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FLAG
INVESTORS
EQUITY
PARTNERS
FUND
SEMI-ANNUAL REPORT
NOVEMBER 30, 1996
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
(bullet) Your Fund achieved strong results over the last six- and twelve-month
periods, comparing favorably against other growth funds and the broad
market as measured by the Standard & Poor's 500.
(bullet) We have maintained our long-term investment horizon and disciplined
approach, emphasizing the importance of value and management when
selecting the portfolio's holdings.
(bullet) The 75.2% two-year cumulative return for the S&P 500 was the highest
market return ever experienced by most current investors. Despite
the generally high market level, we believe there are always good
values that we can take advantage of by using good research and
independent thinking. Our philosophy focuses on stock selection, not
market timing.
(bullet) Several companies held by the Fund were recently acquired by other
companies, illustrating the recent investment trend of various industry
consolidations.
<PAGE>
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment in Class A Shares*
February 13, 1995-November 30, 1996
[GRAPH APPEARS HERE]
$10,000 invested in Equity Partners Fund
Class A Shares at inception on February 13, 1995
was worth $15,576 on November 30, 1996.
2/95 10000
5/95 10770
8/95 11421
11/95 11993
2/96 12756
5/96 13252
8/96 13329
11/96 15576
*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. 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.
1
<PAGE>
LETTER TO SHAREHOLDERS
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Fellow Shareholders:
We are pleased to report on the progress of your Fund for the period ended
November 30, 1996.
Performance
The Fund's Class A Shares produced a total return of 17.5% and 29.9% for
the six- and twelve-month periods ended November 30, 1996, respectively. This
brings the Fund's cumulative total return to 55.8% since its inception on
February 13, 1995 (see chart, left). For the twelve months ended November 30,
1996, the Fund ranked in the top 7% of Lipper Analytical's Growth Fund
category(1) and also received an "A" designation from The Wall Street
Journal.(2)
Total Return Performance(3)
Periods Ended 11/30/96 Class A Class B
--------------------------------------------------------
Six Months 17.5% 17.1%
Twelve Months 29.9% 28.8%
Since Inception(4) (Cumulative) 55.8% 53.8%
The five largest positive and negative contributors to the Fund's
performance over the past six months are shown in the following table.
Contributors to Net Asset Value Performance
(For the six months ended 11/30/96)
- --------------------------------------------------------------------------------
Five Best Contributors Gain Per Share Five Worst Contributors Loss Per Share
Eckerd Corp. $0.24 ITT Industries $(0.04)
IBM $0.24 ITT Corp. $(0.04)
Conseco $0.16 Alexander & Alexander $(0.03)
Travelers $0.15 Ford $(0.02)
Federal Home Loan $0.14 Xerox $(0.02)
_________
(1) Funds are grouped according to investment objective and are ranked by total
return performance relative to other funds in their respective categories.
This ranking indicates that the Fund's performance ranked #43 out of 652
funds in the Growth Fund 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. This ranking indicates that the
Fund's one-year total return placed in the top 20% of 652 funds in the
Growth Fund category.
(3) 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. 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.
(4) February 13, 1995.
2
<PAGE>
Investment Environment
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While we are pleased to report the favorable performance outlined above, we
are reminded of the old investment adage, "Don't confuse wisdom with a bull
market." For the two years ended November 30, 1996, the S&P 500 cumulative total
return was 75.2%. This is the highest two-year market return that most current
investors have ever experienced. It is not surprising therefore that so many
investors are now particularly anxious and are asking, "What should I do with my
investments?"
We like to answer this frequently asked question with another question,
namely "What is your time frame?" If it is three to six months, you should
probably not be in the market now, or any other time for that matter. If it is
approximately three to six years, we recommend that you maintain your investment
program, with the understanding that occasional market declines are to be
expected and endured in order to earn the long-term benefits of stock ownership.
As your partners in the Fund, we are focused on the long term and would
take advantage of a meaningful market decline to add to our own holdings. We
encourage all shareholders to think in the same terms. Consider your investment
in this Fund as a bet on long-term equity ownership and our stock selection
skills, not on our market-timing abilities.
