<PAGE>
As Filed With the Securities and Exchange Commission on July 31, 1998
File No. 33-86832
811-8886
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 6 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 9 [X]
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
-----------------------------------------
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, MD 21202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (410) 727-1700
----------------
Edward J. Veilleux
One South Street
Baltimore, MD 21202
-------------------
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on October 1, 1998 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
_X_ on October 1, 1998 pursuant to paragraph (a) of Rule 485.
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<PAGE>
FLAG INVESTORS
EQUITY PARTNERS FUND, INC.
(Class A and Class B Shares)
Prospectus & Application -- October 1, 1998
This mutual fund (the "Fund") seeks to achieve long-term growth of
capital and, secondarily, current income by investing primarily in a
diversified portfolio of common stocks and other equity securities.
The Fund offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares ("Class A Shares") and Flag Investors Class B Shares ("Class B
Shares") of the Fund. These separate classes give you a choice as to sales
charge and fund expenses. (Refer to the section on sales charges and the
attached Application.)
TABLE OF CONTENTS
Page
----
INVESTMENT SUMMARY........................................................2
FEES AND EXPENSES OF THE FUND.............................................4
INVESTMENT PROGRAM........................................................5
THE FUND'S NET ASSET VALUE................................................6
HOW TO BUY SHARES.........................................................6
HOW TO REDEEM SHARES......................................................8
TELEPHONE TRANSACTIONS....................................................9
SALES CHARGES.............................................................9
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU............................13
DIVIDENDS AND TAXES......................................................14
INVESTMENT ADVISOR AND SUB-ADVISOR.......................................14
FINANCIAL HIGHLIGHTS.....................................................16
APPLICATION..............................................................17
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
1
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INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks to achieve long-term growth of capital and,
secondarily, current income by investing primarily in a diversified portfolio
of common stocks and other equity securities. The Fund's investment advisor
and sub-advisor use a "flexible value" approach in choosing securities. They
try to find securities that are undervalued in the marketplace but, in
evaluating a security's potential, they also consider such factors as current
and expected earnings, dividends, cash flows and asset values.
Risk Profile
The Fund is best suited for investors who are willing to accept the
risks and uncertainties of the stock markets in the hope of earning superior
long-term gains. The value of an investment in the Fund will vary from
day-to-day based on changes in the prices of the securities the Fund holds.
Those prices, in turn, reflect investor perceptions of the economy, the
markets and the companies represented in the Fund's portfolio. An investment
in the Fund is not a bank deposit and is not guaranteed by the FDIC or any
government agency.
Fund Performance
The following bar chart and table show the performance of the Fund
both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this is an historical record and does not
necessarily indicate how the Fund will perform in the future.
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Flag Investors Equity Partners Fund, Inc.*
Class A Shares
1995 20.78%
1996 28.62%
1997 24.49%
* The bar chart does not reflect sales charges. If it did, returns would be
less than those shown. For the period from January 1, 1998 through August 31,
1998, the year-to-date return for Class A Shares was __%.
During the 3-year period shown in the bar chart, the highest return for a
quarter was 14.22% (quarter ended June 30 , 1997) and the lowest return for a
quarter was 0.34% (quarter ended December 31, 1997).
Average Annual Total Return (for period ending December 31, 1997)
<TABLE>
<CAPTION>
Class A Shares(1) Class B Shares(1) S&P 500(2)
----------------- ----------------- ----------
<S> <C> <C> <C>
Past One Year .......................... 24.49% 23.61% 33.36%
Total Return Since Inception ........... 93.39% (2/13/95) 89.53% (2/13/95) 111.65%
</TABLE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The S&P 500 Composite is an unmanaged index that is a widely recognized
benchmark of general market performance.
3
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FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Initial Sales Deferred Sales
Charge Charge
Alternative Alternative
----------- -----------
<S> <C> <C>
Shareholder Fees (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price).............................................. 4.50%* None
Maximum Deferred Sales Charge (Load) for purchases made before
May 1, 1999 (as a percentage of original purchase price or
redemption proceeds, whichever is lower).................................. 0.50%* 4.00%**
Maximum Deferred Sales Charge (Load) for purchases made on or
after May 1, 1999 (as a percentage of original purchase price or
redemption proceeds, whichever is lower)................................... 1.00%* 4.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends................... None None
Redemption Fee (as a percentage of amount redeemed, if applicable)............ None None
Exchange Fee.................................................................. None None
Annual Fund Operating Expenses (expenses that are deducted from
Fund assets)
Management Fees............................................................... 0.83% 0.83%
Distribution and/or Service (12b-1) Fees...................................... 0.25% 0.75%
Other Expenses (including a 0.25% shareholder servicing fee for
Class B Shares)............................................................ 0.16% 0.40%
----- ------
Total Annual Fund Operating Expenses.......................................... 1.24% 1.98%
</TABLE>
- -----------------------
* You will pay no sales charge on purchases of $1 million or more of Class
A Shares but, unless you are otherwise eligible for a sales charge waiver
or reduction, you may pay a contingent deferred sales charge of when you
redeem your shares. (See "Sales Charges -- Redemption Price".)
** Contingent deferred sales charges decline over time and reach zero after
six years. At that time, Class B Shares convert automatically to Class A
Shares. (See "Sales Charges -- How to Choose the Class that is Right for
You".)
Example
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
4
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<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares................................... $571 $826 $1100 $2395
Class B Shares................................... $609 $957 $1324 $2287
You would pay the following expenses if you did not redeem your shares:
Class B Shares................................... $202 $628 $1087 $2395
</TABLE>
The rules of the SEC require that the maximum sales charge be
reflected in the above table. However, you may qualify for reduced sales
charges or no sales charge at all. (Refer to the section on sales charges.) If
you hold your shares for a long time, the combination of the initial sales
charge you paid and the recurring 12b-1 fees may exceed the maximum sales
charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD Rules").
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks to achieve long-term growth of capital and,
secondarily, current income by investing primarily in a diversified portfolio
of common stocks and other equity securities. Other equity investments may
include preferred stocks, convertible securities, warrants and other
securities convertible into or exchangeable for common stocks.
The Fund's investment advisor (the "Advisor") and the Fund's
sub-advisor (the "Sub-Advisor") (collectively, the "Advisors") are responsible
for managing the Fund's investments. (Refer to the sections on Investment
Advisor and Sub-Advisor.) In selecting equity investments for the Fund's
portfolio, the Advisors use a "flexible value" approach. While they attempt to
identify securities that are undervalued in the marketplace, they also
consider such factors as current and expected earnings, dividends, cash flows
and asset values in their evaluation of a security's investment potential. The
Advisors consider both the opportunity for gain and the risk of loss in making
investments.
An investment in the Fund involves risk. Over time common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be volatile. Stock prices are sensitive to developments
affecting particular companies and to general economic conditions that affect
particular industry sectors or the securities markets as a whole. No one can
predict how the markets will behave in the future. There can be no guarantee
that the Fund will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in money market instruments and U.S.
Government
5
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obligations, investments that would not ordinarily be consistent with the
Fund's objectives. The Advisors would do so only if they believed the risk of
loss outweighed the opportunity for gain.
THE FUND'S NET ASSET VALUE
The following sections describe how to buy and redeem shares of the
Fund.
The price you pay or receive is based on the Fund's net asset value
per share. When you buy Class A Shares, the price you pay may be increased by
a sales charge. When you redeem shares of either class, the price you receive
may be reduced by a sales charge. Read the section on sales charges for
details on how and when these charges may or may not be imposed.
The net asset value per share of each class is determined on each
business day as of the close of trading on the New York Stock Exchange
(ordinarily 4:00 p.m. Eastern Time). It is calculated by subtracting the
liabilities attributable to a class from its proportionate share of the Fund's
assets and dividing the result by the outstanding shares of the class. Because
the different classes have different distribution or service fees, their net
asset values may differ from time to time.
In valuing the Fund's assets, its investments are priced at their
market value.
You may buy or redeem shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that
day, the price you pay or receive will be based on the next Business Day's net
asset value per share.
HOW TO BUY SHARES
You may buy either class of the Fund's shares through your securities
dealer or through any financial institution that is authorized to act as a
shareholder servicing agent. Contact them for details on how to enter and pay
for your order. You may also buy shares by sending your check (along with a
completed Application Form) directly to the Fund. The Application Form, which
includes instructions, is attached to this Prospectus.
You may invest in Class A Shares unless you are a defined
contribution plan with assets of $75 million or more.
6
<PAGE>
Your purchase order may not be accepted if the sale of Fund shares
has been suspended or if it is determined that your purchase would be
detrimental to the interests of the Fund's shareholders.
Investment Minimums
Your initial investment must be at least $2,000. Subsequent
investments must be at least $100. The following are exceptions to these
minimums:
o If you are investing in an IRA account, your initial investment
may be as low as $1,000.
o If you are a shareholder of any other Flag Investors fund, your
initial investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing
Plan, your initial investment may be as low as $250. If you
participate in the monthly plan, your subsequent investments
may be as low as $100. If you participate in the quarterly
plan, your subsequent investments may be as low as $250. Refer
to the section on the Fund's Automatic Investing Plan for
details.
o There is no minimum investment requirement for qualified
retirement plans such as 401(k), pension or profit sharing
plans.
Investing Regularly
You may make regular investments in the Fund through any of the
following methods. If you wish to enroll in any of these programs or if you
need any additional information, complete the appropriate section of the
attached Application Form or contact your securities dealer, your servicing
agent, or the Transfer Agent.
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in any class of shares. The amount you decide upon will
be withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in the class of
shares selected at that day's offering price. Either you or the Fund may
discontinue your participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income
and capital gains distributions will be reinvested in additional Fund shares
at net asset value. You may elect to receive your distributions in cash or to
have your distributions invested in shares of other Flag Investors funds. To
make either of these elections or to terminate automatic reinvestment,
complete the appropriate section of the attached Application Form or notify
the Transfer Agent,
7
<PAGE>
your securities dealer or your servicing agent at least five days before the
date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase any class of shares
through a Systematic Purchase Plan. Contact your securities dealer or
servicing agent for details.
HOW TO REDEEM SHARES
You may redeem any class of the Fund's shares through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If you have an account with
the Fund that is in your name, you may also redeem shares by contacting the
Transfer Agent by mail or (if you are redeeming less than $50,000) by
telephone. The Transfer Agent will mail your redemption check within seven
days after it receives your order in proper form. Refer to the section on
telephone transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent
may require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the
number of shares or dollar amount you wish to redeem. The letter must
be signed by all owners of the shares exactly as their names appear
on the account.
2) If you are redeeming more than $50,000, a guarantee of your signature
by a member of the Federal Deposit Insurance Corporation, a trust
company, broker, dealer, securities exchange or association, clearing
agency, savings association or (if authorized by state law) credit
union.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a
duly executed stock power.
4) Any additional documents that may be required if your account is in
the name of a corporation, partnership, trust or fiduciary.
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time,
the dividend will be paid to you by check, whether or not that is the payment
option you have selected.
8
<PAGE>
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you
60 days' notice. The Fund reserves the right to redeem shares in kind under
certain circumstances.
