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FLAG INVESTORS
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FLAG
INVESTORS
EQUITY
PARTNERS
FUND
ANNUAL REPORT
MAY 31, 1997
<PAGE>
REPORT HIGHLIGHTS
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o Your Fund achieved strong results over the past 6- and 12-month periods,
comparing favorably against other growth funds.
o The investment environment for stocks remains very positive due to favorable
economic trends, prospects for a balanced budget and ongoing record money flows
into equity mutual funds.
o Our portfolio strategy is to invest for the long term in undervalued companies
with strong financial characteristics and shareholder-oriented managements. Our
investment approach is distinctive because of our flexibility in selecting
portfolio companies, which include traditional value stocks as well as high
growth rate companies.
o The ongoing bull market has been of historic proportions, with the Standard &
Poor's 500 Index producing a compound return of approximately 18% over the past
15 years. Investors should have lower expectations from this point forward.
<PAGE>
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment in Class A Shares*
February 13, 1995-May 31, 1997
$10,000 invested in the Equity Partners Fund
Class A Shares at inception on February 13, 1995
was worth $17,383 on May 31, 1997.
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
2/95 $10,000
5/95 10,770
8/95 11,421
11/95 11,993
2/96 12,756
5/96 13,252
8/96 13,329
11/96 15,576
2/97 16,192
5/97 17,383
Total Return Performance*
<TABLE>
<CAPTION>
Class A Class B Institutional
Periods ended 5/31/97 Shares Shares Shares
- -------------------------------------------------------------------------------------
<S> <C>
6 Months 11.6% 11.2% 11.7%
.....................................................................................
12 Months 31.2% 30.3% 31.6%
.....................................................................................
Since Inception 2/13/95 2/13/95 2/12/96
(Cumulative) ------- ------- -------
73.8% 71.1% 35.8%
.....................................................................................
</TABLE>
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales charge
were reflected, the quoted performance would be lower. Performance figures for
the classes differ because each class maintains a distinct expense structure.
For further details on expense structures, please refer to the Fund's
prospectus. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results. Please
review the Additional Performance Information on page 6.
1
<PAGE>
LETTER TO SHAREHOLDERS
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Fellow Shareholders:
We are pleased to report on the progress of your Fund for the periods ended
May 31, 1997.
Performance
The Fund's Class A Shares produced a total return of 11.6% and 31.2% for
the 6- and 12-month periods ended May 31, 1997, respectively. For the 12-month
period, the Fund ranked in the top 4% of Lipper Analytical's Growth Funds
category.(1) In addition, the Fund received an "A" designation from The Wall
Street Journal for the 12 months ended May 29, 1997.(2) The Class A Shares have
had a cumulative total return of 73.8% since the Fund's inception on February
13, 1995 (see table, page 1).
Over the past year, the Class A Shares' net asset value grew by $4.04,
which includes income and capital gains distributions. The largest positive and
negative contributors to this growth are shown in the following table.
Contributors to Net Asset Value Performance
<TABLE>
<CAPTION>
(For the 12 months ended 5/31/97)
.........................................................................................
Five Best Contributors Gain Per Share Five Worst Contributors Loss Per Share
.........................................................................................
<S> <C>
Conseco $0.31 Hercules $(0.02)
.........................................................................................
America Online $0.28 ITT Industries $(0.02)
.........................................................................................
IBM $0.25 Alexander & Alexander $(0.01)
.........................................................................................
Travelers $0.22 Mid Ocean $(0.01)
.........................................................................................
American Express $0.20 Ryland $(0.01)
.................................-----......................................-------......
Total $1.26 Total $(0.07)
.........................................................................................
</TABLE>
Conseco, the largest contributor, was also among the prior year's five best
performers and is an original holding of the Fund. In contrast, the Fund has
only owned America Online, the second largest contributor, for 6 months.
- ----------
(1) The Lipper ranking is based on performance for the year ended May 31, 1997
relative to other funds in the category. This ranking indicates that the
Fund ranked #31 out of 750 funds in the Growth Funds category. Performance
figures used in these rankings exclude the impact of any sales charge.
(2) Funds are categorized by The Wall Street Journal based on classifications
by Lipper and are ranked by total return performance relative to other
funds in their respective categories. Unlike the broad Growth Funds
category described above, The Wall Street Journal's Growth Funds category
is limited to funds listed by NASDAQ. This ranking indicates that the
Fund's performance for the year ended May 29, 1997 placed in the top 20% in
the Growth Funds category, ranking #36 out of 542 funds. Performance
figures used in these rankings exclude the impact of any sales charge.