Portfolio Strategy
In keeping with this philosophy, we have maintained equities at 90% to 100%
of the Fund's assets throughout the past six months and expect to continue that
policy at most times in the future. Our emphasis, as always, has been on
continuous improvement in the portfolio holdings. This process involves
eliminating the names in which our confidence has waned, and adding to
investments where our conviction is high. We try to avoid selling our favorite
long-term holdings simply because they have gone up significantly and buying
weaker companies simply because their stocks have lagged. This behavior, in our
view, is analogous to digging out the flowers and watering the weeds.
Our experience over the years has been that, despite various market levels,
there are always good values that we can take advantage of by using good
research and independent thinking. One year ago we illustrated this point with
IBM. We made it our largest holding when it was out of favor at that time,
selling around 90 and at seven times forward earnings. Having since increased to
160, it was one of our best contributors for the past six months. Despite the
appreciation, we still believe IBM has good value, though it is no longer as
compelling.
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
Two examples come to mind of stocks we have recently purchased despite the
generally high market. Our largest purchase over the past six months was
Champion Enterprises. This company is very well managed and is one of the
leading companies in a growth industry, manufactured housing. Because of the
industry's cyclical nature, the company sells at a more inexpensive price than
we feel is justified, around 11 times forward earnings. Periodic short-term
concerns have given us the opportunity to build it to one of our largest
holdings.
A second example is Harrah's Entertainment, a leading casino operator. The
lack of near-term growth prospects and recent earnings disappointments caused
the stock to decline from 38 to 17 in three months despite the market's rise.
Our research concluded longer term growth prospects are brighter, the management
is sharp, and the stock is undervalued. There is additional long-term potential
from industry consolidation. We initiated a position in Harrah's based on our
research, independent thinking and long-term time horizon, which allows us to
take advantage of short-term concerns.
Five companies owned by the Fund are presently in the process of being
acquired by other companies. This is five more than were acquired in the
previous eighteen months of the Fund's existence. In addition to benefiting
performance, this activity illustrates some interesting and important points for
investors.
Fund Holdings Being Acquired
Approximate Premium
Company Paid over Market Price
- -------------------------------------------------------
Conrail 50%
Alexander & Alexander 24%
Eckerd 21%
McDonnell Douglas 21%
Arcadian 17%
The pace of consolidation is increasing in many industries. In cases where
the government's approval is required (e.g., defense and railroads), government
is increasingly supportive if improved efficiency results. In addition,
Corporate America's financial condition is much improved, with healthy balance
sheets and strong cash flows available to finance acquisitions. This is
favorable for value investors such as ourselves who focus on underlying business
value when buying stocks. It is worth noting that the premiums paid over market
values, with the exception of Conrail, have not been particularly large by
historical standards. This probably reflects the generally high level of stocks
in today's market. The five companies being acquired are shown in the table
above, together with the approximate premium offered over the prior market
price.
4
<PAGE>
Closing
We would like to welcome new shareholders who have invested over the past
six months and summarize the key aspects of our approach to investing, namely
the importance of value, management, discipline, independent thinking and a
long-term horizon. The Equity Partners name was selected to convey the sense of
partnership that we feel with you as investors, since we have a very significant
stake in the Fund as well. Furthermore, most of the managements in which we
invest own sizable amounts of their own stock and are focused on creating value
for all of us.
Sincerely,
/s/ Lee S. Owen /s/ J. Dorsey Brown, III
________________ ___________________________
Lee S. Owen J. Dorsey Brown, III
President Executive Vice President
December 20, 1996
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. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include 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.
Average Annual Total Return
<TABLE>
<CAPTION>
Periods Ended 12/31/96 1 Year Since Inception*
- -----------------------------------------------------------------------------------------
<S> <C>
Class A Shares 22.84% 23.32%
.........................................................................................
Class B Shares 24.29% 23.74%
.........................................................................................