If you own Fund shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves
all the tax and sales charge implications normally associated with Fund
redemptions. Contact your securities dealer, your servicing agent or the
Transfer Agent for information on this plan.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $50,000 or exchange them for shares in another
Flag Investors fund by calling the Transfer Agent on any Business Day between
the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically
entitled to telephone transaction privileges but you may specifically request
that no telephone redemptions or exchanges be accepted for your account. You
may make this election when you complete the Application Form or at any time
thereafter by completing and returning documentation supplied by the Transfer
Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures
are employed, neither the Fund nor the Transfer Agent will bear any liability
for following telephone instructions that they reasonably believe to be
genuine. Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your shares in
certificate form, you may not exchange or redeem them by telephone.
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price
which is calculated by adding any applicable sales charges to the net asset
value per share of the class you are buying. The amount of any sales charge
included in your purchase price will be according to the following schedule:
9
<PAGE>
<TABLE>
<CAPTION>
Class A Sales Charge as % of
----------------------------
Offering Net Amount Class B
Amount of Purchase Price Invested Sales Charge
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $ 50,000 ................................. 4.50% 4.71% None
$ 50,000 - $ 99,999 .............................. 3.50% 3.63% None
$ 100,000 - $249,999 .............................. 2.50% 2.56% None
$ 250,000 - $499,999 .............................. 2.00% 2.04% None
$ 500,000 - $999,999 .............................. 1.50% 1.52% None
$1,000,000 and over ................................ None None None
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares or when you buy any amount of Class B
Shares, you may pay a sales charge when you redeem your shares. Refer to the
section on sales charges on redemptions for details.
The sales charge you pay on your current purchase of Class A Shares
may be reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A
Shares of this Fund or Class A shares of any other Flag Investors fund or if
you already have investments in Class A or Class D shares, you may combine the
value of your purchases with the value of your existing investments to
determine whether you qualify for a reduced sales charge. (For this purpose
your existing investments will be valued at the higher of cost or current
value.) You may also combine your purchases and investments with those of your
spouse and your children under the age of 21 for this purpose. You must be
able to provide sufficient information to verify that you qualify for this
right of accumulation.
Letter of Intent. If you anticipate making additional purchases of
Class A Shares over the next 13 months, you may combine the value of your
current purchase with the value of your anticipated purchases to determine
whether you qualify for a reduced sales charge. You will be required to sign a
letter of intent specifying the total value of your anticipated purchases and
to initially purchase at least 5% of the total. When you make each purchase
during the period, you will pay the sales charge applicable to their combined
value. If, at the end of the 13-month period, the total value of your
purchases is less than the amount you indicated, you will be required to pay
the difference between sales charges you paid and the sales charges applicable
to the amount you actually did purchase. Some of the shares you own will be
redeemed to pay this difference.
Purchases at Net Asset Value. You may buy Class A Shares without
paying a sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of
Class A Shares made within the last 90 days.
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<PAGE>
2) If you are exchanging an investment in another Flag Investors fund
for an investment in this Fund (see "Purchases by Exchange" for a
description of the conditions).
3) If you are a current or retired Director of the Fund, a director, an
employee or a member of the immediate family of an employee of any of
the following (or their respective affiliates): the Distributor, the
Advisors and any broker-dealer authorized to sell shares of the Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program.
(iii) A fiduciary or advisory account with a bank, bank trust
department, registered investment advisory company,
financial planner or securities dealer purchasing shares on
your behalf. To qualify for this provision you must be
paying an account management fee for the fiduciary or
advisory services. You may be charged an additional fee by
your securities dealer or servicing agent if you buy shares
in this manner;
Purchases by Exchange
You may exchange shares of any other Flag Investors fund with the
same sales charge structure for an equal dollar amount of Class A or Class B
Shares, as applicable, without payment of the sales charges described above or
any other charge. If you exchange Class A shares of any Flag Investors fund
with a lower sales charge structure into Class A Shares, you will be charged
the difference in sales charges unless (with the exception of Flag Investors
Cash Reserve Prime Class A Shares) you have owned the shares for at least 24
months. You may enter both your redemption and purchase orders on the same
Business Day or, if you have already redeemed the shares of the other fund,
you may enter your purchase order within 90 days of the redemption. The Fund
may modify or terminate these offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or
servicing agent. Contact them for details on how to enter your order. If your
shares are in an account with the Fund's Transfer Agent, you may also request
an exchange directly through the Transfer Agent by mail or by telephone.
Redemption Price
The amount of any sales charge deducted from your redemption price
will be determined according to the following schedule.
11
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<TABLE>
<CAPTION>
Sales Charge as a Percentage of the Dollar Amount Subject to Charge
-------------------------------------------------------------------
Class A Sales Charge (as % of) Class B Sales Charge (as % of)
------------------------------ ------------------------------
Years Since Purchase Cost or Value Cost or Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First .............................. 1.00%* 4.00%
Second ............................. 0.50%* 4.00%
Third .............................. None 3.00%
Fourth ............................. None 3.00%
Fifth .............................. None 2.00%
Sixth .............................. None 1.00%
Thereafter ......................... None None
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if you
bought those shares at net asset value as part of an investment of
$1,000,000 or more. For purchases of $1 million or more of Class A Shares
made before May 1, 1999, you will pay a sales charge of 0.50% if you redeem
them within the first year of purchase instead of the 1.00% reflected in
the above table.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will
be applied first to shares you have owned for the longest period of
time.
3) If you acquired the shares through an exchange of shares of another
Flag Investors fund, the period of time you held the original shares
will be combined with the period of time you held the shares being
redeemed to determine the years since purchase.
4) The sales charge is applied to the lesser of the cost of the shares or
their current market value.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging your shares for shares of another Flag
Investors fund with the same sales charge structure.
2) If your redemption represents the minimum required distribution from
an individual retirement account or other retirement plan.
3) If your redemption represents a distribution from a Systematic
Withdrawal Plan. This waiver applies only if the annual withdrawals
under your Plan are 12% or less of your share balance.
4) If shares are being redeemed in your account following your death or
a determination that you are disabled. This waiver applies only under
the following conditions:
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(i) The account is registered in your name either
individually, as a joint tenant with rights of
survivorship, as a participant in community
property, or as a minor child under the Uniform
Gifts or Uniform Transfers to Minors Acts.
(ii) Either you or your representative notifies your
securities dealer, servicing agent or the Transfer
Agent that such circumstances exist.
5) If you are redeeming Class A Shares, your original investment was at
least $3,000,000 and your securities dealer has agreed to return to
the Distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along
with any reinvested dividends or distributions associated with those shares,
will be automatically converted to Class A Shares six years after your
purchase. This conversion will be made on the basis of the relative net asset
values of the classes and will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you
should be based upon a number of factors including the amount of money you
intend to invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you
buy your shares but the amount of the charge declines as the amount of your
investment increases. You will pay lower expenses while you hold the shares
and, except in the case of investments of $1,000,000 or more, no sales charge
if you redeem them.
If you choose Class B Shares, you will pay no sales charge when you
buy your shares but your annual expenses will be higher than Class A Shares.
You will pay a sales charge if you redeem your shares within six years of
purchase, but the amount of the charge declines the longer you hold your
shares and, at the end of six years, your shares convert to Class A Shares
thus eliminating the higher expenses.
In general, if you intend to invest more than $100,000 your combined
sales charges and expenses are lower with Class A Shares. If you intend to
invest less than $100,000 and expect to hold your shares for more than six
years, your combined sales charges and expenses are lower with Class B Shares.
Your securities dealer or servicing agent may receive different
levels of compensation depending upon which class of shares you buy.
13
<PAGE>
Distribution Plans
The Fund pays your securities dealer or shareholder servicing agent
distribution and other fees for the sale of its shares and for shareholder
service. Class A Shares pay an annual distribution fee equal to 0.25% of
average daily net assets. Class B Shares pay an annual distribution fee of
0.75% of average daily net assets and an annual shareholder servicing fee of
0.25% of average daily net assets. Because these fees are paid out of net
assets on an on-going basis, they will, over time, increase the cost of your
investment and may cost you more than paying other types of sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all
of its taxable net investment income in the form of semi-annual dividends and
to distribute taxable net capital gains on an annual basis.
Tax Treatment of Dividends and Distributions
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not
you reinvest them. Dividends are ordinary income and capital gains
distributions are taxed based on how long the Fund held the assets. The Fund
will tell you annually how to treat dividends and distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gains you earn based on your holding period for the shares. An exchange of
shares of the Fund for shares of another fund is a sale of Fund shares for tax
purposes.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the
Fund's investment advisor and Alex. Brown Investment Management ("ABIM" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor
to other mutual funds in the Flag Investors family of funds and BT Alex Brown
Cash Reserve Fund, Inc. These funds, together with the Fund, had approximately
$______________ billion of net assets as of August 31, 1998. ABIM is a
registered investment advisor with approximately $______________ billion under
management as of August 31, 1998.
14
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ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of ABIM. ABIM is responsible
for decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates.
As compensation for its services for the fiscal year ended May 31,
1998, ICC received from the Fund a fee (net of fee waivers) equal to 0.83% of
the Fund's average daily net assets. ICC compensates ABIM out of its advisory
fee.
Portfolio Manager
Lee S. Owen has been responsible for managing the Fund's assets since
inception. Mr. Owen, who has 26 years' investment experience, joined ABIM as a
Vice President in 1983. From 1972 to 1983, Mr. Owen was a Vice President and
Portfolio Manager for T. Rowe Price Associates. Mr. Owen is a 1970 graduate of
Williams College and received his M.B.A. from the University of Virginia in
1972. He is a member of the Baltimore Security Analysts Society and the
Financial Analysts Federation.
<TABLE>
<CAPTION>
Past Performance of ABIM Annualized Rates of Return
Of Equity Accounts For Periods Ended June 30, 1998
- ----------------------------------------------------------------------------------------------------------------------
ABIM
Equity Accounts** S&P 500***
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 Years* ............................................... ____% ____%
5 Years* ............................................... ____% ____%
10 Years* .............................................. ____% ____%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** The ABIM performance results described above are based on a composite of
all institutional accounts not subject to tax that have investment
objectives and policies similar to those of the Fund and that were
advised by ABIM during the periods shown. As of June 30, 1998, such
accounts totaled $____ billion. Performance results for taxable accounts
are not included because the objectives and policies of such accounts
differ from those of the Fund. Data from all accounts have been
continuous from their inception to the present or to the cessation of the
client relationship with ABIM. Since January 1, 1993 composites have been
calculated in accordance with standards of the Association for Investment
Management and Research ("AIMR") and have been weighted for the size of
each account. Prior to January 1, 1993, accounts were equal weighted;
that is, every account was given equal weight with every other account,
regardless of size. Therefore, the performance of small accounts had a
larger impact on the results than would have been the case if the results
had been dollar weighted. In the period prior to January 1, 1993, there
were from 17 to 33 accounts, ranging in size from $1 million to $104.6
million. The results for each period were reduced by the highest
management fees (0.75%) charged to the composite accounts and assume the
reinvestment of dividends. The composite accounts are not subject to the
restrictions of the Investment Company Act or the Internal Revenue Code,
which, if applicable, might have adversely affected the performance of
such accounts.