2
<PAGE>
- --------------------------------------------------------------------------------
Investment Environment
The stock market environment continues to be extremely positive. The U.S.
economy is now in its seventh year of expansion. This, in combination with
successful cost-cutting by corporations, has resulted in an ongoing rise in
profits and cash flows. For a variety of reasons, managements have been
increasingly focused on directing this cash flow to the shareholders' best use.
Despite the strength in the economy, inflation has remained surprisingly
low. The past 5 monthly reports on the change in the Producer Price Index (a
measure of price changes at the wholesale level) have actually been negative.
The effect of global competition on prices and the impact of technology on
productivity have been reasons given for the absence of inflation.
Looking back over the past 15 years, the unwinding of inflation has
probably been the greatest single factor behind the stock market's extraordinary
performance. During this period, the price/earnings ratio for the S&P 500 has
roughly tripled from 7 to 21, due in large part to lower inflation.
In addition to benefiting from the highly favorable economic environment,
the market is also being helped by favorable political developments. Congress is
on the verge of adopting a balanced budget plan that would include a reduction
in capital gains tax rates. If this plan is adopted and adhered to, it would
represent a major unexpected and positive development in our country's financial
condition. Its achievement, should it be implemented, would result more from the
strength in our economy and resulting tax receipts than from the fiscal
discipline of Congress.
Added to the favorable economic and political trends has been Americans'
newfound love affair with common stocks and mutual funds. It is difficult to
distinguish between the chicken and the egg in this case, but certainly
ever-rising stock prices and investors' decisions to buy more stocks are
directly related. A cynic might note that stocks are one of the few commodities
where higher prices often result in greater, rather than lesser, demand.
Portfolio Strategy
Our strategy, as always, is to invest for the long term in undervalued
companies with strong financial characteristics and shareholder-oriented
managements. We try to be very disciplined in adhering to our criteria for
value. The sharp rise in stock prices has made it more difficult to find good
values. This, combined with an inflow of $50 million in cash in the past 6
months, has result-
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
ed in a cash position of 15%, which is larger than we would normally like for an
equity fund. We do believe that in the long run shareholders will be better
served if we patiently wait for opportunities rather than give in to an
emotional urge to get money into the market.
One somewhat distinctive aspect of our investment approach is the
flexibility we allow ourselves in the types of companies we select. For example,
in the past 6 months we increased our investment in two very different
companies, Ford Motor and America Online. Ford is a very large, mature and
cyclical company, with a high dividend yield and very low price/earnings ratio.
America Online is a young, rapidly growing company with no dividends or
earnings. They have one thing in common -- both were temporarily out of favor
with investors and were selling at a low enough price to offer good value for
the long term. If we had limited our scope to traditional value stocks like
Ford, we would have missed the opportunity to buy America Online, which has more
than doubled our average cost over a 6-month period.
We have also been taking advantage of the rising market to weed out
mistakes and the companies that we have less confidence in, and to reinvest the
money in long-term favorites (please see the Five Largest Holdings table below).
We believe this process of continuous improvement, which is practiced in many
businesses today, can be aptly applied to portfolio management as well.
Five Largest Equity Holdings
<TABLE>
<CAPTION>
(As of 5/31/97)
- ---------------------------------------------------------------------------------------------
Security Total Cost Market Value Percent of Net Assets
.............................................................................................
<S> <C>
Champion Enterprises $ 5,987,621 $ 6,017,813 3.5%
.............................................................................................
Ford Motor $ 5,073,901 $ 6,000,000 3.5%
.............................................................................................
Lockheed Martin $ 5,067,845 $ 5,495,787 3.2%
.............................................................................................
Conseco $ 2,121,740 $ 5,200,000 3.1%
.............................................................................................
USG Corp. $ 4,123,301 $ 5,171,963 3.0%
.................................-----------........-----------...............-----..........
Total $22,374,408 $27,885,563 16.3%
.............................................................................................