Institutional Shares -- 24.31%**
.........................................................................................
</TABLE>
*Inception dates: Class A and Class B 2/13/95, Institutional 2/13/96.
**Annualized.
The Fund's 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
- --------------------------------------------------------------------------------
Statement of Net Assets November 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Market Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK: 90.5%
Banking: 5.8%
30,600 Citicorp $ 3,343,050
11,000 Wells Fargo & Company 3,130,875
6,473,925
Basic Industry: 6.0%
100,000 Arcadian Corporation 2,537,500
66,100 Hercules, Inc. 3,205,850
30,000 James River Corporation of Virginia 960,000
6,703,350
Business Services: 1.2%
58,000 SEI Corporation 1,297,750
Capital Goods: 4.8%
29,900 Briggs & Stratton Corporation 1,237,113
24,200 Caterpillar, Inc. 1,914,825
32,500 Eaton Corporation 2,250,625
5,402,563
Consumer Durables/Non-Durables: 9.6%
45,000 Blyth Industries, Inc.* 1,951,875
85,000 Ford Motor Company 2,783,750
32,500 Philip Morris Companies, Inc. 3,351,562
93,000 Sunbeam Corp. 2,569,125
10,656,312
Consumer Services: 5.4%
60,000 America Online, Inc.* 2,122,500
25,000 Gannett Company, Inc. 1,962,500
36,000 Times Mirror Company--Class A 1,885,500
5,970,500
Defense/Aerospace: 1.0%
2,200 Lockheed Martin Corp. 199,375
16,600 McDonnell Douglas Corp. 877,725
1,077,100
==========================================================================================
</TABLE>
7
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued)
(Unaudited)
<TABLE>
<CAPTION>
Market Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK (continued)
Energy: 3.4%
48,000 MAPCO, Inc. $ 1,620,000
45,500 Noble Affiliates, Inc. 2,144,187
3,764,187
Financial Services: 9.2%
60,200 American Express Company 3,145,450
27,000 Federal Home Loan Mortgage Corporation 3,084,750
11,000 Transamerica Corp. 873,125
70,000 Travelers Group, Inc. 3,150,000
10,253,325
Health Care: 0.6%
15,000 Mallinckrodt Group, Inc. 660,000
Hotels/Gaming: 4.4%
130,000 Harrah's Entertainment, Inc.* 2,307,500
61,600 Hilton Hotels Corporation 1,801,800
16,400 ITT Corporation* 756,450
4,865,750
Housing: 7.2%
197,500 Champion Enterprises, Inc.* 4,122,813
97,000 Ryland Group, Inc. 1,345,875
83,300 USG Corporation* 2,603,125
8,071,813
Insurance: 6.1%
41,000 Alexander & Alexander Services Inc. 594,500
50,000 Conseco Inc. 2,793,750
62,200 Leucadia National Corporation 1,632,750
37,800 Mid Ocean Limited 1,819,125
6,840,125
==========================================================================================
</TABLE>
8
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK (concluded)
MULTI-INDUSTRY: 5.9%
74,400 ITT Industries, Inc. $ 1,739,100
25,000 Loews Corporation 2,318,750
24,200 Tenneco, Inc. 1,234,200
8,900 United Technologies Corp. 1,248,225
6,540,275
Retail: 6.0%
125,000 Eckerd Corporation* 4,312,500
210,000 Kmart Corporation* 2,336,250
6,648,750
Technology: 11.7%
28,000 International Business Machines Corporation 4,462,500
97,500 Millipore Corporation 3,985,312
34,000 Varian Associates, Inc. 1,674,500
59,500 Xerox Corporation 2,922,938
13,045,250
Transportation: 2.2%
45,800 Canadian National Railway Company 1,883,525
5,894 Conrail, Inc. 573,191
2,456,716
Total Common Stock
(Cost $75,723,902) 100,727,691
==========================================================================================
</TABLE>
9
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded)
<TABLE>
<CAPTION>
Par Market Value
(000) Security (Note 1)
- ------------------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT: 7.8%
$8,635 Goldman Sachs & Co., 5.55%
Dated 11/29/96, to be repurchased on
12/2/96, collateralized by U.S. Treasury
Notes with a market value of $8,807,750.