*** Source: SEI Corporation.
These results are unaudited.
Past results should not be interpreted as
indicative of future performance.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since it began operations. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, are included in the Statement of
Additional Information, which is available upon request.
<TABLE>
<CAPTION>
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------------------
Class A Shares
---------------------------------------------
For the
Period
Feb. 13, 1995(1)
through
For the Year Ended May 31, May 31,
-------------------------- -------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period.....$ 16.93 $ 13.09 $ 10.77 $10.00
---------- ---------- -------- ------
Income from Investment Operations:
Net investment income...................... 0.05 0.08 0.17 0.12
Net realized and unrealized gain on
investments............................ 4.60 3.96 2.29 0.65
---------- ---------- -------- ------
Total from Investment Operations........... 4.65 4.04 2.46 0.77
Less Distributions:
Net investment income and short-term gains. (0.10) (0.13) (0.14) --
Net realized mid-term and long-term gains.. (0.19) (0.07) -- --
---------- ---------- -------- ------
Total distributions........................ (0.29) (0.20) (0.14) --
---------- ---------- -------- -------
Net asset value at end of period ..........$ 21.29 $ 16.93 $ 13.09 $ 10.77
========== ========== ======== =======
Total Return................................... 27.76% 31.17% 23.05% 7.70%
Ratios to Average Daily Net Assets:
Expenses................................... 1.24% 1.35%(2) 1.35%(2) 1.35%(2,4)
Net investment income...................... 0.29% 0.61%(3) 1.52%(3) 3.74%(3,4)
Supplemental Data:
Net assets at end of period (000).......... $198,387 $113,030 $64,230 $38,612
Portfolio turnover rate.................... 7.94% 17.60% 0.73% --
</TABLE>
- -------------------
(1) Commencement of operations.
(2) Without the waiver of advisory fees, 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.
(3) Without the waiver of advisory fees, 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.
(4) Annualized.
(5) Without the waiver of advisory fees, 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.
(6) Without the waiver of advisory fees, 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.
<PAGE>
<TABLE>
<CAPTION>
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------
Class B Shares
--------------------------------------------
For the
Period
Feb. 13, 1995(1)
through
For the Year Ended May 31, May 31,
--------------------------- -------
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period..... $ 16.84 $ 13.03 $ 10.75 $ 10.00
-------- -------- ------- --------
Income from Investment Operations:
Net investment income...................... (0.06) (0.04) 0.07 0.07
Net realized and unrealized gain on
investments............................ 4.54 3.96 2.31 0.68
--------- ---------- ------ -------
Total from Investment Operations........... 4.48 3.92 2.38 0.75
Less Distributions:
Net investment income and short-term gains. (0.03) (0.04) (0.10) --
Net realized mid-term and long-term gains.. (0.19) (0.07) -- --
--------- ---------- ------ -------
Total distributions........................ (0.22) (0.11) (0.10) --
--------- ---------- ------ -------
Net asset value at end of period ..........$ 21.10 $ 16.84 $ 13.03 $ 10.75
========== ========== ======= ========
Total Return................................... 26.81% 30.28% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses................................... 1.98% 2.10%(5) 2.10%(5) 2.10%(4,5)
Net investment income...................... (0.47)% (0.16)%(6) 0.71%(6) 1.97%(4),(6)
Supplemental Data:
Net assets at end of period (000).......... $37,046 $15,670 $5,302 $2,159
Portfolio turnover rate.................... 7.94% 17.60% 0.73% --
</TABLE>
- -------------------
(1) Commencement of operations.
(2) Without the waiver of advisory fees, 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.
(3) Without the waiver of advisory fees, 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.
(4) Annualized.
(5) Without the waiver of advisory fees, 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.
(6) Without the waiver of advisory fees, 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.
16
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Make check payable to "Flag Investors Equity Partners Fund, Inc." and mail with
this Application to:
Flag Investors Funds
P.O. Box 419663
Kansas City, MO 64141-6663
Attn: Flag Investors Equity Partners Fund, Inc.
For assistance in completing this Application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
To open an IRA account, please call 1-800-767-3524 for an IRA information kit.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate the amount of
purchase.)
[ ] Class A Shares (4.5% maximum initial sales charge) in the amount of
$_____________________
[ ] Class B Shares (4.0% maximum contingent deferred sales charge) in the
amount of $________________
The minimum initial purchase for each class of shares is $2,000, except that
the minimum initial purchase for shareholders of any other Flag Investors Fund
or class is $500 and the minimum initial purchase for participants in the
Fund's Automatic Investing Plan is $250 per class. The Fund reserves the right
not to accept checks for more than $50,000 that are not certified or bank
checks.
Your Account Registration (Please Print)
Existing Account No., if any: ___________________
Individual or Joint Tenant Gifts to Minors
<TABLE>
<S> <C>
- --------------------------------------- ------------------------------------------
First Name Initial Last Name Custodian's Name (only one allowed by law)
- --------------------------------------- ---------------------------------------
Social Security Number Minor's Name (only one)
- --------------------------------------- ---------------------------------------
Joint Tenant Initial Last Name Social Security Number of Minor
under the _______________ Uniform Gifts
State of Residence
to Minors Act
Corporations, Trusts, Partnerships, etc. Mailing Address
- --------------------------------------- ---------------------------------------
Name of Corporation, Trust or Partnership Street
- --------------- ------------------- ---------------------------------------
Tax ID Number Date of Trust City State Zip
- --------------------------------------- ( )
Name of Trustees (if to be included in ---------------------------------------
the Registration) Daytime Phone
- ---------------------------------------
For the Benefit of
</TABLE>
<PAGE>
Letter of Intent -- Class A Shares only (Optional)
[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Equity
Partners Fund, Inc., in an aggregate amount at least equal to:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
Right of Accumulation -- Class A Shares only (Optional)
[ ] List the Account numbers of other Flag Investors Funds (except Class B
Shares) that you or your immediate family already own that qualify for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional shares of the same class of the
Fund at no sales charge.
Income Dividends Capital Gains
| ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash
Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
A-1
<PAGE>
Automatic Investing Plan (Optional)
[ ] I authorize you as Agent for the Automatic Investing Plan to automatically
invest $__________ in Class A Shares or $ ______ in Class B Shares for me, on
a monthly or quarterly basis, on or about the 20th of each month or if
quarterly, the 20th of January, April, July and October, and to draw a bank
draft in payment of the investment against my checking account. (Bank drafts
may be drawn on commercial banks only.)
Minimum Initial Investment: $250 per class
Please attach a voided check.
Subsequent Investments (check one): [ ] Monthly ($100 minimum per class)
[ ] Quarterly ($250 minimum per class)
- ---------------------------------- -------------------------------------------
Bank Name Depositor's Signature Date
- ---------------------------------- -------------------------------------------
Existing Flag Investors Fund Depositor's Signature Date
Account No., if any (if joint acct., both must sign)
Systematic Withdrawal Plan (Optional)
[ ] Beginning the month of __________ , 19___ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete
as applicable) $_______ from Class A Shares and/or $ __________ from Class
B Shares that I own, payable to the account registration address as shown
above. (Participation requires minimum account value of $10,000 per class.)
Frequency (check one): [ ] Monthly [ ] Quarterly
(January, April, July and October)
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect to
other Flag Investors Funds) unless I mark one or both of the boxes below:
No, I/We do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a predesignated bank account, please
provide the following information:
Bank: _______________________ Bank Account No.:________________________
Address: _____________________ Bank Account Name:_______________________
<PAGE>
Signature and Taxpayer Certification
- -------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service ("IRS") that
I am subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer Agent
within 60 days of the date of this Application or if I fail to furnish my
correct Social Security Number or Tax ID Number, I may be subject to a
penalty and a 31% backup withholding on distributions and redemption
proceeds. (Please provide either number on IRS Form W-9. You may request
such form by calling the Transfer Agent at 800-553-8080).
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: ________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
- -------------------------------------------------------------------------------
I have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be effected
as described in the Fund's current prospectus (see "Telephone Transactions"). I
also acknowledge that I may bear the risk of loss in the event of fraudulent
use of such privileges. If I do not want telephone redemption or exchange
privileges, I have so indicated on this Application.
- -------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- -------------------------------------------------------------------------------
- ------------------------------- -------------------------------------------
Signature Date Signature (if joint acct., Date
both must sign)
- --------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: _______________________ Dealer Code: __________________________
Dealer's Address: ____________________ Branch Code: __________________________
Representative: ______________________ Rep. No.: _____________________________
A-2
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
(Class A and Class B Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT ICC DISTRIBUTORS, INC.
MANAGEMENT P.O. Box 7558
One South Street Portland, Maine 04101
Baltimore, Maryland 21202
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
New York, New York 10006 Philadelphia, Pennsylvania 19103
18
<PAGE>
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report
a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. (Call 1-800-SEC-0330 to find out about the operation of the Public
Reference Room) The Commission's Internet site at http.//www.sec.gov has
reports and other information about the Fund and you may get copies of this
information by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Fund at (800) 767-FLAG, the
Transfer Agent at (800) 553-8080, or your securities dealer or servicing
agent.
Investment Company Act File No. 811-8886
19
<PAGE>
FLAG INVESTORS
EQUITY PARTNERS FUND, INC.
(Institutional Shares)
Prospectus & Application -- October 1, 1998
This mutual fund (the "Fund") seeks to achieve long-term growth of
capital and, secondarily, current income by investing primarily in a
diversified portfolio of common stocks and other equity securities.
The Fund offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy
Institutional Shares through the Fund's Transfer Agent. This Prospectus
describes Flag Investors Institutional Shares (the "Institutional Shares") of
the Fund. Institutional Shares may be purchased only by eligible institutions,
certain qualified retirement plans or by clients of investment advisory
affiliates of BT Alex. Brown Incorporated.
TABLE OF CONTENTS
Page
----
INVESTMENT SUMMARY.........................................................2
FEES AND EXPENSES OF THE FUND..............................................4
INVESTMENT PROGRAM.........................................................4
THE FUND'S NET ASSET VALUE.................................................5
HOW TO BUY INSTITUTIONAL SHARES............................................6
HOW TO REDEEM INSTITUTIONAL SHARES.........................................7
TELEPHONE TRANSACTIONS.....................................................7
DIVIDENDS AND TAXES........................................................8
INVESTMENT ADVISOR AND SUB-ADVISOR.........................................8
FINANCIAL HIGHLIGHTS......................................................10
APPLICATION...............................................................11
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
1
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks to achieve long-term growth of capital and,
secondarily, current income by investing primarily in a diversified portfolio
of common stocks and other equity securities. The Fund's investment advisor
and sub-advisor use a "flexible value" approach in choosing securities. They
try to find securities that are undervalued in the marketplace but, in
evaluating a security's potential, they also consider such factors as current
and expected earnings, dividends, cash flows and asset values.
Risk Profile
The Fund is best suited for investors who are willing to accept the
risks and uncertainties of the stock markets in the hope of earning superior
long-term gains. The value of an investment in the Fund will vary from
day-to-day based on changes in the prices of the securities the Fund holds.
Those prices, in turn, reflect investor perceptions of the economy, the
markets and the companies represented in the Fund's portfolio. An investment
in the Fund is not a bank deposit and is not guaranteed by the FDIC or any
government agency.