</TABLE>
4
<PAGE>
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Closing
Most of us have been recently humbled, not for the first time, by the
difficulty of market timing. Few expected 1997 to begin so strongly after the
tremendous gains of the prior two years. When the Equity Partners Fund began in
February 1995, the Dow was just reaching 4000 for the first time. Who could have
predicted it would be approaching 8000 today? It is nearly impossible to know
how the stock market will behave in advance, given all the variables that affect
it.
This bull market has been of truly historic proportions. Now approaching
seven years in duration, it has been equal in length and magnitude to the great
bull market of the early 1950s. These two markets qualify as the longest running
bull markets of this century. Since 1981, the market has produced a positive
return every year but one and has compounded at almost 18% during the period.
We should all appreciate the significance of this period and be thankful
for the wealth it has created, but lower our expectations from this point
forward. It is not always like this.
Sincerely,
/s/ Lee S. Owen /s/ J. Dorsey Brown, III
- ------------------------------- ----------------------------------
Lee S. Owen J. Dorsey Brown, III
President Executive Vice President
June 20, 1997
5
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include, on an annual basis, line graphs comparing the Fund's
performance to that of an appropriate market index. These graphs must measure
the growth of a $10,000 hypothetical investment from the Fund's inception
through the most recent fiscal year-end. They reflect the impact of the Fund's
total expenses and the currently effective 4.50% maximum sales charge for the
Fund's Class A Shares and a 3.00% contingent deferred sales charge for the
Fund's Class B Shares, which is the applicable sales charge for the represented
time period.
While the following charts are required by SEC rules, such comparisons are
of limited utility since the indices shown are not adjusted for sales charges
and ongoing management, distribution and operating expenses applicable to the
Fund. An investor who wished to replicate the total return of these indices
would have had to own the securities that they represent. Acquiring these
securities would require a considerable amount of money and would incur expenses
that are not reflected in the index results.
The SEC also requires that we report the Fund's total return, according to
a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SEC total return figures differ from those we
reported because the time periods may be different and because the
SEC calculation includes the impact of the currently effective 4.50% maximum
sales charge for the Fund's Class A Shares and 4.00% maximum contingent deferred
sales charge for the Fund's Class B Shares. These total returns correspond to
those experienced by individual shareholders only if their shares were purchased
on the first day of each time period and the maximum sales charge was paid. Any
performance figures shown are for the full period indicated. Since investment
return and principal value will fluctuate, an investor's shares may be worth
more or less than their original cost when redeemed. Past performance is not an
indicator of future results.
6
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Change in Value of a $10,000 Investment in Class A Shares*
February 13, 1995-May 31, 1997
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
Flag
Investors
Equity S&P 91-Day
Partners 500 U.S. Treasury
Fund Composite Bill
---- --------- ----
2/95 $ 9,550 $10,000 $10,000
5/95 10,285 11,010 10,150
8/95 10,907 11,682 10,302
11/95 11,453 12,659 10,442
2/96 12,182 13,467 10,589
5/96 12,656 14,144 10,721
8/96 12,729 13,866 10,863
11/96 14,875 16,190 11,007
2/97 15,463 16,993 11,150
5/97 16,601 18,307 11,308
Average Annual Total Return*
Periods Ended 6/30/97 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Class A Shares 27.60% -- 25.04%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results. The
indices listed above are unmanaged and are widely recognized as indicators
of the performance in their respective sectors. The S&P 500 Composite is an
indicator of general market performance and the 91-Day U.S. Treasury Bill
is a measure of short-term bond market performance.
** February 13, 1995.
7
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Class B Shares*
February 13, 1995-May 31, 1997
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
Flag
Investors
Equity S&P 91-Day
Partners 500 U.S. Treasury
Fund Composite Bill
---- --------- ----
2/95 $10,000 $10,000 $10,000
5/95 10,750 11,010 10,150
8/95 11,391 11,682 10,302
11/95 11,943 12,659 10,442
2/96 12,670 13,467 10,589
5/96 13,134 14,144 10,721
8/96 13,194 13,866 10,863
11/96 15,383 16,190 11,007
2/97 15,963 16,993 11,150
5/97 16,811 18,307 11,308
Average Annual Total Return*
Periods Ended 6/30/97 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Class B Shares 29.53% -- 25.36%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
** February 13, 1995.
8
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Change in Value of a $10,000 Investment in Institutional Shares*
February 12, 1996-May 31, 1997
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
Flag
Investors
Equity S&P 91-Day
Partners 500 U.S. Treasury
Fund Composite Bill
---- --------- ----
2/96 $ 9,550 $10,000 $10,000
5/96 10,323 10,503 10,125
8/96 10,396 10,297 10,259
11/96 12,156 12,023 10,395
2/97 12,646 12,619 10,530
5/97 13,584 13,595 10,679
Average Annual Total Return*
Periods Ended 6/30/97 1 Year 5 Years Since Inception**
- --------------------------------------------------------------------------------
Institutional Shares 34.11% -- 27.30%
................................................................................
