan or servicing agreement, if any, relating to each respective
class of shares (including any costs relating to implementing such plans or any
amendment thereto) will be borne exclusively by that class; (ii) any incremental
transfer agency fees relating to a particular class will be borne exclusively by
that class; and (iii) Class Expenses relating to a particular class will be
borne exclusively by that class.
The methodology and procedures for calculating the net asset value and
dividends and distributions of the various classes of shares of the Fund and the
proper allocation of income and expenses among the various classes of shares of
the Fund are required to comply with the Fund's internal control structure
pursuant to applicable auditing standards, including Statement on Auditing
Standards No. 55, and to be reviewed as part of the independent accountants'
review of such internal control structure. The independent accountants' report
on the Fund's system of internal controls required by Form N-SAR, Item 77B, is
not required to refer expressly to the procedures for calculating the classes'
net asset values.
3
<PAGE>
Date Approved: December 14, 1994
Approval of Distribution Agreements,
Plans of Distribution and Sub-Distribution Agreement
Class A Shares and Class B Shares
RESOLVED, that the proposed Distribution Agreement, between the Fund and
Alex. Brown & Sons Incorporated ("Alex. Brown") for distribution of the Fund's
Flag Investors Class A Shares (the "Class A Shares") be, and the same hereby is,
approved, in substantially the form presented to this meeting, and that the
appropriate officers of the Fund be, and they hereby are, authorized and
directed to enter into and execute such Distribution Agreement with such
modifications as said officers shall deem necessary or appropriate or as may be
required to conform with the requirements of any applicable statute, regulation
or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution for the Class A
Shares (the "Class A Plan") is determined to be reasonably likely to benefit the
Fund and its shareholders;
FURTHER RESOLVED, that the expenditures contemplated by the Class A Plan
are comparable to other expenditures for similar funds;
FURTHER RESOLVED, that the Class A Plan be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proposed Distribution Agreement between the Fund
and Alex. Brown for distribution of the Fund's Flag Investors Class B Shares
(the "Class B Shares") be, and the same hereby is, approved, in substantially
the form presented to this meeting, and that the appropriate officers of the
Fund be, and they hereby are, authorized and directed to enter into and execute
such Distribution Agreement with such modifications as said officers shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution for the Class B
Shares (the "Class B Plan") is determined to be reasonably likely to benefit the
Fund and its shareholders;
FURTHER RESOLVED, that the expenditures contemplated by the Class B Plan
are comparable to other expenditures for similar funds;
FURTHER RESOLVED, that the Class B Plan be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proposed form of Sub-Distribution Agreement be,
and the same hereby is, approved; and
4
<PAGE>
Approved: December 13, 1995
Resolution of Board Creating Flag Investors
Equity Partners Fund Institutional Shares
RESOLVED, that the total number of shares of common stock , par value $.001
per share, that Flag Investors Equity Partners Fund, Inc. (The "Fund") is
authorized to issue is hereby increased from thirty million (30,000,000) to
thirty-five million (35,000,000) and that from such amount, five million
(5,000,000) authorized and unissued shares be, and hereby are, designated and
classified as the "Flag Investors Equity Partners Fund Institutional Shares";
FURTHER RESOLVED, that the proper officers of the Fund be, and each of them
hereby is, authorized and directed to file Articles Supplementary to the Fund's
Articles of Incorporation to effectuate the increase in authorized shares and to
designate and classify the new class;
RESOLVED, that the Distribution Agreement between Flag Investors Equity
Partners Fund, Inc. (The "Fund") and Alex. Brown & Sons Incorporated for the
Flag Investors Institutional Shares of the Fund be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proper officers of the Fund be, and they hereby
are, authorized and directed to enter into and execute said Distribution
Agreement on behalf of the Fund, and to take all other actions that such officer
deems necessary or appropriate in connection with the execution of such
agreement, the taking of any action to establish conclusively such officer's
authority therefore and the approval and ratification thereof by the Fund.
5
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS EQUITY PARTNERS FUND, INC. (the "Corporation"), having its
principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of capital stock which the
Corporation has the authority to issue to thirty-five million (35,000,000)
shares of Common Stock, of the par value of 1 mil ($.001) per share and of the
aggregate par value of thirty-five thousand dollars ($35,000), all of which
shares are designated as follows: twenty million (20,000,000) shares are
designated "Flag Investors Equity Partners Fund Class A Shares," five million
(5,000,000) shares are designated "Flag Investors Equity Partners Fund Class B
Shares," five million (5,000,000) shares are designated "Flag Investors Equity
Partners Fund Institutional Shares" and five million (5,000,000) shares remain
undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue thirty million (30,000,000) shares of Common Stock, of the
par value of 1 mil ($.001) per share and of the aggregate par value of thirty
thousand dollars ($30,000), all of which shares were designated as follows:
twenty million (20,000,000) shares were designated "Flag Investors Equity
Partners Fund Class A Shares," five million (5,000,000) shares were designated
"Flag Investors Equity Partners Fund Class B Shares" and five million
(5,000,000) shares remained undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
6
<PAGE>
IN WITNESS WHEREOF, Flag Investors Equity Partners Fund, Inc. has caused
these Articles Supplementary to be executed by one of its Vice Presidents and
its corporate seal to be affixed and attested by its Secretary on this 14th day
of December, 1995.
[CORPORATE SEAL]
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
By: /s/ Edward J. Veilleux
--------------------------
Vice President
Attest: /s/ Brian C. Nelson
----------------------
Secretary
The undersigned, Vice President of FLAG INVESTORS EQUITY PARTNERS FUND,
INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/ Edward J. Veilleux
--------------------------
Vice President
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BY-LAWS
OF
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the Corporation shall
be in the city of Baltimore, State of Maryland.
Section 2. Principal Executive Office. The principal executive office of
the Corporation shall be in the City of Baltimore, State of Maryland.
Section 3. Other Offices. The Corporation may have such other offices in
such places as the Board of Directors may from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of the shareholders of the
Corporation shall not be required to be held in any year in which shareholders
are not required to elect directors under the Investment Company Act of 1940, as
amended (the "1940 Act") even if the Corporation is holding a meeting of the
shareholders for a purpose other than the election of directors. If the
Corporation is required by the 1940 Act to hold a meeting to elect directors,
the meeting shall be designated as the Annual Meeting of shareholders for that
year and shall be held within 120 days after the occurrence of an event
requiring the election of directors. The Board of Directors may, in its
discretion, hold a meeting to be designated as the Annual Meeting of
shareholders on a date within the month of March, in any year where an election
of directors by shareholders is not required under the 1940 Act. The date of an
Annual Meeting shall be set by appropriate resolution of the Board of Directors,
and shareholders shall vote on the election of directors and transact any other
business as may properly be brought before the Annual Meeting.