Fund Performance
The following bar chart and table show the performance of the Fund
both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. This is an historical record and does not necessarily
indicate how the Fund will perform in the future.
2
<PAGE>
Flag Investors Equity Partners Fund, Inc.
Institutional Shares
1996 21.32%
1997 24.76%
During the 2-year period shown in the bar chart, the highest return for a
quarter was 14.28% (quarter ended June 30, 1997) and the lowest return for a
quarter was 0.39% (quarter ended December 31, 1997).
Average Annual Total Return (for period ending December 31, 1997)
<TABLE>
<CAPTION>
Institutional Shares(1) S&P 500(2)
----------------------- ---------
<S> <C> <C>
Past One Year .................................... 24.76% 33.36%
Total Return Since Inception ..................... 51.36% (2/12/96) 57.13%
</TABLE>
- -----------------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The S&P 500 Composite is an unmanaged index that is a widely
recognized benchmark of general market performance.
3
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Fees (fees paid directly from your investment) Maximum Sales
Charge (Load) Imposed on Purchases (as a
percentage of offering price).................................................................. None
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, whichever is lower)..................................... None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends....................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)................................ None
Exchange Fee...................................................................................... None
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
Management Fees................................................................................... 0.83
Distribution and/or Service (12b-1) Fees.......................................................... None
Other Expenses.................................................................................... 0.15%
-----
Total Annual Fund Operating Expenses.............................................................. 0.98%
</TABLE>
Example
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Shares................................ $100 $312 $542 $1201
</TABLE>
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks to achieve long-term growth of capital and,
secondarily, current income by investing primarily in a diversified portfolio
of common stocks and other equity securities. Other equity investments may
include preferred stocks, convertible securities, warrants and other
securities convertible into or exchangeable for common stocks.
4
<PAGE>
The Fund's investment advisor (the "Advisor") and the Fund's
sub-advisor (the "Sub-Advisor") (collectively, the "Advisors") are responsible
for managing the Fund's investments. (Refer to the sections on Investment
Advisor and Sub-Advisor.) In selecting equity investments for the Fund's
portfolio, the Advisors use a "flexible value" approach. While they attempt to
identify securities that are undervalued in the marketplace, they also
consider such factors as current and expected earnings, dividends, cash flows
and asset values in their evaluation of a security's investment potential. The
Advisors consider both the opportunity for gain and the risk of loss in making
investments.
An investment in the Fund involves risk. Over time common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be volatile. Stock prices are sensitive to developments
affecting particular companies and to general economic conditions that affect
particular industry sectors or the securities markets as a whole. No one can
predict how the markets will behave in the future. There can be no guarantee
that the Fund will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in money market instruments and U.S.
Government obligations, investments that would not ordinarily be consistent
with the Fund's objectives. The Advisors would do so only if they believed the
risk of loss outweighed the opportunity for gain.
THE FUND'S NET ASSET VALUE
The following sections describe how to buy and redeem shares of the
Fund.
The price you pay or receive is based on the Fund's net asset value
per share. The net asset value per share of each class is determined on each
business day as of the close of trading on the New York Stock Exchange
(ordinarily 4:00 p.m. Eastern Time). It is calculated by subtracting the
liabilities attributable to a class from its proportionate share of the Fund's
assets and dividing the result by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their
market value.
You may buy or redeem shares on any day on which the New York Stock
Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that
day, the price you pay or receive will be based on the next Business Day's net
asset value per share.
5
<PAGE>
HOW TO BUY INSTITUTIONAL SHARES
You may buy Institutional Shares if you are any of the following:
o An eligible institution (e.g., a financial institution,
corporation, investment counselor, trust, estate or
educational, religious or charitable institution or a
qualified retirement plan other than a defined contribution
plan).
o A defined contribution plan with assets of at least $75 million.
o An investment advisory affiliate of BT Alex. Brown purchasing
shares for the accounts of your investment advisory clients.
You may buy Institutional Shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy Institutional Shares by sending your check (along with
a completed Application Form) directly to the Fund. The Application Form,
which includes instructions, is attached to this Prospectus.
Your purchase order may not be accepted if the sale of Fund shares
has been suspended or if it is determined that your purchase would be
detrimental to the interests of the Fund's shareholders.
Investment Minimums
If you are an eligible institution, your initial investment must be
at least $500,000.
The following are exceptions to the $500,000 minimum initial
investment:
o There is no minimum initial investment for
investment advisory affiliates of BT Alex. Brown
purchasing shares for the accounts of its
investment advisory clients.
o There is no minimum initial investment for defined
contribution plans with assets of at least $75
million.
o The minimum initial investment for all other
qualified retirement plans is $1 million.
There are no minimums for subsequent investments.
6
<PAGE>
Purchases by Exchange
You may exchange Institutional Shares of any other Flag Investors
fund for an equal dollar amount of Institutional Shares of the Fund. The Fund
may modify or terminate these offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or
servicing agent. Contact them for details on how to enter your order. If your
shares are in an account with the Fund's Transfer Agent, you may also request
an exchange directly through the Transfer Agent by mail or by telephone.
HOW TO REDEEM INSTITUTIONAL SHARES
You may redeem any Institutional Shares through your securities
dealer or servicing agent. Contact them for details on how to enter your order
and for information as to how you will be paid. If your shares are in an
account with the Fund, you may also redeem them by contacting the Transfer
Agent by mail or (if you are redeeming less than $500,000) by telephone. You
will be paid for redeemed shares by wire transfer of funds to your securities
dealer, servicing agent or bank upon receipt of a duly authorized redemption
request as promptly as feasible and, under most circumstances, within three
Business Days.
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time,
the dividend will be remitted by wire to your securities dealer, servicing
agent or bank.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you
60 days' notice. The Fund reserves the right to redeem shares in kind under
certain circumstances.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $500,000 or exchange them for Institutional
Shares of another Flag Investors fund by calling the Transfer Agent on any
Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You
are automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted
for your account. You may make this election when you complete the Application
Form or at any time thereafter by completing and returning documentation
supplied by the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain
7
<PAGE>
personal identification information when you open your account and before you
effect each telephone transaction. You may be required to provide additional
telecopied instructions. If these procedures are employed, neither the Fund
nor the Transfer Agent will bear any liability for following telephone
instructions that they reasonably believe to be genuine. Your telephone
transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your shares in
certificate form, you may not exchange or redeem them by telephone.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all
of its taxable net investment income in the form of semi-annual dividends and
to distribute taxable net capital gains on an annual basis.
Tax Treatment of Dividends and Distributions
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not
you reinvest them. Dividends are ordinary income and capital gains
distributions are taxed based on how long the Fund held the assets. The Fund
will tell you annually how to treat dividends and distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gains you earn based on your holding period for the shares. An exchange of
shares of the Fund for shares of another fund is a sale of Fund shares for tax
purposes.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the
Fund's investment advisor and Alex. Brown Investment Management ("ABIM" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor
to other mutual funds in the Flag Investors family of funds and BT Alex Brown
Cash Reserve Fund, Inc. These funds, together with the Fund, had approximately
$_____________ billion of net assets as of August 31, 1998. ABIM is a
registered investment advisor with approximately $_____________ billion under
management as of August 31, 1998.
8
<PAGE>
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of ABIM. ABIM is responsible
for decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates.
As compensation for its services for the fiscal year ended May 31,
1998, ICC received from the Fund a fee (net of fee waivers) equal to 0.83% of
the Fund's average daily net assets. ICC compensates ABIM out of its advisory
fee.
Portfolio Manager
Lee S. Owen has been responsible for managing the Fund's assets since
inception. Mr. Owen who, has 26 years' investment experience, joined ABIM as a
Vice President in 1983. From 1972 to 1983, Mr. Owen was a Vice President and
Portfolio Manager for T. Rowe Price Associates. Mr. Owen is a 1970 graduate of
Williams College and received his M.B.A. from the University of Virginia in
1972. He is a member of the Baltimore Security Analysts Society and the
Financial Analysts Federation.
Past Performance of ABIM
Annualized Rates of Return
Of Equity Accounts
For Periods Ended June 30, 1998
---------------------------------------------
ABIM
Equity Accounts** S&P 500***
- ------------------------------------------------------------------------------
3 Years* ..................... ____% ____%
5 Years* ..................... ____% ____%
10 Years* .................... ____% ____%
- ------------------------------------------------------------------------------
* Annualized.
** The ABIM performance results described above are based on a composite of
all institutional accounts not subject to tax that have investment
objectives and policies similar to those of the Fund and that were
advised by ABIM during the periods shown. As of June 30, 1998, such
accounts totaled $____ billion. Performance results for taxable accounts
are not included because the objectives and policies of such accounts
differ from those of the Fund. Data from all accounts have been
continuous from their inception to the present or to the cessation of the
client relationship with ABIM. Since January 1, 1993 composites have been
calculated in accordance with standards of the Association for Investment
Management and Research ("AIMR") and have been weighted for the size of
each account. Prior to January 1, 1993, accounts were equal weighted;
that is, every account was given equal weight with every other account,
regardless of size. Therefore, the performance of small accounts had a
larger impact on the results than would have been the case if the results
had been dollar weighted. In the period prior to January 1, 1993, there
were from 17 to 33 accounts, ranging in size from $1 million to $104.6
million. The results for each period were reduced by the highest
management fees (0.75%) charged to the composite accounts and assume the
reinvestment of dividends. The composite accounts are not subject to the
restrictions of the Investment Company Act or the Internal Revenue Code,
which, if applicable, might have adversely affected the performance of
such accounts.
*** Source: SEI Corporation.
These results are unaudited.
Past results should not be interpreted as
indicative of future performance.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since it began operations. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the Fund's financial statements, are included in the Statement of
Additional Information, which is available upon request.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Year For the Period
Ended Feb. 12, 1996(1)
May 31, through May 31,
--------------------- ---------------
1998 1997 1996
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period..................... $ 16.94 $13.10 $ 12.72
-------- ------ -------
Income from Investment Operations:
Net investment income...................................... 0.10 0.14 0.04
Net realized and unrealized gain on investments............ 4.59 3.95 0.34
-------- ------ -------
Total from Investment Operations........................... 4.69 4.09 0.38
Less Distributions:
Net investment income and short-term gains................. (0.14) (0.18) --
Net realized mid-term and long-term gains.................. (0.19) (0.07) --
-------- ------ -------
Total distributions........................................ (0.33) (0.25) --
-------- ------ -------
Net asset value at end of period .......................... $ 21.32 $ 16.94 $ 13.10
========== ======= =======
Total Return................................................... 28.14% 31.58% 3.23%
Ratios to Average Daily Net Assets:
Expenses................................................... 0.98% 1.10%(2) 1.10%(2),(4)
Net investment income...................................... 0.54% 0.81%(3) 1.20%(3),(4)
Supplemental Data:
Net assets at end of period (000).......................... $94,354 $42,115 $4,235
Portfolio turnover rate.................................... 7.94% 17.60% 0.73%
</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%, 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.
10
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Send completed Application by overnight carrier to:
BT Alex. Brown Incorporated/Flag Investors Funds
330 West 9th Street, First Floor
Kansas City, MO 64105
Attn: Flag Investors Equity Partners Fund, Inc.