(Cost $8,635,000) $ 8,635,000
Total Investment in Securities: 98.3%
(Cost $84,358,902)** 109,362,691
Other Assets in Excess of Liabilities, Net: 1.7% 1,914,725
Net Assets: 100.0% $111,277,416
Net Asset Value and Redemption Price Per:
Class A Share
($84,360,869 / 5,507,924 shares outstanding) $15.32
Class B Share
($8,202,292 / 537,833 shares outstanding) $15.25***
Institutional Share
($18,714,225 / 1,220,742 shares outstanding) $15.33
Maximum Offering Price Per:
Class A Share
($15.32 / .955) $16.04
Class B Share $15.25
Institutional Share $15.33
</TABLE>
- -------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
*** Redemption value is $14.64 following a maximum 4% contingent deferred sales
charge.
See Notes to Financial Statements.
10
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended
Nov. 30,
- ---------------------------------------------------------------------------------------
1996
<S> <C>
Investment Income (Note 1):
Dividends $ 591,775
Interest 220,743
Other income 1,081
- ---------------------------------------------------------------------------------------
Total income 813,599
- ---------------------------------------------------------------------------------------
Expenses:
Investment advisory fee (Note 2) 397,568
Distribution fee (Note 2) 118,124
Legal 36,165
Transfer agent fee (Note 2) 35,742
Accounting fee (Note 2) 25,925
Printing and postage 16,035
Audit 12,534
Registration fees 9,325
Custodian fees 7,521
Organizational expense (Note 1) 5,014
Miscellaneous 3,782
Insurance 1,974
Directors' fees 602
- ---------------------------------------------------------------------------------------
Total expenses 670,311
Less:Fees waived (Note 2) (85,071)
- ---------------------------------------------------------------------------------------
Net expenses 585,240
- ---------------------------------------------------------------------------------------
Net investment income 228,359
- ---------------------------------------------------------------------------------------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 1,455,562
Change in unrealized appreciation or depreciation of investments 13,762,849
- ---------------------------------------------------------------------------------------
Net gain on investments 15,218,411
- ---------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $15,446,770
=======================================================================================
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
Nov. 30, May 31,
- --------------------------------------------------------------------------------------
1996(1) 1996
<S> <C>
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 228,359 $ 821,246
Net realized gain/(loss) from security transactions 1,455,562 (24,094)
Change in unrealized appreciation or
depreciation of investments 13,762,849 10,744,023
Net increase in net assets resulting from operations 15,446,770 11,541,175
Distributions to Shareholders from:
Net investment income:
Class A Shares (270,748) (598,906)
Class B Shares -- (27,629)
Institutional Shares (27,080) --
Total distributions (297,828) (626,535)
Capital Share Transactions (Note 3):
Proceeds from sale of shares 24,824,687 28,046,908
Value of shares issued in reinvestment of dividends 248,984 560,846
Cost of shares repurchased (2,712,446) (6,525,825)
Increase in net assets derived from
capital share transactions 22,361,225 22,081,929
Total increase in net assets 37,510,167 32,996,569
Net Assets:
Beginning of period 73,767,249 40,770,680
End of period $111,277,416 $73,767,249
======================================================================================
</TABLE>
(1) Unaudited.