* These figures assume the reinvestment of dividends and capital gains
distributions. Past performance is not an indicator of future results.
** February 12, 1996.
9
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets May 31, 1997
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCK: 85.2%
Banking: 5.0%
30,600 Citicorp $ 3,499,875
19,500 Wells Fargo & Company 5,138,250
- --------------------------------------------------------------------------------
8,638,125
- --------------------------------------------------------------------------------
Basic Industry: 3.9%
84,100 Hercules, Inc. 3,942,187
60,000 Monsanto Co. 2,640,000
- --------------------------------------------------------------------------------
6,582,187
- --------------------------------------------------------------------------------
Business Services: 3.7%
90,000 First Data Corp. 3,600,000
80,000 Heritage Media Corp.* 1,460,000
58,000 SEI Corporation 1,305,000
- --------------------------------------------------------------------------------
6,365,000
- --------------------------------------------------------------------------------
Capital Goods: 3.8%
29,900 Briggs & Stratton Corporation 1,543,587
24,200 Caterpillar, Inc. 2,362,525
32,500 Eaton Corporation 2,591,875
- --------------------------------------------------------------------------------
6,497,987
- --------------------------------------------------------------------------------
Consumer Durables/Non-Durables: 12.0%
100,000 Blyth Industries, Inc.* 4,450,000
160,000 Ford Motor Company 6,000,000
97,500 Philip Morris Companies, Inc. 4,290,000
115,000 Richfood Holdings, Inc. 2,659,375
93,000 Sunbeam Corp. 3,138,750
- --------------------------------------------------------------------------------
20,538,125
- --------------------------------------------------------------------------------
Consumer Services: 5.1%
80,000 America Online, Inc.* 4,420,000
25,000 Gannett Company, Inc. 2,312,500
36,000 Times Mirror Company - Class A 2,020,500
- --------------------------------------------------------------------------------
8,753,000
- --------------------------------------------------------------------------------
Defense/Aerospace: 5.2%
58,700 Lockheed Martin Corp. 5,495,787
51,600 McDonnell Douglas Corp. 3,321,750
- --------------------------------------------------------------------------------
8,817,537
- --------------------------------------------------------------------------------
10
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCK (continued)
Energy: 2.8%
48,000 MAPCO, Inc. $ 1,524,000
75,500 Noble Affiliates, Inc. 3,180,437
- --------------------------------------------------------------------------------
4,704,437
- --------------------------------------------------------------------------------
Financial Services: 7.4%
60,200 American Express Company 4,183,900
108,000 Federal Home Loan Mortgage Corporation 3,564,000
11,000 Transamerica Corp. 999,625
70,000 Travelers Group, Inc. 3,841,250
- --------------------------------------------------------------------------------
12,588,775
- --------------------------------------------------------------------------------
Health Care: 1.8%
25,000 Amgen, Inc.* 1,671,875
22,000 Johnson & Johnson 1,317,250
- --------------------------------------------------------------------------------
2,989,125
- --------------------------------------------------------------------------------
Hotels/Gaming: 3.0%
130,000 Harrah's Entertainment, Inc.* 2,421,250
61,600 Hilton Hotels Corporation 1,740,200
16,400 ITT Corporation* 977,850
- --------------------------------------------------------------------------------
5,139,300
- --------------------------------------------------------------------------------
Housing: 6.6%
327,500 Champion Enterprises, Inc.* 6,017,813
148,300 USG Corporation* 5,171,963
- --------------------------------------------------------------------------------
11,189,776
- --------------------------------------------------------------------------------
Insurance: 5.2%
130,000 Conseco Inc. 5,200,000
82,200 Mid Ocean Limited 3,729,825
- --------------------------------------------------------------------------------
8,929,825
- --------------------------------------------------------------------------------
Multi-Industry: 4.5%
56,000 American Standard Co., Inc.* 2,807,000
25,000 Loews Corporation 2,431,250
24,200 Tenneco, Inc. 1,082,950
17,800 United Technologies Corp. 1,430,675
- --------------------------------------------------------------------------------
7,751,875
- --------------------------------------------------------------------------------
11
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) - May 31, 1997
Shares/ Market Value
Par (000) (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCK (concluded)
Retail: 4.2%
82,550 J.C. Penney Co., Inc. $ 4,251,325
210,000 Kmart Corporation* 2,940,000
- --------------------------------------------------------------------------------
7,191,325
- --------------------------------------------------------------------------------
Technology: 8.7%
56,000 International Business Machines Corporation 4,844,000
97,500 Millipore Corporation 4,204,688
34,000 Varian Associates, Inc. 1,802,000
59,500 Xerox Corporation 4,031,125
- --------------------------------------------------------------------------------
14,881,813
- --------------------------------------------------------------------------------
Transportation: 2.3%
95,800 Canadian National Railway Company 3,999,650
- --------------------------------------------------------------------------------
Total Common Stock
(Cost $106,416,210) 145,557,862
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT: 15.4%
$26,235 Goldman Sachs & Co., 5.30%
Dated 5/30/97, to be repurchased on
6/2/97, collateralized by U.S. Treasury
Notes with a market value of $26,759,870.