Section 2. Special Meetings. Special meetings of the shareholders, unless
otherwise provided by law or by the Charter or the Corporation may be called for
any purpose or purposes by a majority of the Board of Directors or the
President, and shall be called by the
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President or Secretary on the written request of the shareholders as provided by
the Maryland General Corporation Law. Such request shall state the purpose or
purposes of the proposed meeting and the matters proposed to be acted on at it;
provided, however, that unless requested by shareholders entitled to cast a
majority of all the votes entitled to be cast at the meeting, a special meeting
need not be called to consider any matter which is substantially the same as a
matter voted on at any special meeting of the shareholders held during the
preceding twelve (12) months.
Section 3. Place of Meetings. The regular meeting, if any, and any special
meeting of the shareholders shall be held at such place within the United States
as the Board of Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice; Shareholder List. (a)
Notice of the place, date and time of the holding of each regular and special
meeting of the shareholders and the purpose or purposes of the meeting shall be
given personally or by mail, not less than ten nor more than ninety days before
the date of such meeting, to each shareholder entitled to vote at such meeting
and to each other shareholder entitled to notice of the meeting. Notice by mail
shall be deemed to be duly given when deposited in the United States mail
addressed to the shareholder at his address as it appears on the records of the
Corporation, with postage thereon prepaid. The notice of every meeting of
shareholders may be accompanied by a form of proxy approved by the Board of
Directors in favor of such actions or persons as the Board of Directors may
select.
(b) Notice of any meeting of shareholders shall be deemed waived by
any shareholder who shall attend such meeting in person or by proxy, or who
shall, either before or after the meeting, submit a signed waiver of notice
which is filed with the records of the meeting. A meeting of shareholders
convened on the date for which it was called may be adjourned from time to time
without further notice to a date not more than 120 days after the original
record date.
(c) At least five (5) days prior to each meeting of shareholders,
the officer or agent having charge of the share transfer books of the
Corporation shall make a complete list of shareholders entitled to vote at such
meeting, in alphabetical order with the address of and the number of shares held
by each shareholder.
Section 5. Organization. At each meeting of the shareholders, the Chairman
of the Board (if one has been designated by the Board), or in his absence or
inability to act, the President, or in the absence or inability to act of the
Chairman of the Board and the President, a Vice President, or in the absence or
the inability to act of the Chairman of the Board, the President and all the
Vice Presidents, a chairman chosen by the shareholders shall act as chairman of
the meeting. The Secretary, or in his absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes thereof.
Section 6. Voting. (a) Except as otherwise provided by statute or the
Charter of the Corporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
shareholders to one vote for every share of such stock
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standing in his name on the record of shareholders of the Corporation as of the
record date determined pursuant to Section 5 of Article VI hereof or if such
record date shall not have been so fixed, then at the later of (i) the close of
business on the day on which notice of the meeting is mailed or (ii) the
thirtieth (30) day before the meeting. In all elections for directors, each
share of stock may be voted for as many individuals as there are directors to be
elected and for whose election the share is entitled to be voted.
(b) Each shareholder entitled to vote at any meeting of shareholders
may authorize another person or persons to act for him by a proxy signed by such
shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by law. Except as
otherwise provided by statute, the Charter of the Corporation or these By-Laws,
any corporate action to be taken by vote of the shareholders shall be authorized
by a majority of the total votes cast at a meeting of shareholders at which a
quorum is present by the holders of shares present in person or represented by
proxy and entitled to vote on such action, except that a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
(c) If a vote shall be taken on any question other than the election
of directors, which shall be by written ballot, then unless required by statute
or these By-Laws, or determined by the chairman of the meeting to be advisable,
any such vote need not be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder voting, or by his proxy, if there be such proxy, and
shall state the number of shares voted.
Section 7. Inspectors. The Board may, in advance of any meeting of
shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any shareholder entitled to vote at the meeting shall, appoint
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence of
a quorum, the validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions arising in
connection with the right to vote, count and tabulate all votes, ballots or
consents, determine the result, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders. On request of the chairman
of the meeting or any shareholder entitled to vote at it, the inspectors shall
make a report in writing of any challenge, request or matter determined by them
and shall execute a certificate of any fact found by them. No director or
candidate for the office of director shall act as inspector of an election of
directors. Inspectors need not be shareholders.
Section 8. Consent of Shareholders in Lieu of Meeting. Except as otherwise
provided by statute any action required to be taken at any regular or special
meeting of
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shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice and
without a vote, if the following are filed with the records of shareholders'
meetings: (i) a unanimous written consent which sets forth the action and is
signed by each shareholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each shareholder entitled to notice of
the meeting but not entitled to vote at it.
ARTICLE III
Board of Directors
Section 1. General Powers. Except as otherwise provided in the Charter of
the Corporation, the business and affairs of the Corporation shall be managed
under the direction of the Board of Directors. All powers of the Corporation may
be exercised by or under authority of the Board of Directors except as conferred
on or reserved to the shareholders by law or by the Charter of the Corporation
or these By-Laws.
Section 2. Number of Directors. The number of directors shall be fixed from
time to time by resolution of the Board of Directors adopted by a majority of
the Directors then in office; provided, however, that the number of directors
shall in no event be less than three (except for any period during which shares
of the Corporation are held by fewer than three shareholders) nor more than
fifteen. Any vacancy created by an increase in directors may be filled in
accordance with Section 6 of this Article III. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless such director is specifically removed pursuant
to Section 5 of this Article III at the time of such decrease. Directors need
not be shareholders.
Section 3. Election and Term of Directors. Directors shall be elected by
majority vote of a quorum cast by written ballot at the regular meeting of
shareholders, if any, or at a special meeting held for that purpose. The term of
office of each Director shall be from the time of his election and qualification
and until his successor shall have been elected and shall have qualified, or
until his death, or until he shall have resigned, or have been removed as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Charter of the Corporation.
Section 4. Resignation. A Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board or the Chairman of
the Board or the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
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Section 5. Removal of Directors. Any Director of the Corporation may be
removed by the shareholders by a vote of a majority of the votes entitled to be
cast for the election of Directors.
Section 6. Vacancies. The shareholders may elect a successor to fill a
vacancy on the Board of Directors which results from the removal of a Director.
A majority of the remaining Directors, whether or not sufficient to constitute a
quorum, may fill a vacancy on the Board of Directors which results from any
cause except an increase in the number of Directors, and a majority of the
entire Board of Directors may fill a vacancy which results from an increase in
the number of Directors; provided, however, that no vacancies shall be filled by
action of the remaining Directors, if after the filling of said vacancy or
vacancies, fewer than two-thirds of the Directors then holding office shall have
been elected by the shareholders of the Corporation. In the event that at any
time there is a vacancy in any office of a Director which vacancy may not be
filled by the remaining Directors, a special meeting of the shareholders shall
be held as promptly as possible and in any event within sixty days, for the
purpose of filling said vacancy or vacancies. A Director elected by the Board of
Directors of the Corporation to fill a vacancy serves until the next annual
meeting of shareholders and until his successor is elected and qualifies. A
Director elected by the shareholders of the Corporation to fill a vacancy which
results from the removal of a Director serves for the balance of the term of the
removed Director.
Section 7. Regular Meetings. Regular meetings of the Board may be held with
notice at such times and places as may be determined by the Board of Directors.