For assistance in completing this application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
If you are paying by check, make check payable to "Flag Investors Equity
Partners Fund, Inc." and mail the Application. If you are paying by wire, see
instructions below.
- --------------------------------------------------------------------------------
Your Account Registration (Please Print)
Name on Account Mailing Address
<TABLE>
<S> <C>
- -------------------------------------------- --------------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive Correspondence
- -------------------------------------------- --------------------------------------------
Tax ID Number Street
[ ] Corporation [ ] Partnership [ ] Trust --------------------------------------------
[ ] Non-Profit or Charitable Organization City State Zip
[ ] Other _______________ ( )
If a Trust, please provide the following: --------------------------------------------
Daytime Phone
- --------------------------------------------
- ----------------------------------------------------------------------------------------
Date of Trust For the Benefit of
- ----------------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
</TABLE>
<PAGE>
Initial Investment
The minimum initial purchase for the Institutional Shares of the Fund is
$500,000, except that the minimum initial purchase is $1,000,000 for qualified
retirement plans. There is no minimum for clients of investment advisory
affiliates of BT Alex Brown or for subsequent investments.
Indiciate the amount to be invested and the method of payment:
__A. By Mail: Enclosed is a check in the amount of $_____________ payable to
Flag Investors Equity Partners Fund, Inc.
__B. By Wire: A bank wire in the amount of $______________ has been sent from
____________________ ___________________
Name of Bank Wire Control Number
Wire Instructions:
Follow the instructions below to arrange for a wire transfer for
initial investment:
o Send completed Application by overnight carrier to BT Alex. Brown
Incorporated/Flag Investors Funds at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust Company
("IFTC"), as follows:
IFTC
a/c BT Alex Brown Incorporation/Flag Investors Funds
Acct. #7528353
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following in the wire:
o Flag Investors Equity Partners Fund, Inc. -- Institutional Shares
o The amount to be invested
o "For further credit to ________________________________."
(Investor's Fund Account Number)
<PAGE>
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Institutional Shares of the
Fund.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $500,000) and exchange privileges (with respect to
Institutional Shares of other Flag Investors Funds) unless I mark one or both
of the boxes below:
No, I do not want: [ ] Telephone redemption privileges
[ ] Telephone exchange privileges
Redemptions effected by telephone will be wired to the bank account
designated below.
Bank Account Designation
(This Section Must Be Completed)
Please attach a blank, voided check to provide account and bank routing
information.
- ---------------------------------------------------------------------
Name of Bank Branch
- ---------------------------------------------------------------------
Bank Address City/State/Zip
- ---------------------------------------------------------------------
Name(s) on Account
- ---------------------------------------------------------------------
Account Number A.B.A. Number
A-1
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Acknowledgment, Certificate and Signature
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against the
shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Tax ID Number and (2) I am not subject to any backup withholding either
because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest or dividends, or
(c) the IRS has notified me that I am no longer subject to backup
withholding.
[ ] If no Tax ID Number has been provided above, I have applied, or intend to
apply, to the IRS for a Tax ID Number, and I understand that if I do not
provide such number to the Transfer Agent within 60 days of the date of
this Application or if I fail to furnish my correct Tax ID Number, I may
be subject to a penalty and a 31% backup withholding on distributions and
redemption proceeds. (Please provide your Tax ID Number on IRS Form W-9.
You may request such form by calling the Transfer Agent at 800-553-8080.)
[ ] Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax
purposes: __________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
I have received a copy of the Fund's prospectus. I acknowledge that the
telephone redemption and exchange privileges are automatic and will be effected
as described in the Fund's current prospectus (see "Telephone Transactions"). I
also acknowledge that I may bear the risk of loss in the event of fraudulent
use of such privileges. If I do not want telephone redemption or exchange
privileges, I have so indicated on this Application.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
Signature of Corporate Officer, Date
General Partner, Trustee, etc.
- --------------------------------------------------------------------------------
Signature of Corporate Officer, Date
General Partner, Trustee, etc.
Person(s) Authorized to Conduct Transactions
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any ---
* of the Authorized Person(s) is, by lawful and appropriate action of the
investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- ------------------------------- -----------------------------------
Name/Title Signature Date
- ------------------------------- -----------------------------------
Name/Title Signature Date
- ------------------------------- -----------------------------------
Name/Title Signature Date
- ------------------------------- -----------------------------------
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that person's
signature. Investment Company Capital Corp. ("ICC") may, without inquiry, act
upon the instructions (whether verbal, written, or provided by wire,
telecommunication, or any other process) of any person claiming to be an
Authorized Person. Neither ICC nor any entity on behalf of which ICC is acting
shall be liable for any claims or expenses (including legal fees) or for any
losses resulting from actions taken upon any instructions believed to be
genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended Application.
Provisions of this Application shall be equally Applicable to any successor of
ICC.
* If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from
any one Authorized Person. Written instructions will require signatures of
the number of Authorized Persons indicated in this space.
<PAGE>
Certificate of Authority
Investors must complete one of the following two Certificates of Authority.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I___________________ , Secretary of the above-named investor, do hereby certify
that at a meeting on ____________, at which a quorum was present throughout, the
Board of Directors (Board of Trustees) of the investor duly adopted a
resolution which is in full force and effect and in accordance with the
investor's charter and by-laws, which resolution did the following: (1)
empowered the officers/trustees executing this Application (or amendment) to do
so on behalf of the investor; (2) empowered the above-named Authorized
Person(s) to effect securities transactions for the investor on the terms
described above; (3) authorized the Secretary to certify, from time to time,
the names and titles of the officers of the investor and to notify ICC when
changes in officers occur; and (4) authorized the Secretary to certify that
such a resolution has been duly adopted and will remain in full force and
effect until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor.
this __ day of ______________, 199__ Secretary____________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
- ------------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf of
the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If there
are not enough spaces here for all necessary signatures, complete a separate
certificate containing the language of this Certificate B and attach it to the
Application).
- ---------------------------------------------------------------------
Signature and title Date
- ---------------------------------------------------------------------
Signature and title Date
A-2
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
ALEX. BROWN INVESTMENT MANAGEMENT ICC DISTRIBUTORS, INC.
One South Street P.O. Box 7558
Baltimore, Maryland 21202 Portland, Maine 04101
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
New York, New York 10006 Philadelphia, Pennsylvania 19103
12
<PAGE>
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing
detailed financial information and, in the case of the annual report
a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal
year.
In addition you may review information about the Fund (including the SAI) at
the Securities and Exchange Commission's Public Reference Room in Washington,
D.C. (Call 1-800-SEC-0330 to find out about the operation of the Public
Reference Room) The Commission's Internet site at http.//www.sec.gov has
reports and other information about the Fund and you may get copies of this
information by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Fund at (800) 767-FLAG, the
Transfer Agent at (800) 553-8080, or your securities dealer or servicing
agent.
Investment Company Act File No. 811-8886
13
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
One South Street
Baltimore, Maryland 21202
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS.
IT SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS WHICH MAY
BE OBTAINED FROM YOUR SECURITIES DEALER OR SHAREHOLDER
SERVICING AGENT OR BY WRITING OR CALLING THE FUND, ONE SOUTH
STREET, BALTIMORE, MARYLAND 21202, (800) 767-FLAG.
Statement of Additional Information Dated:
October 1, 1998
Relating to Prospectuses Dated:
October 1, 1998, relating to the Class A, Class B
and Institutional Shares
<PAGE>
TABLE OF CONTENTS
Page
------
1. General Information and History................................ 1
2. Investment Objectives, Policies and Risk Considerations........ 1
3. Valuation of Shares and Redemption............................. 6
4. Federal Tax Treatment of Dividends and
Distributions................................................ 7
5. Management of the Fund......................................... 9
6. Investment Advisory and Other Services......................... 14
7. Distribution of Fund Shares.................................... 15
8. Brokerage...................................................... 19
9. Capital Stock.................................................. 20
10. Semi-Annual Reports............................................ 21
11. Custodian, Transfer Agent and Accounting Services.............. 21
12. Independent Accountants........................................ 22
13. Legal Matters ................................................. 22
14. Performance Information........................................ 22
15. Control Persons and Principal Holders of
Securities................................................... 24
16. Financial Statements........................................... 24
Appendix A................................................... A-1
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Equity Partners Fund, Inc. (the "Fund") is an
open-end diversified management investment company. Under the rules and
regulations of the Securities and Exchange Commission (the "SEC"), all mutual
funds are required to furnish prospective investors with certain information
concerning the activities of the company being considered for investment. The
Fund currently offers three classes of shares: Flag Investors Equity Partners
Fund Class A Shares (the "Class A Shares"), Flag Investors Equity Partners
Fund Class B Shares (the "Class B Shares") and Flag Investors Equity Partners
Fund Institutional Shares (the "Institutional Shares") (collectively, the
"Shares"). As used herein, the "Fund" refers to Flag Investors Equity Partners
Fund, Inc. and specific references to any class of the Fund's Shares will be
made using the name of such class.
Important information concerning the Fund is included in the
Fund's Prospectuses, which may be obtained without charge from the Fund's
distributor (the "Distributor") or from Participating Dealers that offer
Shares to prospective investors. Prospectuses for the Class A Shares and the
Class B Shares may also be obtained from Shareholder Servicing Agents. Some of
the information required to be in this Statement of Additional Information is
also included in the Fund's current Prospectuses. To avoid unnecessary
repetition, references are made to related sections of the Prospectuses. In
addition, the Prospectuses and this Statement of Additional Information omit
certain information about the Fund and its business that is contained in the
Registration Statement respecting the Fund and its Shares filed with the SEC.
Copies of the Registration Statement as filed, including such omitted items,
may be obtained from the SEC by paying the charges prescribed under its rules
and regulations.
The Fund was incorporated under the laws of the State of
Maryland on November 29, 1994. The Fund filed a registration statement with
the SEC registering itself as an open-end diversified management investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act") and its Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and commenced operations on February 13, 1995. The Fund has
offered the Institutional Shares since February 12, 1996.
Under a license agreement dated January 31, 1995 between the
Fund and Alex. Brown & Sons Incorporated (predecessor to BT Alex. Brown
Incorporated), Alex. Brown & Sons Incorporated licenses to the Fund the "Flag
Investors" name and logo but retains the rights to the name and logo,
including the right to permit other investment companies to use them.
The Fund depends on the smooth functioning of computer
systems in almost every aspect of its business. The Fund could be adversely
affected if the computer systems used by its service providers do not properly
process dates on and after January 1, 2000 and distinguish between the year
2000 and the year 1900. The Fund has asked its service providers whether they
expect to have their computer systems adjusted for the year 2000 transition,
and received assurances from each that its system is expected to accommodate
the year 2000 without material adverse consequences to the Fund. The Fund and
its shareholders may experience losses if these assurances prove to be
incorrect or if issuers of portfolio securities or third parties, such as
custodians, banks, broker-dealers or others, with which the Fund does business
experience difficulties as a result of year 2000 issues.
2. INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund has the investment objective of seeking long-term
growth of capital and, secondarily, current income. The Fund seeks to achieve
this objective primarily through a policy of
1
<PAGE>
diversified investments in common stocks. The Fund may make other equity
investments (including preferred stocks, convertible securities, warrants and
other securities convertible into or exchangeable for common stocks). Under
normal market conditions, the Fund will invest as fully as feasible in equity
securities and at least 65% of the Fund's total assets will be so invested.
There can be no assurance that the Fund's investment objective will be
achieved.
In addition, the Fund may invest, up to 10% of its total
assets in non-convertible debt securities. Up to all of any such investments
may be in securities that are rated below investment grade by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group ("S&P")
or are unrated and of similar quality. A description of the rating categories
of S&P and Moody's is set forth in Appendix A to this Statement of Additional
Information. Any remaining assets of the Fund not invested as described above
may be invested in high quality money market instruments. For temporary,
defensive purposes, the Fund may invest up to 100% of its assets in high
quality short-term money market instruments, including repurchase agreements,
and in bills, notes or bonds issued by the U.S. Treasury Department or by
other agencies of the U.S. Government.
Additional information about certain of the Fund's investment
policies and practices are described below.
Equity Securities
Equity securities include common stocks, preferred stocks,
warrants, and other securities that may be converted into or exchanged for
common stocks. Common stocks are equity securities that represent an ownership
interest in a corporation, entitling the shareholder to voting rights and
receipt of dividends based on proportionate ownership. Preferred stock is a
class of capital stock that pays dividends at a specified rate and that has
preference over common stock in the payment of dividends and the liquidation
of assets. Warrants are instruments giving holders the right, but not the
obligation, to buy shares of a company at a given price during a specified
period. Convertible securities are securities that may be converted either at
a stated price or rate within a specified period of time into a specified
number of shares of common stock.
In general, the market value of a convertible security is at
least the higher of its "investment value" (i.e., its value as a fixed-income
security) or its "conversion value" (i.e., the value of the underlying shares
of common stock if the security is converted). As a fixed-income security, a
convertible security tends to increase in market value when interest rates
decline and tends to decrease in value when interest rates rise. However, the
price of a convertible security also is influenced by the market value of the
security's underlying common stock. Thus, the price of a convertible security
tends to increase as the market value of the underlying common stock
increases, whereas it tends to decrease as the market value of the underlying
stock declines. Investments in convertible securities generally entail less
risk than investment in common stock of the same issuer.
Below Investment Grade Corporate Bonds
The Fund may invest up to 10% of its total assets (measured
at the time of the investment) in lower quality non-convertible debt
securities [securities rated BB or lower by Standard & Poor's Ratings Group
("S&P") or Ba or lower by Moody's Investors Service, Inc. ("Moody's") and
unrated securities of comparable quality]. Lower rated debt securities, also
known as "junk bonds", are considered to be speculative and involve greater
risk of default or price changes due to changes in the issuer's
creditworthiness. These securities may trade at substantial discounts from
their face values. Accordingly, if the Fund is successful in meeting its
objectives, investors may receive a total return consisting not only of income
dividends but, to a lesser extent, capital gain distributions.
2
<PAGE>
Appendix A to this Statement of Additional Information sets
forth a description of the S&P and Moody's rating categories, which indicate
the rating agency's opinion as to the probability of timely payment of
interest and principal.
Ratings of S&P and Moody's represent their opinions of the
quality of bonds and other debt securities they undertake to rate at the time
of issuance. However, these ratings are not absolute standards of quality and
may not reflect changes in an issuer's creditworthiness. Accordingly, the
Fund's investment advisor (the "Advisor") and the Fund's sub-advisor (the
"Sub-Advisor") (collectively, the "Advisors") do not rely exclusively on
ratings issued by S&P or Moody's in selecting portfolio securities but
supplement such ratings with independent and ongoing review of credit quality.
In addition, the total return the Fund may earn from investments in high-yield
securities will be significantly affected not only by credit quality but by
fluctuations in the markets in which such securities are traded. Accordingly,
selection and supervision by the Advisors of investments in lower rated
securities involves continuous analysis of individual issuers, general
business conditions, activities in the high-yield bond market and other
factors. The analysis of issuers may include, among other things, historic and
current financial conditions, strength of management, responsiveness to
business conditions, credit standing and current and anticipated results of
operations. Analysis of general business conditions and other factors may
include anticipated changes in economic activity in interest rates, the
availability of new investment opportunities and the economic outlook for
specific industries.
Investing in higher yield, lower rated bonds entails
substantially greater risk than investing in investment grade bonds, including
not only credit risk, but potentially greater market volatility and lower
liquidity. Yields and market values of high-yield bonds will fluctuate over
time, reflecting not only changing interest rates but also the bond market's
perception of credit quality and the outlook for economic growth. When
economic conditions appear to be deteriorating, lower rated bonds may decline
in value due to heightened concern over credit quality, regardless of
prevailing interest rates. In addition, in adverse economic conditions, the
liquidity of the secondary market for junk bonds may be significantly reduced.
In addition, adverse economic developments could disrupt the high-yield
market, affecting both price and liquidity, and could also affect the ability
of issuers to repay principal and interest, thereby leading to a default rate
higher than has been the case historically. Even under normal conditions, the
market for high-yield bonds may be less liquid than the market for investment
grade corporate bonds. There are fewer securities dealers in the high-yield
market and purchasers of high-yield bonds are concentrated among a smaller
group of securities dealers and institutional investors. In periods of reduced
market liquidity, the market for high-yield bonds may become more volatile and
there may be significant disparities in the prices quoted for high-yield
securities by various dealers. Under conditions of increased volatility and
reduced liquidity, it would become more difficult for the Fund to value its
portfolio securities accurately because there might be less reliable,
objective data available.
Finally, prices for high-yield bonds may be affected by
legislative and regulatory developments. For example, from time to time,
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such
as takeovers, mergers or leveraged buyouts. Such legislation may significantly
depress the prices of outstanding high-yield bonds.
Repurchase Agreements
The Fund may enter into repurchase agreements with domestic
banks or broker-dealers deemed to be creditworthy by the Advisors under
guidelines approved by the Board of Directors. A repurchase agreement is a
short-term investment in which the Fund acquires ownership of a debt security
and the seller agrees to repurchase the obligation at a future time and set
price, usually
3
<PAGE>
not more than seven days from the date of purchase, thereby determining the
yield during the Fund's holding period. The value of underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including the interest factor. The Fund makes payment for such
securities only upon physical delivery or evidence of book-entry transfer to
the account of a custodian or bank acting as agent. The underlying securities,
which in the case of the Fund are securities of the U.S. Government only, may
have maturity dates exceeding one year. The Fund does not bear the risk of a
decline in value of the underlying securities unless the seller defaults under
its repurchase obligation. In the event of a bankruptcy or other default of a
seller of a repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and loss including (a) possible decline
in the value of the underlying security while the Fund seeks to enforce its
rights thereto, (b) possible subnormal levels of income and lack of access to
income during this period and (c) expenses of enforcing its rights.
Foreign Investment Risk Considerations
The Advisors may invest the Fund's assets in American
Depositary Receipts and other securities, which are traded in the United
States and represent interests in foreign issuers. The Advisors may also
invest up to 10% of the Fund's assets in securities of foreign companies, and
in debt and equity securities issued by foreign corporate and government
issuers and which are not traded in the United States when the Advisors
believe that such investments provide good opportunities for achieving income
and capital gains without undue risk. Foreign investments involve substantial
and different risks which should be carefully considered by any potential
investor. Such investments are usually not denominated in dollars so changes
in the relative values of the dollar and other currencies will affect the
value of foreign investments. In general, less information is publicly
available about foreign companies than is available about companies in the
United States. Most foreign companies are not subject to uniform audit and
financial reporting standards, practices and requirements comparable to those
in the United States. In most foreign markets volume and liquidity are less
than in the United States and, at times, volatility can be greater than in the
United States. Fixed commissions on foreign stock exchanges are generally
higher than the negotiated commissions on United States exchanges. There is
generally less government supervision and regulation of foreign stock
exchanges, brokers, and companies in the United States. The settlement periods
for foreign securities, which are often longer than those for securities of
U.S. issuers, may affect portfolio liquidity. Portfolio securities held by the
Fund which are listed on foreign exchanges may be traded on days that the Fund
does not value its securities, such as Saturdays and the customary United
States business holidays on which the New York Stock Exchange is closed. As a
result, the net asset value of Shares may be significantly affected on days
when shareholders do not have access to the Fund.
Although the Fund intends to invest in securities of
companies and governments of developed, stable nations, there is also the
possibility of adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets, political or social instability, or diplomatic developments that
could adversely affect investments, assets or securities transactions of the
Fund in some foreign countries. The dividends and interest payable on certain
of the Fund's foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount available for distribution to
the Fund's shareholders. When the Fund invests directly in foreign securities,
the expense ratio of the Fund can be expected to be higher than those of
investment companies investing in domestic securities due to the additional
cost of custody of foreign securities. When considering whether to invest in
foreign equity or debt securities, the Advisor will consider the risk of
foreign investment in addition to the criteria it applies to all investments
in equity or debt securities, as described above.
4
<PAGE>
Temporary Investments
For temporary, defensive purposes, the Fund may invest up to
100% of its assets in high quality short-term money market instruments,
including repurchase agreements, and in bills, notes or bonds issued by the
U.S. Treasury Department or by agencies of the U.S. Government.
Rule 144A Securities
The Fund may purchase Rule 144A Securities. Rule 144A
Securities are restricted securities in that they have not been registered
under the Securities Act of 1933, but they may be traded between certain
qualified institutional investors, including investment companies. The
presence or absence of a secondary market may affect the value of the Rule
144A Securities. The fund's Board of Directors has established guidelines and
procedures to be utilized to determine the liquidity of such securities.
Investment Restrictions
The Fund's investment program is subject to a number of
investment restrictions that reflect self-imposed standards as well as federal
and state regulatory limitations. The investment restrictions recited below
are matters of fundamental policy and may not be changed without the
affirmative vote of a majority of the outstanding Shares. The vote of a
majority of the outstanding Shares of the Fund means the lesser of: (i) 67% or
more of the Shares present at a shareholder meeting at which the holders of
more than 50% of the Shares are present or represented or (ii) more than 50%
of the outstanding Shares of the Fund. The Fund will not:
1. Concentrate 25% or more of its total assets in securities
of issuers in any one industry (for these purposes the U.S. Government and its
agencies and instrumentalities are not considered an industry); or
2. With respect to 75% of its total assets, invest more than
5% of the value of its total assets in the securities of any single issuer or
purchase more than 10% of the outstanding voting securities of any one issuer,
except the U.S. Government, its agencies and instrumentalities.