(Cost $26,235,000) 26,235,000
- --------------------------------------------------------------------------------
12
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Investment in Securities: 100.6%
(Cost $132,651,210)** $171,792,862
Liabilities in Excess of Other Assets, Net: (0.6%) (977,793)
- --------------------------------------------------------------------------------
Net Assets: 100.0% $170,815,069
================================================================================
Net Asset Value and Redemption Price Per:
Class A Share
($113,029,663 / 6,677,416 shares outstanding) $16.93
================================================================================
Class B Share
($15,670,213 / 930,703 shares outstanding) $16.84***
================================================================================
Institutional Share
($42,115,193 / 2,486,105 shares outstanding) $16.94
================================================================================
Maximum Offering Price Per:
Class A Share
($16.93 / .955) $17.73
================================================================================
Class B Share $16.84
================================================================================
Institutional Share $16.94
================================================================================
- ----------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
*** Redemption value is $16.17 following a 4% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
May 31,
- --------------------------------------------------------------------------------
1997
Investment Income (Note 1):
Dividends $ 1,495,289
Interest 636,462
- --------------------------------------------------------------------------------
Total income 2,131,751
- --------------------------------------------------------------------------------
Expenses:
Investment advisory fee (Note 2) 994,751
Distribution fee (Note 2) 294,233
Registration fees 72,607
Transfer agent fee (Note 2) 59,840
Accounting fee (Note 2) 55,940
Legal 52,053
Printing and postage 36,499
Audit 29,785
Custodian fee 20,170
Organizational expense (Note 1) 10,209
Directors' fees 5,503
Miscellaneous 4,870
Insurance 1,910
- --------------------------------------------------------------------------------
Total expenses 1,638,370
Less: Fees waived (Note 2) (141,648)
- --------------------------------------------------------------------------------
Net expenses 1,496,722
- --------------------------------------------------------------------------------
Net investment income 635,029
- --------------------------------------------------------------------------------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 2,887,321
Change in unrealized appreciation or depreciation of
investments 27,900,712
- --------------------------------------------------------------------------------
Net gain on investments 30,788,033
- --------------------------------------------------------------------------------
Net increase in net assets resulting from operations $31,423,062
================================================================================
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Year Ended May 31,
- --------------------------------------------------------------------------------
1997 1996
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 635,029 $ 821,246
Net realized gain/(loss)
from security transactions 2,887,321 (24,094)
Change in unrealized appreciation or
depreciation of investments 27,900,712 10,744,023
- --------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 31,423,062 11,541,175
- --------------------------------------------------------------------------------
Distributions to Shareholders from:
Net investment income:
Class A Shares (551,174) (598,906)
Class B Shares (5,815) (27,629)
Institutional Shares (112,532) --
Net realized short-term gains:
Class A Shares (168,249) --
Class B Shares (17,444) --
Institutional Shares (36,622) --
Net realized long-term gains:
Class A Shares (392,581) --
Class B Shares (40,703) --
Institutional Shares (85,452) --
- --------------------------------------------------------------------------------
Total distributions (1,410,572) (626,535)
- --------------------------------------------------------------------------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 73,706,538 28,046,908
Value of shares issued in reinvestment
of dividends 1,249,105 560,846
Cost of shares repurchased (7,920,313) (6,525,825)
- --------------------------------------------------------------------------------
Increase in net assets derived from
capital share transactions 67,035,330 22,081,929