Section 8. Special Meetings. Special meetings of the Board may be called by
the Chairman of the Board, the President, or by a majority of the Directors
either in writing or by vote at a meeting, and may be held at any place in or
out of the State of Maryland as the Board may from time to time determine.
Section 9. Notice of Special Meetings. Notice of each special meeting of
the Board shall be given by the Secretary as hereinafter provided, in which
notice shall be stated the time and place of the meeting. Notice of each such
meeting shall be delivered to each Director, either personally or by telephone,
telegraph, cable or wireless, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail, postage prepaid, or by
commercial delivery services addressed to him at his residence or usual place of
business, at least three days before the day on which such meeting is to be
held.
Section 10. Waiver of Notice of Special Meetings. Notice of any special
meeting need not be given to any Director who shall, either before or after the
meeting, sign a written waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any meeting need not
state the purposes of such meeting.
Section 11. Quorum and Voting. One-third, but not fewer than three members,
of the members of the entire Board shall be present in person at any meeting of
the Board in order to constitute a quorum for the transaction of business at
such meeting, and except as otherwise
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expressly required by statute, the Charter of the Corporation, these By-Laws,
the 1940 Act or other applicable statute, the act of a majority of the Directors
present at any meeting at which a quorum is present shall be the act of the
Board; provided, however, that the approval of any contract with an investment
adviser or principal underwriter, as such terms are defined in the 1940 Act,
which the Corporation enters into or any renewal or amendment thereof, the
approval of the fidelity bond required by the 1940 Act, and the selection of the
Corporation's independent public accountants shall each require the affirmative
vote of a majority of the Directors who are not interested persons, as defined
in the 1940 Act, of the Corporation. In the absence of a quorum at any meeting
of the Board, a majority of the Directors present thereat may adjourn the
meeting from time to time, but not for a period greater than thirty (30) days at
any one time, to another time and place until a quorum shall attend. Notice of
the time and place of any adjourned meeting shall be given to the Directors who
were not present at the time of the adjournment and, unless such time and place
were announced at the meeting at which the adjournment was taken, to the other
Directors. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
called.
Section 12. Chairman. The Board of Directors may at any time appoint one of
its members as Chairman of the Board, who shall serve at the pleasure of the
Board and who shall perform and execute such duties and powers as may be
conferred upon or assigned to him by the Board or these By-Laws, but who shall
not by reason of performing and executing these duties and powers be deemed an
officer or employee of the Corporation.
Section 13. Organization. At every meeting of the Board of Directors, the
Chairman of the Board, if one has been selected and is present, shall preside.
In the absence or inability of the Chairman of the Board to preside at a
meeting, the President, or, in his absence or inability to act, another Director
chosen by a majority of the Directors present, shall act as chairman of the
meeting and preside at it. The Secretary (or, in his absence or inability to
act, any person appointed by the Chairman) shall act as secretary of the meeting
and keep the minutes thereof.
Section 14. Written Consent of Directors in Lieu of a Meeting. Any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board or
committee; provided, however, that for so long as the Corporation is registered
as an investment company under the 1940 Act, this Section shall be inapplicable
to the approval of any investment advisory agreement, sub-advisory agreement or
any plan (or agreement containing a plan) pursuant to Rule 12b-1 under the 1940
Act.
Section 15. Meeting by Conference Telephone. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time; provided, however, that for so long as the
Corporation is registered as an investment company under the 1940 Act, this
Section shall be inapplicable to the approval of any investment
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advisory agreement, sub-advisory agreement or any plan (or agreement containing
a plan) pursuant to Rule 12b-1 under the 1940 Act.
Section 16. Compensation. Any Director, whether or not he is a salaried
officer, employee or agent of the Corporation, may be compensated for his
services as Director or as a member of a committee, or as Chairman of the Board
or chairman of a committee, and in addition may be reimbursed for transportation
and other expenses, all in such manner and amounts as the Directors may from
time to time determine.
Section 17. Investment Policies. It shall be the duty of the Board of
Directors to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Corporation are at all
times consistent with the investment policies and restrictions with respect to
securities investments and otherwise of the Corporation, as recited in the
current Prospectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the 1940 Act. The Board,
however, may delegate the duty of management of the assets and the
administration of its day-to-day operations to an individual or corporate
management company or investment adviser pursuant to a written contract or
contracts which have obtained the requisite approvals, including the requisite
approvals of renewals thereof, of the Board of Directors or the shareholders of
the Corporation in accordance with the provisions of the 1940 Act.
ARTICLE IV
Committees
Section 1. Committees of the Board. The Board may, by resolution adopted by
a majority of the entire Board, designate an Executive Committee, Compensation
Committee, Audit Committee and Nomination Committee, each of which shall consist
of two or more of the Directors of the Corporation, which committee shall have
and may exercise all the powers and authority of the Board with respect to all
matters other than as set forth in Section 3 of this Article IV.
Section 2. Other Committees of the Board. The Board of Directors may from
time to time, by resolution adopted by a majority of the whole Board, designate
one or more other committees of the Board, each such committee to consist of two
or more Directors and to have such powers and duties as the Board of Directors
may, by resolution, prescribe.
Section 3. Limitation of Committee Powers. No committee of the Board shall
have power or authority to:
(a) recommend to shareholders any action requiring authorization of
shareholders pursuant to statute or the Charter;
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(b) approve or terminate any contract with an investment adviser or
principal underwriter, as such terms are defined in the 1940 Act, or take any
other action required to be taken by the Board of Directors by the 1940 Act;
(c) amend or repeal these By-Laws or adopt new By-Laws;
(d) declare dividends or other distributions or issue capital stock
of the Corporation; and
(e) approve any merger or share exchange which does not require
shareholder approval.
Section 4. General. One-third, but not less than two members, of the
members of any committee shall be present in person at any meeting of such
committee in order to constitute a quorum for the transaction of business at
such meeting, and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any committee and such chairman
or any two members of any committee may fix the time and place of its meetings
unless the Board shall otherwise provide. In the absence or disqualification of
any member or any committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. The Board
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member, or to dissolve any such committee.
All committees shall keep written minutes of their proceedings and shall
report such minutes to the Board. All such proceedings shall be subject to
revision or alteration by the Board; provided, however, that third parties shall
not be prejudiced by such revision or alteration.
ARTICLE V
Officers, Agents and Employees
Section 1. Number and Qualifications. The officers of the Corporation shall
be a President, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint one or more
Vice Presidents and may also appoint such other officers, agents and employees
as it may deem necessary or proper. Any two or more offices may be held by the
same person, except the offices of President and Vice President, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity.
The Board may from time to time elect or appoint, or delegate to the President
the power to appoint, such other officers (including one or more Assistant Vice
Presidents, one or more Assistant Treasurers and one or more Assistant
Secretaries) and such agents, as may be necessary or desirable for the
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business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board, the Chairman of
the Board, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate such power of removal as
to agents and employees not elected or appointed by the Board of Directors. Such
removal shall be without prejudice to such person's contract rights, if any, but
the appointment of any person as an officer, agent or employee of the
Corporation shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any committee or to any officer in respect of other officers under
his control. No officer shall be precluded from receiving such compensation by
reason of the fact that he is also a Director of the Corporation.