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Six For the Feb. 13, 1995(2)
Months Ended Year Ended through
Nov. 30, May 31, May 31,
- -------------------------------------------------------------------------------------------
1996(1) 1996 1995
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 13.09 $ 10.77 $ 10.00
Income from Investment Operations:
Net investment income 0.03 0.17 0.12
Net realized and unrealized gain
on investments 2.25 2.29 0.65
Total from Investment Operations 2.28 2.46 0.77
Less Distributions:
Dividends from net investment income (0.05) (0.14) --
Net asset value at end of period $ 15.32 $ 13.09 $ 10.77
Total Return(3) 17.53% 23.05% 7.70%
Ratios to Average Daily Net Assets:
Expenses 1.35%(4,5) 1.35%(5) 1.35%(4,5)
Net investment income 0.58%(4,6) 1.52%(6) 3.74%(4,6)
Supplemental Data:
Net assets at end of period (000) $84,361 $64,230 $38,612
Portfolio turnover rate 9.03% 0.73% --
Average commissions per share $ 0.07(7) -- --
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
(5) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.55% (annualized), 1.76%
and 3.76% (annualized) for the six months ended November 30, 1996, the
year ended May 31, 1996 and the period ended May 31, 1995, respectively.
(6) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 0.38% (annualized),
1.10% and 1.33% (annualized) for the six months ended November 30, 1996,
the year ended May 31, 1996 and the period ended May 31, 1995,
respectively.
(7) Disclosure is required for fiscal years beginning on or 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.
13
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights--Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Six For the Feb. 13, 1995(2)
Months Ended Year Ended through
Nov. 30, May 31, May 31,
- -------------------------------------------------------------------------------------------
1996(1) 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/(loss) (0.02) 0.07 0.07
Net realized and unrealized gain
on investments 2.24 2.31 0.68
Total from Investment Operations 2.22 2.38 0.75
Less Distributions:
Dividends from net investment income -- (0.10) --
Net asset value at end of period $15.25 $13.03 $10.75
Total Return(3) 17.13% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses 2.10%(4,5) 2.10%(5) 2.10%(4,5)
Net investment income/(loss) (0.18)%(4,6) 0.71%(6) 1.97%(4,6)
Supplemental Data:
Net assets at end of period (000) $8,202 $5,302 $2,159
Portfolio turnover rate 9.03% 0.73% --
Average commissions per share $ 0.07(7) -- --
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
(5) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 2.30% (annualized), 2.52%
and 4.22% (annualized) for the six months ended November 30, 1996, the
year ended May 31, 1996 and the period ended May 31, 1995, respectively.
(6) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been (0.38)% (annualized),
0.29% and 0.15% (annualized) for the six months ended November 30,
1996, the year ended May 31, 1996 and the period ended May 31, 1995,
respectively.
(7) Disclosure is required for fiscal years beginning on or 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.
14
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights--Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Six Feb. 13, 1996(2)
Months Ended through
Nov. 30, May 31,
- --------------------------------------------------------------------------------------------
1996(1) 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 0.05 0.04
Net realized and unrealized gain
on investments 2.26 0.34
Total from Investment Operations 2.31 0.38
Less Distributions:
Dividends from net investment income (0.08) --
Net asset value at end of period $ 15.33 $13.10
Total Return(3) 17.76% 3.23%
Ratios to Average Daily Net Assets:
Expenses 1.10%(4,5) 1.10%(4,5)
Net investment income 0.72%(4,6) 1.20%(4,6)
Supplemental Data:
Net assets at end of period (000) $18,714 $4,235
Portfolio turnover rate 9.03% 0.73%
Average commissions per share $ 0.07(7) --
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
(5) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.30% (annualized) and 1.66%
(annualized) for the six months ended November 30, 1996 and the period
ended May 31, 1996, respectively.
(6) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 0.52% (annualized) and
0.48% (annualized) for the six months ended November 30, 1996 and the period
ended May 31, 1996, respectively.
(7) Disclosure is required for fiscal years beginning on or 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.
15
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--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. On February 13, 1996,
the Fund began offering Institutional 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.
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:
A. 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.
B. 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.
16
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 1--concluded
C. 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
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.
D. 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.
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, 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.
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: 0.75% of
the first $50 million, 0.60% of the next $150 million and 0.50% of that portion
in excess of $200 million.
17
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FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2--concluded
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 six months ended November 30, 1996,
ICC waived fees of $85,071.
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 $25,925 for accounting services for the six months ended
November 30, 1996.