- --------------------------------------------------------------------------------
Total increase in net assets 97,047,820 32,996,569
Net Assets:
Beginning of year 73,767,249 40,770,680
- --------------------------------------------------------------------------------
End of year $170,815,069 $73,767,249
================================================================================
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
For the Period
Feb. 13, 1995(1)
For the Year through
Ended May 31, May 31,
- ------------------------------------------------------------------------------
1997 1996 1995
Per Share Operating Performance:
Net asset value at beginning of period $ 13.09 $ 10.77 $ 10.00
------- ------- -------
Income from Investment Operations:
Net investment income 0.08 0.17 0.12
Net realized and unrealized gain
on investments 3.96 2.29 0.65
------- ------- -------
Total from Investment Operations 4.04 2.46 0.77
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.13) (0.14) --
Distributions from net realized
long-term gains (0.07) -- --
------- ------- -------
Total distributions (0.20) (0.14) --
------- ------- -------
Net asset value at end of period $ 16.93 $ 13.09 $ 10.77
======= ======= =======
Total Return(2) 31.17% 23.05% 7.70%
Ratios to Average Daily Net Assets:
Expenses(3) 1.35% 1.35% 1.35%(5)
Net investment income(4) 0.61% 1.52% 3.74%(5)
Supplemental Data:
Net assets at end of period (000) $113,030 $64,230 $38,612
Portfolio turnover rate 17.60% 0.73% --
Average commissions per share(6) $ 0.0677 -- --
- ---------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.48%, 1.77% and 3.76%
(annualized) for the years ended May 31, 1997, 1996 and the period ended
May 31, 1995, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net
investment income to average daily net assets would have been 0.48%,
1.10% and 1.33% (annualized) for the years ended May 31, 1997, 1996 and the
period ended May 31, 1995, respectively.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
16
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- -------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
Feb. 13, 1995(1)
For the Year through
Ended May 31, May 31,
- --------------------------------------------------------------------------------------
1997 1996 1995
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 13.03 $10.75 $10.00
------- ------ ------
Income from Investment Operations:
Net investment income/(expenses in
excess of income) (0.04) 0.07 0.07
Net realized and unrealized gain
on investments 3.96 2.31 0.68
------- ------ ------
Total from Investment Operations 3.92 2.38 0.75
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.04) (0.10) --
Distributions from net realized
long-term gains (0.07) -- --
------- ------ ------
Total distributions (0.11) (0.10) --
------- ------ ------
Net asset value at end of period $ 16.84 $13.03 $10.75
======= ====== ======
Total Return(2) 30.28% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses(3) 2.10% 2.10% 2.10%(5)
Net investment income/(expenses in
excess of income)(4) (0.16)% 0.71% 1.97%(5)
Supplemental Data:
Net assets at end of period (000) $15,670 $5,302 $2,159
Portfolio turnover rate 17.60% 0.73% --
Average commissions per share(6) $ 0.0677 -- --
</TABLE>
- ---------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.23%, 2.52% and 4.22%
(annualized) for the years ended May 31, 1997, 1996 and the period ended
May 31, 1995, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net
investment income to average daily net assets would have been (0.28)%,
0.29% and (0.15)% (annualized) for the years ended May 31, 1997, 1996 and
the period ended May 31, 1995, respectively.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Feb. 12, 1996(1)
Year Ended through
May 31, May 31,
- --------------------------------------------------------------------------------------
1997 1996
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 13.10 $12.72
------- ------
Income from Investment Operations:
Net investment income 0.14 0.04
Net realized and unrealized gain on investments 3.95 0.34
------- ------
Total from Investment Operations 4.09 0.38
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.18) --
Distributions from net realized long-term gains (0.07) --
------- ------
Total distributions (0.25) --
------- ------
Net asset value at end of period $ 16.94 $13.10
======= ======
Total Return 31.58% 3.23%
Ratios to Average Daily Net Assets:
Expenses(2) 1.10% 1.10%(4)
Net investment income(3) 0.81% 1.20%(4)
Supplemental Data:
Net assets at end of period (000) $42,115 $4,235
Portfolio turnover rate 17.60% 0.73%(4)
Average commissions per share(5) $ 0.0677 --
</TABLE>
- ---------
(1) Commencement of operations.