Section 6. Bonds or Other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in such amount and with such surety or
sureties as the Board may require.
Section 7. President. The President shall be the chief executive officer of
the Corporation. In the absence of the Chairman of the Board (or if there be
none), he shall preside at all meetings of the shareholders and of the Board of
Directors. He shall have, subject to the control of the Board of Directors,
general charge of the business and affairs of the Corporation. He may employ and
discharge employees and agents of the Corporation, except such as shall be
appointed by the Board, and he may delegate these powers.
Section 8. The Vice Presidents. In the absence or disability of the
President, or when so directed by the President, any Vice President designated
by the Board of Directors may perform any or all of the duties of the President,
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President; provided, however, that no Vice President
shall act as a member of or as chairman of any committee of which the President
is a member or chairman by designation of ex-officio, except when designated by
the Board. Each
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Vice President shall perform such other duties as from time to time may be
conferred upon or assigned to him by the Board or the President.
Section 9. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation, except those which the Corporation has
placed in the custody of a bank or trust company or member of a national
securities exchange (as that term is defined in the Securities Exchange Act of
1934) pursuant to a written agreement designating such bank or trust company or
member of a national securities exchange as custodian of the property of the
Corporation;
(b) keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board, taking proper
vouchers therefor; and
(f) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
Section 11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of the Board
and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
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(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the Corporation (unless
the seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board or the President.
Section 12. Assistant Secretaries. In the absence or disability of the
Secretary, or when so directed by the Secretary, any Assistant Secretary may
perform any or all of the duties of the Secretary, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Secretary.
Each Assistant Secretary shall perform such other duties as from time to time
may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
Section 13. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board may deem sufficient, the
Board may confer for the time being the powers or duties, or any of them, of
such officer upon any other officer or upon any Director.
ARTICLE VI
Capital Stock
Section 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon request to have a certificate or certificates, in such
form as shall be approved by the Board, representing the number of shares of
stock of the Corporation owned by him, provided, however, that certificates for
fractional shares will not be delivered in any case. The certificates
representing shares of stock shall be signed by the President, a Vice President,
or the Chairman of the Board, and countersigned by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer and sealed with the seal of
the Corporation. Any or all of the signatures or the seal on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
shall be issued, it may be issued by the Corporation with the same effect as if
such officer, transfer agent or registrar were still in office at the date of
issue.
Section 2. Rights of Inspection. There shall be kept at the principal
executive office, which shall be available for inspection during usual business
hours in accordance with the
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General Laws of the State of Maryland, the following corporate documents: (a)
By-Laws, (b) minutes of proceedings of the shareholders, (c) annual statements
of affairs, and (d) voting trust agreements, if any. One or more persons who
together are and for at least six months have been shareholders of record of at
least five percent of the outstanding stock of any class may inspect and copy
during usual business hours the Corporation's books of account and stock ledger
in accordance with the General Laws of the State of Maryland.
Section 3. Transfer of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation at the
direction of the person named on the Corporation's books or named in the
certificate or certificates for such shares (if issued) only by the registered
holder thereof, or by his attorney authorized by power of attorney duly executed
and filed with the Secretary or with a transfer agent or transfer clerk, and on
surrender of the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock transfer power and the
payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of shareholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation shall not be bound to recognize any equitable or legal claim
to or interest in any such share or shares on the part of any other person.
Section 4. Transfer Agents and Registrars. The Corporation may have one or
more Transfer Agents and one or more Registrars of its stock, whose respective
duties the Board of Directors may, from time to time, define. No certificate of
stock shall be valid until countersigned by a Transfer Agent, if the Corporation
shall have a Transfer Agent or until registered by a Registrar, if the
Corporation shall have a Registrar. The duties of Transfer Agent and Registrar
may be combined.
Section 5. Record Date and Closing of Transfer Books. The Board of
Directors may set a record date for the purpose of making any proper
determination with respect to shareholders, including which shareholders are
entitled to notice of a meeting, vote at a meeting (or any adjournment thereof
), receive a dividend, or be allotted or exercise other rights. The record date
may not be more than ninety (90) days before the date on which the action
requiring the determination will be taken; and, in the case of a meeting of
shareholders, the record date shall be at least ten (10) days before the date of
the meeting. The Board of Directors shall not close the books of the Corporation
against transfers of shares during the whole or any part of such period.
Section 6. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
Section 7. Lost, Stolen, Destroyed or Mutilated Certificates. The holder of
any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or mutilation
of such certificate, and the Corporation
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may issue a new certificate of stock in the place of any certificate theretofore
issued by it which the owner thereof shall allege to have been lost, stolen or
destroyed or which shall have been mutilated, and the Board may, in its
discretion, require such owner or his legal representatives to give to the
Corporation a bond in such sum, limited or unlimited, and in such form and with
such surety or sureties, as the Board in its absolute discretion shall
determine, to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of any such
certificate, or issuance of a new certificate. Anything herein to the contrary
notwithstanding, the Board, in its absolute discretion, may refuse to issue any
such new certificate, except pursuant to legal proceedings under the laws of the
State of Maryland.
Section 8. Stock Ledgers. The Corporation shall not be required to keep
original or duplicate stock ledgers at its principal office in the City of
Baltimore, Maryland, but stock ledgers shall be kept at the office(s) of the
Transfer Agent(s) of the Corporation's capital stock.
ARTICLE VII
Seal
The Board of Directors shall provide a suitable seal, bearing the name of
the Corporation, which shall be in the charge of the Secretary. The Board of
Directors may authorize one or more duplicate seals and provide for the custody
thereof. If the corporation is required to place its corporate seal on a
document, it is sufficient to meet any requirement of any law, rule, or
regulation relating to a corporate seal to place the word "Seal" adjacent to the
signature of the person authorized to sign the document on behalf of the
Corporation.
ARTICLE VIII
Fiscal Year
Unless otherwise determined by the Board, the fiscal year of the
Corporation shall end on the last day of May in each year.
ARTICLE IX
Depositories and Custodians
Section 1. Depositories. The funds of the Corporation shall be deposited
with such banks or other depositories as the Board of Directors of the
Corporation may from time to time determine.
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Section 2. Custodians. All securities and other investments
shall be deposited in the safekeeping of such banks or other companies as the
Board of Directors of the Corporation may from time to time determine. Every
arrangement entered into with any bank or other company for the safekeeping of
the securities and investments of the Corporation shall contain provisions
complying with the 1940 Act, and the general rules and regulations thereunder.