3. Borrow money except as a temporary measure for
extraordinary or emergency purposes and then only from banks and in an amount
not exceeding 10% of the value of the total assets of the Fund at the time of
such borrowing, provided that, while borrowings by the Fund equaling 5% or
more of the Fund's total assets are outstanding, the Fund will not purchase
securities;
4. Invest in real estate or mortgages on real estate;
5. Purchase or sell commodities or commodities contracts,
including financial futures contracts;
6. Act as an underwriter of securities within the meaning of
the U.S. federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within
the limitation on purchases of restricted securities;
7. Issue senior securities;
5
<PAGE>
8. Make loans, except that the Fund may purchase or hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies;
9. Effect short sales of securities;
10. Purchase securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance of
transactions);
11. Purchase participations or other direct interests in oil,
gas or other mineral leases or exploration or development programs; or
12. Invest more than 10% of its net assets in illiquid
securities (defined as securities that cannot be sold in the ordinary course
of business within seven days at approximately the value at which the Fund is
carrying the securities), including securities that the Fund is restricted
from selling to the public without registration under the Securities Act
[excluding restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act ("Rule 144A Securities") that have been determined to
be liquid by the Fund's Board of Directors based upon the trading markets for
such securities].
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the
close of the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern
Time) each day on which the New York Stock Exchange is open for business (a
"Business Day"). The New York Stock Exchange is open for business on all
weekdays except for the following holidays (or the days on which they are
observed): New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The Fund may enter into agreements that allow a third party,
as agent for the Fund, to accept orders from its customers up until the Fund's
close of business which is ordinarily 4:00 p.m. (Eastern Time). So long as a
third party receives an order prior to the Fund's close of business, the order
is deemed to have been received by the Fund and, accordingly, may receive the
net asset value computed at the close of business that day. These "late day"
agreements are intended to permit shareholders placing orders with third
parties to place orders up to the same time as other shareholders.
Redemption
The Fund may suspend the right of redemption or postpone the
date of payment during any period when (a) trading on the New York Stock
Exchange is restricted by applicable rules and regulations of the SEC; (b) the
New York Stock Exchange is closed for other than customary weekend and holiday
closings; (c) the SEC has by order permitted such suspension; or (d) an
emergency exists as determined by the SEC so that valuation of the net assets
of the Fund is not reasonably practicable.
Under normal circumstances, the Fund will redeem shares by
check or by wire transfer of funds, as described in the Prospectuses. However,
if the Board of Directors determines that it would be in the best interests of
the remaining shareholders to make payment of the redemption price in whole or
in part by a distribution in kind of readily marketable securities from the
portfolio of the Fund in lieu of cash, in conformity with applicable rules of
the SEC, the Fund will make such distributions in
6
<PAGE>
kind. If Shares are redeemed in kind, the redeeming shareholder will incur
brokerage costs in later converting the assets into cash. The method of
valuing portfolio securities is described under "Valuation of Shares" and such
valuation will be made as of the same time the redemption price is determined.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company
Act pursuant to which the Fund is obligated to redeem Shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute
for careful tax planning.
The summary of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. Subsequent legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein,
and may have a retroactive effect with respect to the transactions
contemplated herein.
Qualification as a Regulated Investment Company
The Fund expects to be taxed as a regulated investment
company under Subchapter M of the Code. However, in order to qualify as a
regulated investment company for any taxable year, the Fund generally must
derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in stocks,
securities or currencies (the "Income Requirement").
In addition, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of its assets must consist of cash and
cash items, U.S. government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund
has not invested more than 5% of the value of its total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the
value of its total assets may be invested in the securities of any one issuer
(other than U.S. government securities and securities of other regulated
investment companies), or in two or more issuers which the Fund controls and
that are engaged in the same or similar trades or businesses or related trades
or businesses (the "Asset Diversification Test"). Generally, the Fund will not
lose its status as a regulated investment company if it fails to meet the
Asset Diversification Test solely as a result of a fluctuation in value of
portfolio assets not attributable to a purchase.
Under Subchapter M of the Code, if the Fund fails to so
qualify, it will be subject to income tax on its net investment income and
capital gains which it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gains over net
long-term capital losses) for the year (the "Distribution Requirement") and
complies with the other requirements of the Code described above.
Distributions of investment company taxable income made during the taxable
year or, under certain specified circumstances, within 12 months after the
close of the taxable year will satisfy the Distribution Requirement. The
Distribution Requirement for any year may be waived if a regulated investment
7
<PAGE>
company establishes to the satisfaction of the Internal Revenue Service that
it is unable to satisfy the Distribution Requirement by reason of
distributions previously made for the purpose of avoiding liability for
federal excise tax.
Although the Fund intends to distribute substantially all of
its net investment income and may distribute its capital gains for any taxable
year, the Fund will be subject to federal income taxation to the extent any
such income or gains are not distributed.
If for any taxable year, the Fund does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate income tax rates without any deduction for distributions
to shareholders, and all such distributions generally will be taxable to
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be
eligible for the dividends received deduction for corporate shareholders.
Fund Distributions
Distributions of investment company taxable income will be
taxable to shareholders as ordinary income, regardless of whether such
distributions are paid in cash or are invested in additional Shares. The Fund
anticipates that it will distribute substantially all of its investment
company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its
excess of net long-term capital gains over net short-term capital losses ("net
capital gains"). If such gains are distributed as a capital gains
distribution, they are taxable to shareholders at a rate of 20% or at a rate
of 28% depending upon the holding period of the Fund in the underlying asset
generating the net capital gain, regardless of the length of time the
shareholder has held Shares. Conversely, if the Fund elects to retain its net
capital gains, it will be taxed thereon (except to the extent of any available
capital loss carryovers) at the applicable corporate capital gains tax rate.
In this event, it is expected that the Fund also will elect to have
shareholders treated as having received a distribution of such gains, with the
result that shareholders will be required to report such gains on their
returns as long-term capital gains, will receive a tax credit for their
allocable share of capital gains tax paid by the Fund on the gains, and will
increase the tax basis for their Shares by an amount equal to 65% of such
gains.
In the case of corporate shareholders, Fund distributions
(other than capital gains distributions) generally qualify for the dividends
received deduction to the extent of the gross amount of qualifying dividends
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a qualifying dividend if it has
been received from a domestic corporation. For purposes of the alternative
minimum tax and the environmental tax, corporate shareholders generally will
be required to take the full amount of any dividend received from the Fund
into account in determining their adjusted current earnings for purposes of
computing "alternative minimum taxable income."
Investors should be careful to consider the tax implications
of purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those investors will be taxable on the
entire amount of the dividend received, even though the net asset value per
Share on the date of such purchase reflected the amount of such distribution.
Generally, gain or loss on the sale or exchange of a Share
will be capital gain or loss that will be long-term if the Share has been held
for more than eighteen months, will be mid-term if held for more than twelve,
but not more than eighteen months and otherwise will be short-term. However,
if
8
<PAGE>
a shareholder realizes a loss on the sale, exchange or redemption of a Share
held for six months or less and has previously received a capital gains
distribution with respect to the Share (or any undistributed net capital gains
of the Fund with respect to such Share are included in determining the
shareholder's long-term capital gains), the shareholder must treat the loss as
a long-term capital loss to the extent of the amount of the prior capital
gains distribution (or any undistributed net capital gains of the Fund that
have been included in determining such shareholder's long-term capital gains).
In addition, any loss realized on a sale or other disposition of Shares will
be disallowed to the extent an investor repurchases (or enters into a contract
or option to repurchase) Shares within a period of 61 days (beginning 30 days
before and ending 30 days after the disposition of the Shares). This loss
disallowance rule will apply to Shares received through the reinvestment of
dividends during the 61-day period.
The Fund will provide a statement annually to shareholders as
to the federal tax status of distributions paid (or deemed to be paid) by the
Fund during the year, including the amount of dividends eligible for the
corporate dividends received deduction.
The Fund will be required in certain cases to withhold and
remit tax to the United States Treasury on distributions payable to any
shareholder who (1) has provided either an incorrect taxpayer identification
number or no number at all, (2) is subject to backup withholding by the
Internal Revenue Service for failure to properly report receipt of interest or
dividends, or (3) has failed to certify to the Fund that the shareholder is
not subject to backup withholding.
Federal Excise Tax; Miscellaneous Considerations
The Code imposes a nondeductible 4% excise tax on regulated
investment companies that do not distribute in each calendar year an amount
equal to 98% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the one-year period ending on October 31 of such
calendar year. The excise tax is imposed on the undistributed part of this
required distribution. In addition, the balance of such income must be
distributed during the next calendar year to avoid liability for the excise
tax in that year. For the foregoing purposes, an investment company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. For this purpose, in determining
its capital gain net income for the one-year period ending on October 31 of
such calendar year, the Fund must reduce its capital gain net income by the
amount of any net ordinary loss for the calendar year (but not below the net
capital gain for the one-year period ending on October 31). Because the Fund
intends to distribute all of its income currently (or to retain, at most its
net capital gains and pay tax thereon), it does not anticipate incurring any
liability for this excise tax. However, investors should note that the Fund
may in certain circumstances be required to liquidate portfolio investments in
order to make sufficient distributions to avoid excise tax liability.
Rules of state and local taxation of dividend and capital
gains distributions from regulated investment companies often differ from the
rules for federal income taxation described above. Shareholders are urged to
consult their tax advisors as to the consequences of these and other state and
local tax rules affecting an investment in the Fund.
9
<PAGE>
5. MANAGEMENT OF THE FUND
Directors and Officers
The overall business and affairs of the Fund are managed by
its Board of Directors. The Board approves all significant agreements between
the Fund and persons or companies furnishing services to the Fund, including
the Fund's agreements with its investment advisor, sub-advisor, distributor,
custodian and transfer agent.
The Directors and executive officers of the Fund, their
respective dates of birth and their principal occupations during the last five
years are set forth below. Unless otherwise indicated, the address of each
Director and executive officer is One South Street, Baltimore, Maryland 21202.
*TRUMAN T. SEMANS, Chairman (10/27/26)
Managing Director Emeritus, BT Alex. Brown Incorporated; Vice Chairman,
Alex. Brown Capital Advisory & Trust Company Director, Investment
Company Capital Corp. (registered investment advisor); and Director,
Virginia Hot Springs, Inc.; Formerly, Vice Chairman, Alex. Brown & Sons
Incorporated (now BT Alex. Brown Incorporated).
*RICHARD T. HALE, Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor);
Chartered Financial Analyst.
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103. Managing Director,
CBC Capital (merchant banking), 1993-Present; Formerly, Senior Vice
President and Chief Financial Officer, General Dynamics Corporation
(defense), 1989-1993, and Director, The Arch Fund (registered
investment company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Formerly,
Director/Trustee, AIM Funds (registered investment companies);
Consultant, Wendell & Stockel Associates, Inc. (consulting firm); and
General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (banking and finance); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992; Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. McDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management
Company (investments); Executive Vice President, Duke University
(education, research and health care); Director, Central Carolina
Bank & Trust (banking), Key Funds (registered investment companies),
and DP Mann Holdings (insurance); Formerly Director AMBAC Treasurers
Trust (registered investment company).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, Pennsylvania 19103. President and Chief
Executive Officer, The Pew Charitable Trusts; Director and Executive
Vice President, The Glenmede Trust Company; Formerly, Executive
Director, The Pew Charitable Trusts.
10
<PAGE>
CARL W. VOGT, ESQ., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2604; Senior Partner, Fulbright & Jaworski
L.L.P. (law); Director, Yellow Corporation (trucking) and American
Science & Engineering (x-ray detection equipment); Formerly, Chairman
and member, National Transportation Safety Board; Director, National
Railroad Passenger Corporation (Amtrak) and Member, Aviation System
Capacity Advisory Committee (Federal Aviation Administration).