(2) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.23% and 1.55% (annualized) for
the year ended May 31, 1997 and the period ended May 31, 1996,
respectively.
(3) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 0.70% and 0.75%
(annualized) for the year ended May 31, 1997 and the period ended May 31,
1996, respectively.
(4) Annualized.
(5) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
18
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1 -- Significant Accounting Policies
Flag Investors Equity Partners Fund, Inc. (the "Fund"), which was organized
as a Maryland Corporation on November 30, 1994, commenced operations February
13, 1995. The Fund is registered under the Investment Company Act of 1940 as a
diversified, open-end Investment Management Company. Its objective is to seek
long-term growth of capital and, secondarily, current income primarily through a
policy of diversified investments in equity securities, including common stocks
and convertible securities.
The Fund consists of three share classes: Class A Shares and Class B
Shares, which both commenced February 13, 1995, and Institutional Shares, which
commenced February 12, 1996.
The Class A and Class B Shares are subject to different sales charges. The
Class A Shares have a 4.50% maximum front-end sales charge and the Class B
Shares have a 4.00% maximum contingent deferred sales charge. The Institutional
Shares have neither a front-end sales charge nor a contingent deferred sales
charge. In addition, each class has a different distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported for the
day. If there are no sales or the security is not traded on a listed exchange,
the Fund values the security at its last bid price in the over-the-counter
market. When a market quotation is unavailable, the Investment Advisor
determines a fair value using procedures that the Board of Directors establishes
and monitors. The Fund values short-term obligations with maturities of 60 days
or less at amortized cost.
19
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1 -- concluded
B. Repurchase Agreements--The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund buys a debt
security that the broker agrees to repurchase at a set time and price.
The third party, which is the broker's custodial bank, holds the
collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long as
it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net realized
capital gains, it will be exempt from most, if not all, federal income
and excise taxes. As a result, the Fund has made no provisions for
federal income taxes.
D. Securities Transactions, Investment Income, Distributions and Other--
The Fund uses the trade date to account for security transactions and
the specific identification method for financial reporting and income
tax purposes to determine the cost of investments sold or redeemed.
Interest income and expenses are recorded on an accrual basis. Income
and common expenses are allocated to each class based on its respective
average net assets. Class specific expenses are charged directly to
each class. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. The Fund has deferred the costs
incurred by its organization and the initial public offering of
shares. These costs are being amortized on the straight-line method
over a five-year period, which began when the Fund commenced investment
activities.
20
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 2 -- 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, the Fund pays ICC an annual fee based on the Fund's average daily net
assets. This fee is calculated daily and paid monthly at the following annual
rates: 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 the amount over $200 million.
As compensation for its subadvisory services, ICC pays ABIM a fee from its
advisory fee based on the Fund's average daily net assets. This fee is
calculated daily and paid monthly at the following annual rates: 0.75% of the
first $50 million, 0.60% of the next $150 million and 0.50% of the amount over
$200 million.
ICC has agreed to waive a portion of its fees and reimburse expenses so
that the Fund's total operating expenses for any fiscal year 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. ICC waived fees of $141,648 for the year ended May 31, 1997.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly based on the Fund's average daily
net assets. The Fund paid ICC $55,940 for accounting services for the year ended
May 31, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $59,840 for
transfer agent services for the year ended May 31, 1997.
As compensation for providing distribution services, the Fund pays Alex.
Brown & Sons Incorporated ("Alex. Brown") an annual fee that is calculated daily
and paid monthly. This fee is paid at an annual rate equal to 0.25% of the Class
A Shares' average daily net assets and 1.00% (including a 0.25% shareholder
servicing fee) of the Class B Shares' average daily net assets. For the year
ended May 31, 1997, distribution fees aggregated $294,233, of which $206,936
were attributable to the Class A Shares and $87,297 were attributable to the
Class B Shares. The Fund did not pay Alex. Brown any commissions for the year
ended May 31, 1997.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
May 31, 1997 was $3,765, and the accrued liability was $7,114.