ARTICLE X
Execution of Instruments
Section 1. Checks, Notes, Drafts, etc. Checks, notes, drafts, acceptances,
bills of exchange and other orders or obligations for the payment of money shall
be signed by such officer or officers or person or persons as the Board of
Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Money market instruments, bonds
or other securities at any time owned by the Corporation may be held on behalf
of the Corporation or sold, transferred or otherwise disposed of subject to any
limits imposed by these By-Laws, and pursuant to authorization by the Board and,
when so authorized to be held on behalf of the Corporation or sold, transferred
or otherwise disposed of, may be transferred from the name of the Corporation by
the signature of the President or a Vice President or the Treasurer or pursuant
to any procedure approved by the Board of Directors, subject to applicable law.
ARTICLE XI
Independent Public Accountants
The firm of independent public accountants which shall sign or certify the
financial statements of the Corporation which are filed with the Securities and
Exchange Commission shall be selected annually by the Board of Directors and
ratified by the Board of Directors or the shareholders in accordance with the
provisions of the 1940 Act.
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ARTICLE XII
Annual Statements
The books of account of the Corporation shall be examined by an independent
firm of public accountants at the close of each annual period of the Corporation
and at such other times as may be directed by the Board. A report to the
shareholders based upon each such examination shall be mailed to each
shareholder of the Corporation of record on such date with respect to each
report as may be determined by the Board, at his address as the same appears on
the books of the Corporation. Such annual statement shall also be placed on file
at the Corporation's principal office in the State of Maryland. Each such report
shall show the assets and liabilities of the Corporation as of the close of the
annual or semi-annual period covered by the report and the securities in which
the funds of the Corporation were then invested. Such report shall also show the
Corporation's income and expenses for the period from the end of the
Corporation's preceding fiscal year to the close of the annual or semi-annual
period covered by the report and any other information required by the 1940 Act,
and shall set forth such other matters as the Board or such firm of independent
public accountants shall determine.
ARTICLE XIII
Indemnification of Directors and Officers
Section 1. Indemnification. The Corporation shall indemnify its Directors
to the fullest extent that indemnification of Directors is permitted by the
Maryland General Corporation Law. The Corporation shall indemnify its officers
to the same extent as its Directors and to such further extent as is consistent
with law. The Corporation shall indemnify its Directors and officers who while
serving as Directors or officers also serve at the request of the Corporation as
a Director, officer, partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan to the fullest extent consistent with law. This Article XIII shall
not protect any such person against any liability to the Corporation or any
shareholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 2. Advances. Any current or former Director or officer of the
Corporation claiming indemnification within the scope of this Article XIII shall
be entitled to advances from the Corporation for payment of the reasonable
expenses incurred by him in connection with proceedings to which he is a party
in the manner and to the full extent permissible under the Maryland General
Corporation Law, the Securities Act of 1933 (the "1933 Act") and the 1940 Act,
as such statutes are now or hereafter in force.
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Section 3. Procedure. On the request of any current or former Director or
officer requesting indemnification or an advance under this Article XIII, the
Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the 1933 Act and the 1940
Act, as such statutes are now or hereafter in force, whether the standards
required by this Article XIII have been met.
Section 4. Other Rights. The indemnification provided by this Article XIII
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of shareholders or disinterested
Directors or otherwise, both as to action by a Director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a Director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
Section 5. Maryland Law. References to the Maryland General Corporation Law
in this Article XIII are to such law as from time to time amended.
ARTICLE XIV
Amendments
These By-Laws or any of them may be amended, altered or repealed at any
annual meeting of the shareholders or at any special meeting of the shareholders
at which a quorum is present or represented, provided that notice of the
proposed amendment, alteration or repeal be contained in the notice of such
special meeting. These By-Laws may also be amended, altered or repealed by the
affirmative vote of a majority of the Board of Directors at any regular or
special meeting of the Board of Directors.
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FLAG INVESTORS EQUITY PARTNERS FUND, INC.
FLAG INVESTORS CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 31st day of January 1995, by and between
FLAG INVESTORS EQUITY PARTNERS FUND, INC., a Maryland corporation (the "Fund"),
and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to appoint Alex. Brown as the exclusive
distributor of the class of shares of the Fund known as the Flag Investors Class
A Shares (the "Shares") and Alex. Brown wishes to become the distributor of the
Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the payments
contemplated by paragraph 5 constitute the financing of activities intended to
result in the sale of Shares, and this Agreement is entered into pursuant to a
"written plan" pursuant to Rule 12b-1 under the Act (the "Plan") allowing the
Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of other
good and valuable consideration the receipt whereof is hereby acknowledged, the
parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor for the
Shares for the period and on the terms set forth in this Agreement. The Fund may
from time to time issue separate series or classes of its shares of common
stock, or classify and reclassify shares of such series as classes, and the
appointment effected hereby shall constitute appointment for the distribution of
such additional series and classes unless the parties shall otherwise agree in
writing. Alex. Brown accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished Alex. Brown with
copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the Secretary
of State of Maryland on November 29, 1994 and all amendments thereto (the
"Articles of Incorporation");
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(b) The Fund's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "ByLaws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of Alex. Brown as the Fund's Distributor of the
Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with the
Securities and Exchange Commission (the "SEC") on November 30, 1994;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act"), (File No. 33-86832) and
under the 1940 Act as filed with the SEC on November 30, 1994 relating to the
Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus and all
amendments and supplements thereto are herein called "Prospectus").
The Fund will furnish Alex. Brown from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the benefit
of its best judgment, efforts and facilities in rendering its services as
Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders concerning
the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed necessary to
carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with quarterly
reports as required by Rule 12b-1 under the 1940 Act.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may
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<PAGE>
issue its Shares at their net asset value to any shareholder of the Fund
purchasing such Shares with dividends or other cash distributions received from
the Fund pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the Fund under
the 1933 Act and the 1940 Act and any amendments and supplements thereto;
(c) the provisions of the Articles of Incorporation of the Fund
and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State law.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without cost to
the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional or
sales literature used by Alex. Brown or furnished by Alex. Brown to purchasers
or dealers in connection with the public offering of the Shares, the expenses of
advertising in connection with such public offering and all legal expenses in
connection with the foregoing;
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(c) the Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the Fund's
investment advisor and sub- advisor; the charges and expenses of any registrar,
custodian or depositary appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock 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 corporate fees payable by the Fund to Federal, State or other
governmental agencies; the cost and expense of engraving or printing of stock
certificates representing Shares; all costs and expenses in connection with
maintenance of registration of the Fund and the Shares with the SEC and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel) except as provided in subparagraph (a) above, the
expenses of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) or 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; charges and expenses of legal counsel, including counsel to the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act), and of independent accountants, in connection with any matter relating to
the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all other charges
and costs of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall be
under no duty to, perform services on behalf of the Fund which are not required
by this Agreement upon the request of the Fund's Board of Directors. Such
services will be performed on behalf of the Fund and Alex. Brown's charge in
rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation at the
annual rate of .25% of the average daily net assets of the Fund. Except as
hereinafter set forth, continuing compensation under this Agreement shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first day of a
month or shall terminate before the last day of a month compensation
27
<PAGE>
for that part of the month this Agreement is in effect shall be prorated in a
manner consistent with the calculations of the fees as set forth above. Payment
of Alex. Brown's compensation for the preceding month shall be made as promptly
as possible.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
12. Non-Exclusivity. The services of Alex. Brown to the Fund are not
to be deemed exclusive and Alex. Brown shall be free to render distribution or
other services to others (including other investment companies) and to engage in
other activities. It is understood and agreed that directors, officers or
employees of Alex. Brown may serve as directors or officers of the Fund, and
that directors or officers of the Fund may serve as directors, officers and
employees of Alex. Brown to the extent permitted by law; and that directors,
officers and employees of Alex. Brown are not prohibited from engaging in any
other business activity or from rendering services to any other person, or from
serving as partners, directors or officers of any other firm or corporation,
including other investment companies.