As compensation for its transfer agent services, ICC receives from the Fund
a per account fee, calculated daily and paid monthly. ICC received $35,742 for
transfer agent services for the six months ended November 30, 1996.
As compensation for providing distribution services, Alex. Brown & Sons
Incorporated receives from the Fund an annual fee, calculated daily and paid
monthly, at an annual rate equal to 0.25% of the average daily net assets for
Class A Shares and 1.00% (including a 0.25% shareholder servicing fee) of the
average daily net assets for Class B Shares. For the six months ended November
30, 1996, distribution fees aggregated $118,124, of which $87,630 were
attributable to Class A Shares and $30,494 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 period January 1, 1996 through November 30, 1996 was
approximately $2,780, and the accrued liability was approximately $2,842.
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
are listed on the following pages.
18
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FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 3--continued
Class A Shares
----------------------------
For the Six
Months Ended For the
Nov. 30, 1996 Year Ended
(Unaudited) May 31, 1996
- ---------------------------------------------------------------------------
Shares sold 762,808 1,801,793
Shares issued to shareholders on
reinvestment of dividends 18,837 46,324
Shares redeemed (181,468) (526,068)
Net increase in shares outstanding 600,177 1,322,049
Proceeds from sale of shares $10,345,304 $21,242,051
Value of reinvested dividends 243,750 537,705
Cost of shares redeemed (2,450,361) (6,296,438)
Net increase from capital share transactions $ 8,138,693 $15,483,318
Class B Shares
---------------------------
For the Six
Months Ended For the
Nov. 30, 1996 Year Ended
(Unaudited) May 31, 1996
- --------------------------------------------------------------------------
Shares sold 142,699 221,303
Shares issued to shareholders on
reinvestment of dividends -- 2,003
Shares redeemed (11,919) (17,025)
Net increase in shares outstanding 130,780 206,281
Proceeds from sale of shares $1,968,858 $2,641,798
Value of reinvested dividends -- 23,141
Cost of shares redeemed (156,915) (208,673)
Net increase from capital share transactions $1,811,943 $2,456,266
19
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3--concluded
Institutional Shares
--------------------------------
For the Six For the Period
Months Ended Feb. 13, 1996*
Nov. 30, 1996 to
(Unaudited) May 31, 1996
- -------------------------------------------------------------------------------
Shares sold 905,196 324,964
Shares issued to shareholders on
reinvestment of dividends 405 --
Shares redeemed (8,236) (1,587)
Net increase in shares outstanding 897,365 323,377
Proceeds from sale of shares $12,510,525 $4,163,059
Value of reinvested dividends 5,234 --
Cost of shares redeemed (105,170) (20,714)
Net increase from capital share transactions $12,410,589 $4,142,345
- -------------------------------------------------------------------------------
*Commencement of operations.
NOTE 4--Investment Transactions
Purchases and sales of investment securities, other than short-term
obligations, aggregated $26,286,705 and $7,149,787, respectively, for the six
months ended November 30, 1996.
On November 30, 1996, aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $25,347,283
and aggregate gross unrealized depreciation of all securities in which there was
an excess of tax cost over value was $343,494.
20
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 5--Net Assets
On November 30, 1996, net assets consisted of:
Paid-in capital:
Flag Investors Class A Shares $ 61,759,847
Flag Investors Class B Shares 6,306,390
Flag Investors Institutional Shares 16,552,934
Undistributed net investment income 222,988
Accumulated net realized gain from securities transactions 1,431,468
Unrealized appreciation of investments 25,003,789
$111,277,416
21
<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
CARL W. VOGT, ESQ. JOSEPH A. FINELLI
Director Treasurer
HARRY WOOLF EDWARD J. STOKEN
Director Secretary
LAURIE D. COLLIDGE
Assistant Secretary
Investment Objective
A mutual fund designed to seek long-term growth of capital as well as the
secondary objective of current income primarily through a policy of diversified
investments in equity securities, including common stocks and convertible
securities.
22
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This report is submitted 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 Intermediate-Term 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