21
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 3 -- 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 For the
Year Ended Year Ended
May 31, 1997 May 31, 1996
-------------- -------------
Shares sold 2,175,983 1,801,793
Shares issued to shareholders on
reinvestment of dividends 71,468 46,324
Shares redeemed (477,782) (526,068)
----------- -----------
Net increase in shares outstanding 1,769,669 1,322,049
=========== ===========
Proceeds from sale of shares $32,665,187 $21,242,051
Value of reinvested dividends 1,040,589 537,705
Cost of shares redeemed (7,100,783) (6,296,438)
----------- -----------
Net increase from capital share transactions $26,604,993 $15,483,318
=========== ===========
Class B Shares
------------------------------
For the For the
Year Ended Year Ended
May 31, 1997 May 31, 1996
------------------------------
Shares sold 545,380 221,303
Shares issued to shareholders on
reinvestment of dividends 3,986 2,003
Shares redeemed (25,717) (17,025)
----------- -----------
Net increase in shares outstanding 523,649 206,281
=========== ===========
Proceeds from sale of shares $8,263,270 $2,641,798
Value of reinvested dividends 60,224 23,141
Cost of shares redeemed (375,286) (208,673)
----------- -----------
Net increase from capital share transactions $7,948,208 $2,456,266
=========== ===========
22
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Institutional Shares
------------------------------
For the Period
For the Feb. 12, 1996*
Year Ended through
May 31, 1997 May 31, 1996
------------ -------------
Shares sold 2,182,989 324,964
Shares issued to shareholders on
reinvestment of dividends 9,854 --
Shares redeemed (30,115) (1,587)
----------- ----------
Net increase in shares outstanding 2,162,728 323,377
=========== ==========
Proceeds from sale of shares $32,778,081 $4,163,059
Value of reinvested dividends 148,292 --
Cost of shares redeemed (444,244) (20,714)
----------- ----------
Net increase from capital share transactions $32,482,129 $4,142,345
=========== ==========
- ---------
*Commencement of operations.
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $65,969,366 and sales of investment securities aggregated $17,571,900
for the year ended May 31, 1997.
On May 31, 1997, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $39,257,851 and aggregate
gross unrealized depreciation for all securities in which there is an excess of
tax cost over value was $116,199.
23
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 5 -- Net Assets
On May 31, 1997, net assets consisted of:
Paid-in capital:
Class A Shares $ 80,226,147
Class B Shares 12,442,655
Institutional Shares 36,624,474
Accumulated net realized gain from security transactions 2,122,176
Unrealized appreciation of investments 39,141,652
Undistributed net investment income 257,965
------------
$170,815,069
============
NOTE 6 -- Merger Agreement
On April 6, 1997, Bankers Trust New York Corporation and Alex. Brown
Incorporated announced that they had signed a definitive agreement to merge. The
merger, which is expected to be completed by the fourth quarter of 1997, is
subject to customary closing conditions, including certain regulatory and
shareholder approvals.
24
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
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, 1997 and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the respective periods presented. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require 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, 1997 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 audits provide 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, 1997, the results of its
operations for the year then ended, and the changes in its net assets and its
financial highlights for each of the respective periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
June 20, 1997
25
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
CHARLES W. COLE, JR. LEE S. OWEN
Director President
JAMES J. CUNNANE J. DORSEY BROWN, III
Director Executive Vice President
RICHARD T. HALE BRUCE E. BEHRENS
Director Vice President
JOHN F. KROEGER HOBART C. BUPPERT, II
Director Vice President
LOUIS E. LEVY GARY V. FEARNOW
Director Vice President
EUGENE J. MCDONALD EDWARD J. VEILLEUX
Director Vice President
REBECCA W. RIMEL SCOTT J. LIOTTA
Director Vice President and Secretary
CARL W. VOGT, ESQ. JOSEPH A. FINELLI
Director Treasurer
LAURIE D. COLLIDGE
Assistant Secretary
Investment Objective
A mutual fund designed to seek long-term growth of capital and, secondarily,
current income primarily through a policy of diversified investments in equity
securities, including common stocks and convertible securities.
26
<PAGE>
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<PAGE>
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<PAGE>
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.
For more complete information regarding any of the Flag Investors Funds,
including charges and expenses, obtain a prospectus from your investment
representative or directly from the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
<PAGE>
[FLAG INVESTORS LOGO]
FLAG INVESTORS
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ALEX. BROWN & SONS
INCORPORATED