13. Term and Approval. This Agreement shall become effective at the
close of business on the date hereof and shall remain in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined in the 1940 Act), and
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<PAGE>
(b) by the affirmative vote of a majority of the Directors who are
not "interested persons" of the Fund (as defined in the 1940 Act) and do not
have a financial interest in the operation of this Agreement, by votes cast in
person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time, on
sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
15. Liability. In the performance of its duties hereunder, Alex.
Brown shall be obligated to exercise care and diligence and to act in good faith
and to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other parties, it is agreed that the address of both Alex.
Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or provision of the 1940 Act and to interpretations thereof, if
any, by the United States courts or in the absence of any controlling decision
of any such court, by rules, regulations or orders of the SEC issued pursuant to
the 1940 Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule, regulation or
order of the SEC, such provision shall be deemed to incorporate the effect of
such rule, regulation or order. Otherwise the provisions of this Agreement shall
be interpreted in accordance with the laws of Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers as of the day and year
first above written.
[SEAL] FLAG INVESTORS EQUITY PARTNERS
FUND, INC.
Attest: /s/ Laurie D. DePrine By /s/ Brian C. Nelson
--------------------- -------------------
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Laurie D. DePrine By /s/ Richard T. Hale
--------------------- -------------------
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FLAG INVESTORS EQUITY PARTNERS FUND, INC.
FLAG INVESTORS CLASS A SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as described
in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940, as amended
(the "1940 Act") of the Flag Investors Class A Shares (the "Shares") of Flag
Investors Equity Partners Fund, Inc. (the "Fund"). Other capitalized terms
herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated
("Alex. Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub- Distribution Agreement, to accept payments
made to it under the Distribution Agreement and to make payments on behalf of
the Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided that
the total amount of all payments made during a fiscal year of the Fund do not
exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under the
Distribution Agreement which is an annual fee, calculated on an average daily
net basis and paid monthly, equal to .25% of the average daily net assets of the
Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to the
Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown and
the Fund's Advisor are authorized to pay or cause to be paid on its behalf and
such payments shall not be included in the limitations contained in this Plan.
These expenses include: the fees of the Fund's Advisor and Alex. Brown; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the
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Fund and its shares with the Securities and Exchange Commission and various
states and other jurisdictions (including filing fees and 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 supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing of proxy statements and reports to shareholders; fees and travel
expenses of Directors or Director members of any advisory board or committee;
all expenses incident to the payment of any dividend, distribution, withdrawal
or redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its regular
reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall report in
writing at least quarterly to the Fund's Board of Directors, and the Board shall
review, the following: (i) the amounts of all payments under the Plan, the
identity of the recipients of each such payment; (ii) the basis on which the
amount of the payment to such recipient was made; (iii) the amounts of expenses
authorized under this Plan and the purpose of each such expense; and (iv) all
costs of each item specified in Section 4 of this Plan (making estimates of such
costs where necessary or desirable), in each case during the preceding calendar
or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. This Plan
has been approved (i) by a vote of the Board of Directors of the Fund and of a
majority of the Directors who are not interested persons (as defined in the 1940
Act), cast in person at a meeting called for the purpose of voting on this Plan;
and (ii) by a vote of holders of at least a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act). This Plan shall, unless
terminated as hereinafter provided, continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the vote
of the Fund's Board of Directors and by the vote of a majority of the Directors
of the Fund who are not interested persons (as defined in the 1940 Act), cast in
person at a meeting called for the purpose of voting on such continuance. This
Plan may be terminated at any time by a vote of a majority of the Directors who
are not interested persons (as defined in the 1940 Act) or by the vote of the
holders of a majority of the Fund's outstanding voting securities (as defined in
the 1940 Act). This Plan may not be amended to increase materially the amount of
payments to be made without shareholder approval, as set forth in (ii) above,
and all amendments must be approved in the manner set forth under (i) above.
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FLAG INVESTORS EQUITY PARTNERS FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 31st day of January, 1995, by and
between FLAG INVESTORS EQUITY PARTNERS FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the class of shares of the Fund known as the Flag
Investors Class B Shares (the "Shares") and Alex.
Brown wishes to become the distributor of the Shares; and
WHEREAS, the compensation to Alex. Brown hereunder and the
payments contemplated by paragraph 9 constitute the financing of activities
intended to result in the sale of Shares, and this Agreement is entered into
pursuant to a "written plan" pursuant to Rule 12b-1 under the Act (the "Plan")
allowing the Fund to make such payments.
NOW, THEREFORE, in consideration of the premises herein and of
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement. The
Fund may from time to time issue separate series or classes of its shares of
common stock, or classify and reclassify shares of such series as classes, and
the appointment effected hereby shall constitute appointment for the
distribution of such additional series and classes unless the parties shall
otherwise agree in writing. Alex. Brown accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
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2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated, of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on November 29, 1994 and all amendments thereto
(the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By- Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") November 30, 1994;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-86832) and
under the 1940 Act as filed with the SEC on November 30, 1994 relating to the
Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund;
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares;
(c) provide the Board of Directors of the Fund with
quarterly reports as required by Rule 12b-1 under the 1940 Act.
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<PAGE>
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown and securities
dealers who have valid Sub-Distribution Agreements with Alex. Brown.
Notwithstanding the provisions of the foregoing sentence, the Fund may issue its
Shares at their net asset value to any shareholder of the Fund purchasing such
Shares with dividends or other cash distributions received from the Fund
pursuant to an offer made to all shareholders.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement, provided that the Fund must obtain prior approval of the
shareholders of the Fund to any amendment which would result in a material
increase in the amount expended by the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without
cost to the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any promotional
or sales literature used by Alex. Brown or furnished by Alex. Brown to
purchasers or dealers in connection
35
<PAGE>
with the public offering of the Shares, the expenses of advertising in
connection with such public offering and all legal expenses in connection with
the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar, custodian
or depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock 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
corporate fees payable by the Fund to Federal, State or other governmental
agencies; the cost and expense of engraving or printing of stock certificates
representing Shares; all costs and expenses in connection with maintenance of
registration of the Fund and the Shares with the SEC and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above, the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or 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; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. For the services to be rendered and the
expenses assumed by Alex. Brown, the Fund shall pay to Alex. Brown, compensation
at the annual rate of .75% of the average daily net assets of the shares of the
Fund. Except as hereinafter set forth, continuing compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month
compensation for that part of the
36
<PAGE>
month this Agreement is in effect shall be prorated in a manner consistent with
the calculations of the fees as set forth above. Payment of Alex. Brown's
compensation for the preceding month shall be made as promptly as possible.
10. Service Fee. The Fund shall pay Alex. Brown a service fee
(as such term is defined in the NASD Rules of Fair Practice) equal to .25% of
the average daily net assets of the Shares of the Fund. Such fee shall be
calculated and accrued daily and the amounts of the daily accruals shall be paid
monthly in the manner described in paragraph 9 above.
11. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may compensate its investment representatives for
opening accounts, processing investor letters of transmittals and applications
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
12. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may pay each such
Participating Dealer an amount not to exceed that portion of the compensation
paid to Alex. Brown hereunder that is attributable to accounts of Fund
shareholders who are customers of such Participating Dealer.
13. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that directors,
officers or employees of Alex. Brown may serve as directors or officers of the
Fund, and that directors or officers of the Fund may serve as directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, directors or officers of any other firm or
corporation, including other investment companies.
14. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
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<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as defined in the 1940
Act), and
(b) by the affirmative vote of a majority of the Directors
who are not "interested persons" of the Fund (as defined in the 1940 Act) and do
not have a financial interest in the operation of this Agreement, by votes cast
in person at a meeting specifically called for such purpose.
15. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
16. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
17. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
18. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS EQUITY PARTNERS FUND,
INC.
Attest: /s/ Laurie D. DePrine By /s/ Brian C. Nelson
--------------------- -------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Laurie D. DePrine By /s/ Richard T. Hale
--------------------- -------------------
Title:
39
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors Equity Partners Fund, Inc. (the "Fund"). Other capitalized
terms herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) Alex. Brown & Sons Incorporated
("Alex. Brown") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) Alex. Brown may make payments in any amount, provided
that the total amount of all payments made during a fiscal year of the Fund do
not exceed, in any fiscal year of the Fund, the amount paid to Alex. Brown under
the Distribution Agreement with respect to distribution of the Shares which is
an annual fee, calculated on an average daily net basis and paid monthly, equal
to .75% of the average daily net assets of the Shares of the Fund.
3. Expenses Authorized. Alex. Brown is authorized, pursuant to
the Plan, from sums paid to it under the Distribution Agreement, to purchase
advertising for the Shares, to pay for promotional or sales literature and to
make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which Alex. Brown as
distributor for the Shares is authorized to pay or cause to be paid on its
behalf and such payments shall not be included in the limitations contained in
this Plan. These expenses include: the fees of the Fund's investment advisor and
Alex. Brown; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities
40
<PAGE>
issuance and transfer taxes, and fees payable by the Fund to federal, state or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with maintenance of registration of the Fund and its shares with the
Securities and Exchange Commission and various states and other jurisdictions
(including filing fees and 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 supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of independent certified public accountants, in connection
with any matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property or
personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims and
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise explicitly
provided herein.
5. Other Distribution Resources. Alex. Brown and Participating
Dealers may expend their own resources separate and apart from amounts payable
under the Plan to support the Fund's distribution effort. Alex. Brown will
report to the Board of Directors on any such expenditures as part of its regular
reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, Alex. Brown shall
report in writing at least quarterly to the Fund's Board of Directors, and the
Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment.
This Plan has been approved (i) by a vote of the Board of Directors of the Fund
and of a majority of the Directors who are not interested persons (as defined in
the 1940 Act), cast in person at a meeting called for the purpose of voting on
this Plan; and (ii) by a vote of holders of at least a majority of the Fund's
outstanding voting securities (as defined in the 1940 Act). This Plan shall,
unless terminated as hereinafter provided, continue in effect from year to year
only so long as such continuance is specifically approved at least annually by
the vote of the Fund's Board of Directors and by the vote of a majority of the
Directors of the Fund who are not interested persons (as defined in the 1940
Act), cast in person at a meeting
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<PAGE>
called for the purpose of voting on such continuance. This Plan may be
terminated at any time by a vote of a majority of the Directors who are not
interested persons (as defined in the 1940 Act) or by the vote of the holders of
a majority of the Fund's outstanding voting securities (as defined in the 1940
Act). This Plan may not be amended to increase materially the amount of payments
to be made without shareholder approval, as set forth in (ii) above, and all
amendments must be approved in the manner set forth under (i) above.
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<PAGE>
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a Maryland
corporation, serves as distributor (the "Distributor") of the Flag Investors
Funds (collectively, the "Funds", individually a "Fund"). The Funds are open-end
investment companies registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a
Participating Dealer and as such are authorized (i) to accept orders for the
purchase of Shares and to transmit to the Funds such orders and the payment made
therefore, (ii) to accept orders for the redemption of Shares and to transmit to
the Funds such orders and all additional material, including any certificates
for Shares, as may be required to complete the redemption and (iii) to assist
shareholders with the foregoing and other matters relating to their investments
in each Fund, in each case subject to the terms and conditions set forth in the
Prospectus of each Fund. You are to review each Share purchase or redemption
order submitted through you or with your assistance for completeness and
accuracy. You further agree to undertake from time to time certain shareholder
servicing activities for customers of yours who have purchased Shares and who
use your facilities to communicate with the Funds or to effect redemptions or
additional purchases of Shares.
2. Limitation of Authority. No person is authorized to make
any representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
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<PAGE>
3. Compensation. As compensation for such services, you will
look solely to the Distributor, and you acknowledge that the Funds shall have no
direct responsibility for any compensation. In addition to any sales charge
payable to you by your customer pursuant to a Prospectus, the Distributor will
pay you no less often than annually a shareholder processing and service fee (as
we may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $250,000 for each Fund for which you are
to be compensated, and provided that in all cases your name is transmitted with
each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a member
in good standing of the National Association of Securities Dealers, Inc. (the
"NASD"). Your expulsion or suspension from the NASD will automatically terminate
this Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered under,
or are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times will comply with the Rules of Fair Practice of the
NASD, including, without limitation, the provisions of Section 26 of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commissions for any purposes whatsoever unless authorized by the then current
Prospectus in respect of Shares of a particular class or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the Prospectus
and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of
Shares under the Securities Act. The Funds intend to register or qualify in
certain states where registration or qualification is required. We will inform
you as to the states or other jurisdictions in which we believe the Shares have
been qualified for sale under, or are exempt from the requirements of, the
respective securities laws of such states. You agree that you will offer Shares
to your customers only in those states where such Shares have been registered,
qualified, or an exemption is available. We assume no responsibility or
obligation as to your right to sell Shares in any jurisdiction. We will file
with the
44
<PAGE>
Department of State in New York a State Notice and a Further State Notice with
respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records required
by law to be kept by you relating to transactions in Shares and, upon request by
any Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to
you except for lack of good faith and for obligations expressly assumed by it
hereunder. In carrying out your obligations, you agree to act in good faith and
without negligence. Nothing contained in this Agreement is intended to operate
as a waiver by the Distributor or you of compliance with any provision of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either
party, without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be sent to
the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
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<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to us one copy of this agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
46
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
FLAG INVESTORS INSTITUTIONAL SHARES
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the 13th day of December, 1995, by and
between FLAG INVESTORS EQUITY PARTNERS FUND, INC., a Maryland corporation (the
"Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation ("Alex.
Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on November 29, 1994 (the
"Articles"), authorize the Board of Directors of the Fund to increase or
decrease the number of shares of capital stock of the Fund and the number of
shares of any class of capital stock of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the
designation of two classes of shares of the Fund known respectively as the Flag
Investors Equity Partners Fund Class A Shares and the Flag Investors Equity
Partners Fund Class B Shares; and
WHEREAS, the Fund's Board of Directors has further authorized
the creation of an institutional class of shares of the Fund known as the Flag
Investors Equity Partners Fund Institutional Shares (the "Shares") ; and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the Shares and Alex. Brown wishes to become the
distributor of the Shares.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and of other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund appoints Alex. Brown as Distributor
for the Shares for the period and on the terms set forth in this Agreement.
Alex. Brown accepts such appointment and agrees to render the services set forth
herein.
2. Delivery of Documents. The Fund has furnished Alex. Brown
with copies properly certified or authenticated of each of the following:
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<PAGE>
(a) The Fund's Articles and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By- Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as filed with
the Securities and Exchange Commission (the "SEC") on November 30, 1994;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-86832) and
under the 1940 Act as filed with the SEC on November 30, 1994 relating to the
Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares (such
prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; and
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares.
4. Distribution of Shares. Alex. Brown shall be the exclusive
distributor of the Shares. It is mutually understood and agreed that Alex. Brown
does not undertake to sell all or any specific portion of the Shares. The Fund
shall not sell any of the Shares except through Alex. Brown. Notwithstanding the
provisions of the foregoing sentence,
(a) the Fund may issue its Shares at their net asset value
to any shareholder of the Fund purchasing such Shares with dividends or other
cash distributions received from the Fund pursuant to an offer made to all
shareholders;
48
<PAGE>
(b) Alex. Brown may enter into shareholder processing and
servicing agreements;
(c) Alex. Brown may, and when requested by the Fund shall,
suspend its efforts to effectuate sales of the Shares at any time when in the
opinion of Alex. Brown or of the Fund no sales should be made because of market
or other economic considerations or abnormal circumstances of any kind; and
(d) the Fund may withdraw the offering of the Shares (i) at
any time with the consent of Alex. Brown, or (ii) without such consent when so
required by the provisions of any statute or of any order, rule or regulation of
any governmental body having jurisdiction.
5. Control by Board of Directors. Any distribution activities
undertaken by Alex. Brown pursuant to this Agreement, as well as any other
activities undertaken by Alex. Brown on behalf of the Fund pursuant hereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund. The Board of Directors may agree, on behalf of the Fund, to amendments to
this Agreement.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, Alex. Brown shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of the
Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
(e) the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations
applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and without
cost to the Fund, the services of personnel to the extent that such services are
required to carry out their obligations under this Agreement;
49
<PAGE>
(b) Alex. Brown shall bear the expenses of any promotional
or sales literature used by Alex. Brown or furnished by Alex. Brown to
purchasers or dealers in connection with the public offering of the Shares, the
expenses of advertising in connection with such public offering and all legal
expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar, custodian
or depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock 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
corporate fees payable by the Fund to Federal, State or other governmental
agencies; all costs and expenses in connection with maintenance of registration
of the Fund and the Shares with the SEC and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above; the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or 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; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. Alex. Brown may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. Alex. Brown shall receive no compensation for
the services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The Fund
acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters of
transmittals and applications
50
<PAGE>
and withdrawal and redemption orders, responding to inquiries from Fund
shareholders concerning the status of their accounts and the operations of the
Fund, and communicating with the Fund and its transfer agent on behalf of the
Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter into
Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its own
resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the Fund
are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that Directors,
officers or employees of Alex. Brown may serve as Directors or officers of the
Fund, and that Directors or officers of the Fund may serve as Directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
Directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, Directors or officers of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force and effect
for an initial term of two years and from year to year thereafter, provided that
such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities of the Shares (as
defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors
who are not "interested persons" of the Fund (as defined in the 1940 Act) and do
not have a financial interest in the operation of this Agreement, by votes cast
in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party without the payment of any
penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
51
<PAGE>
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS EQUITY PARTNERS FUND,
INC.
Attest: /s/ Laurie D. DePrine By /s/ Edward J. Veilleux
--------------------- ----------------------
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest: /s/ Laurie D. DePrine By /s/ Richard T. Hale
--------------------- -------------------
Title:
52
<PAGE>
EX-99.B(24) (b)
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Equity Partners
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-14 pursuant to the 1933 Act, together with any
and all pre- and post-effective amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
---------------------
Joseph A. Finelli
Date: _____________________
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Brian
C. Nelson, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Equity Partners Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-14 pursuant to the 1933 Act, together with any and all pre- and post-effective
amendments thereto, including specifically, but without limiting the generality
of the foregoing, the power and authority to sign in the name and on behalf of
the undersigned as a director of the Fund such Registration Statement and any
and all such pre- and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
-----------------------------
Carl W. Vogt
Date: _____________________
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that Charles W. Cole, Jr., whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Brian C. Nelson, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Equity Partners
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act"), and any rules, regulations or requirements of the Securities
and Exchange Commission in respect thereof, in connection with the Fund's
Registration Statement on Form N-14 pursuant to the 1933 Act, together with any
and all pre- and post-effective amendments thereto, including specifically, but
without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Charles W. Cole, Jr.
------------------------
Charles W. Cole, Jr.
Date: _____________________
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000933402
<NAME> EQUITY PARTNERS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 65,059,423
<INVESTMENTS-AT-VALUE> 76,300,363
<RECEIVABLES> 435,314
<ASSETS-OTHER> 100,279
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,835,956
<PAYABLE-FOR-SECURITIES> 2,999,205
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,502
<TOTAL-LIABILITIES> 3,068,707
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62,257,946
<SHARES-COMMON-STOCK> 5,638,178
<SHARES-COMMON-PRIOR> 3,786,471
<ACCUMULATED-NII-CURRENT> 292,457
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (24,094)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,240,940
<NET-ASSETS> 73,767,249
<DIVIDEND-INCOME> 788,693
<INTEREST-INCOME> 818,014
<OTHER-INCOME> 0
<EXPENSES-NET> 785,461
<NET-INVESTMENT-INCOME> 821,246
<REALIZED-GAINS-CURRENT> (24,094)
<APPREC-INCREASE-CURRENT> 10,744,023
<NET-CHANGE-FROM-OPS> 11,541,175
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 626,535
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,348,060
<NUMBER-OF-SHARES-REDEEMED> 543,093
<SHARES-REINVESTED> 48,327
<NET-CHANGE-IN-ASSETS> 32,996,569
<ACCUMULATED-NII-PRIOR> 97,746
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 551,124
<INTEREST-EXPENSE> 1,018,351
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.77
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 2.29
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.09
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