HARRY WOOLF, President (8/12/23)
Institute for Advanced Study, Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, ATL and Spacelabs Medical Corp. (medical equipment) and
Family Health International (non-profit research and education);
Director, Research America (non-profit medical research); Formerly,
Trustee, Reed College (education); Trustee, Rockefeller Foundation
and Director, Merrill Lynch Cluster C Funds (registered investment
companies); Flag Investors/ISI/ and BT Alex. Brown, Family of Funds.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Vice President,
Investment Company Capital Corp. (registered investment advisor),
September 1995-Present; Formerly, Vice President and Treasurer, The
Delaware Group of Funds (registered investment companies) and Vice
President, Delaware Management Company Inc. (investments), 1980-August
1995.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, June 1997-Present.
Formerly, Senior Manager, Coopers & Lybrand L.L.P., September 1988 -
June 1997.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (registered investment companies), April 1994-July
1996; Supervisor, Brown Brothers Harriman & Co. (domestic and global
custody), August 1991-April 1994.
- ---------------------
* Messrs. Semans and Hale are directors who are "interested persons" as
defined in the Investment Company Act.
Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, advised, or
administered by BT Alex. Brown Incorporated ("BT Alex. Brown") or its
affiliates. There are currently 13 funds in the Flag Investors/ISI Funds and BT
Alex. Brown Cash Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr.
Semans serves as Chairman of five funds and as a Director of six other funds in
the Fund Complex. Mr. Hale serves as Chairman of four funds and as Director of
eight other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy and
McDonald serve as Directors of each fund in the Fund Complex. Ms. Rimel and Mr.
Vogt each serve as a Director of 11 funds in the Fund Complex. Mr. Woolf serves
as President of seven funds in the Fund Complex. Mr. Finelli serves as
Treasurer, Ms. Olmert serves as Secretary and Mr. Liotta serves as Assistant
Secretary, respectively, of each of the funds in the Fund Complex.
Some of the Directors of the Fund are customers of, and have
had normal brokerage transactions with, BT Alex. Brown in the ordinary course of
business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
11
<PAGE>
With the exception of the Fund's President, officers of the
Fund receive no direct remuneration in such capacity from the Fund. Officers
and Directors of the Fund who are officers or directors of BT Alex. Brown or
the Advisor may be considered to have received remuneration indirectly. As
compensation for his or her services, each Director who is not an "interested
person" of the Fund (as defined in the Investment Company Act) (an
"Independent Director") and Mr. Woolf receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection
with his or her attendance at board and committee meetings) from each fund in
the Fund Complex for which he or she serves. In addition, the Chairman of the
Fund Complex's Audit Committee receives an aggregate annual fee from the Fund
Complex. Payment of such fees and expenses are allocated among all such funds
described above in proportion to their relative net assets. For the fiscal
year ended May 31, 1998, Independent Directors' fees attributable to the
assets of the Fund totaled approximately $10,811.
The following table shows aggregate compensation and
retirement benefits payable to each of the Fund's Directors by the Fund and
the Fund Complex, respectively, and pension or retirement benefits accrued as
part of Fund expenses in the fiscal year ended May 31, 1998.
12
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Pension or Retirement Total Compensation
From the Fund Payable to Benefits Accrued as from the Fund
Directors for the Fiscal Year Part of Fund Expenses and Fund Complex
Ended May 31, 1998 Payable to Directors
in the Fiscal Year
Ended May 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Truman T. Semans(1) $0 $0 $0
Chairman and Director
Richard T. Hale, Director(1) $0 $0 $0
Charles W. Cole, Jr., Director(1),(2) $0 $0 $0
James J. Cunnane, Director $1,242(3) (4) $39,000 for service on 12
Boards in the Fund Complex
John F. Kroeger, Director $1,560 (4) $49,000 for service on 12
Boards in the Fund Complex
Louis E. Levy, Director $1,242 (4) $39,000 for service on 12
Boards in the Fund Complex
Eugene J. McDonald, Director $1,242 (4) $39,000 for service on 12
Boards in the Fund Complex
Rebecca W. Rimel, Director $1,266(3) (4) $39,000 for service on 10(5)
Boards in the Fund Complex
Carl W. Vogt, Esq., Director $1,279(3) (4) $39,000 for service on 9(5)
Boards in the Fund Complex
</TABLE>
(1) A Director who is an "interested person" as defined in the Investment
Company Act.
(2) Retired effective August 13, 1997.
(3) Of this amount, $1,242, $1,242, $1,279, and $1,266 has been deferred by
Messrs. Cunnane, McDonald and Vogt and Ms. Rimel, respectively, pursuant
to a deferred compensation plan.
(4) The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund
for the year ended May 31, 1998 was approximately $5,802.
(5) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from
each fund for which they serve.
The Fund Complex has adopted a Retirement Plan (the
"Retirement Plan") for Directors who are not employees of the Fund, the Fund's
Advisor or their respective affiliates (the "Participants"). After completion
of six years of service, each Participant will be entitled to receive an
annual retirement benefit equal to a percentage of the fee earned by the
Participant in his or her last year of service. Upon retirement, each
Participant will receive annually 10% of such fee for each year that he or she
served after completion of the first five years, up to a maximum annual
benefit of 50% of the fee earned by the Participant in his or her last year of
service. The fee will be paid quarterly, for life, by each Fund for which he
or she serves. The Retirement Plan is unfunded and unvested. Mr. Kroeger has
qualified but has not received benefits. The Fund has two Participants, a
Director who retired effective December 31, 1994 and a Director who retired
effective December 31, 1996, who have qualified for the Retirement Plan by
serving 13 and 14 years, respectively, as Directors in the Fund Complex and
each of whom will be paid a
13
<PAGE>
quarterly fee of $4,875 by the Fund Complex for the rest of his life. Such
fees are allocated to each fund in the Fund Complex based upon the relative
net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual
benefits payable to a Participant upon retirement assuming various years of
service and payment of a percentage of the fee earned by such Participant in
his or her last year of service, as described above. The approximate credited
years of service are as follows: for Mr. Cunnane, 3 years; for Mr. Kroeger, 15
years; for Mr. Levy, 3 years; for Mr. McDonald, 5 years; for Ms. Rimel, 2
years; and for Mr. Vogt, 2 years.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <C> <C>
6 years $ 4,900 $ 3,900
7 years $ 9,800 $ 7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to
defer a minimum of 50%, or up to all, of his or her annual compensation
pursuant to a Deferred Compensation Plan. Messrs. Cunnane, Levy, McDonald, and
Vogt and Ms. Rimel have each executed a Deferred Compensation Agreement.
Currently, the deferring Directors may select from among various Flag
Investors Funds and the BT Alex. Brown Cash Reserve Fund in which all or part
of their deferral account shall be deemed to be invested. Distributions from
the deferring Directors' deferral accounts will be paid in cash, in generally
quarterly installments over a period of 10 years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of
Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Code of
Ethics applies to the personal investing activities of all of the directors
and officers of the Fund, as well as to designated officers, directors and
employees of the Advisors and the Distributor. As described below, the Code of
Ethics imposes additional restrictions on the Advisor's investment personnel,
including the portfolio managers and employees who execute or help execute a
portfolio manager's decisions or who obtain contemporaneous information
regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that any officer, director, or
employee of the Fund or the Advisors preclear any personal securities
investments (with certain exceptions, such as non-volitional purchases or
purchases that are part of an automatic dividend reinvestment plan). The
foregoing would apply to any officer, director or employee of the Distributor
that is an access person. The preclearance requirement and associated
procedures are designed to identify any substantive prohibition or limitation
applicable to the proposed investment. The substantive restrictions applicable
to investment personnel include a ban on acquiring any securities in an
initial public offering, a prohibition from profiting on short-term trading in
securities and special preclearance of the acquisition of securities in
private placements. Furthermore, the Code of Ethics provides for trading
"blackout periods" that prohibit trading by investment personnel and certain
other employees within periods of trading by the Fund in the same security.
Trading by investment personnel and certain other employees of the Advisor or
Sub-Advisor, as appropriate, would be exempt from this "blackout period"
provided that (1) the market capitalization of a particular security exceeds
$2 billion; and (2) orders of such entity do not exceed ten percent of the
daily
14
<PAGE>
average trading volume of the security for the prior 15 days. Officers,
directors and employees of the advisors and the Distributor may comply with
codes instituted by those entities so long as they contain similar
requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On June 17, 1997 the Board of Directors of the Fund,
including a majority of the Disinterested Directors, approved an Investment
Advisory Agreement between the Fund and Investment Company Capital Corp.
("ICC" or the "Advisor") and a Sub-Advisory Agreement among the Fund, ICC and
Alex. Brown Investment Management ("ABIM" or the "Sub-Advisor"), both of which
contracts are described in greater detail below. The Investment Advisory
Agreement and the Sub-Advisory Agreement were approved by a vote of
shareholders of the Fund on August 14, 1997. ICC, the investment advisor, is
an indirect subsidiary of Bankers Trust Corporation. ICC is also the
investment advisor to other Funds in the Flag Investors family of funds and BT
Alex. Brown Cash Reserve Fund, Inc.
ABIM, also the sub-advisor to Flag Investors Communications
Fund, Inc. and Flag Investors Value Builder Fund, Inc., is a registered
investment advisor with approximately $6.7 billion under management as of
August 31, 1997. ABIM is a limited partnership affiliated with the Advisor.
Buppert, Behrens & Owen, Inc., a company organized and owned by three
employees of ABIM, owns a 49% limited partnership interest and a 1% general
partnership interest in ABIM. BT Alex. Brown owns a 1% general partnership
interest in ABIM and BT Alex. Brown Holdings, Inc. owns the remaining limited
partnership interest.
Under the Investment Advisory Agreement, ICC is responsible
for obtaining and evaluating economic, statistical and financial information
to formulate and implement investment policies for the Fund. ICC has delegated
this responsibility to ABIM, provided that ICC continues to supervise the
performance of ABIM and report thereon to the Fund's Board of Directors. Any
investment program undertaken by ICC or ABIM will at all times be subject to
policies and control of the Fund's Board of Directors. ICC will provide the
Fund with office space for managing its affairs, with the services of required
executive personnel and with certain clerical and bookkeeping services and
facilities. These services are provided by ICC without reimbursement by the
Fund for any costs. Neither ICC nor ABIM shall be liable to the Fund or its
shareholders for any act or omission by ICC or ABIM or any losses sustained by
the Fund or its shareholders except in the case of willful misfeasance, bad
faith, gross negligence, or reckless disregard of duty. The services of ICC
and ABIM to the Fund are not exclusive and ICC and ABIM are free to render
similar services to others.
As compensation for its services, ICC is entitled to receive
an annual fee from the Fund, calculated daily and paid monthly, at the annual
rate of 1.00% of the first $50 million of the Fund's average daily net assets,
0.85% of the next $50 million of the Fund's average daily net assets, 0.80% of
the next $100 million of the Fund's average daily net assets and 0.70% of the
Fund's average daily net assets in excess of $200 million. As compensation for
its services, ABIM is entitled to receive a fee from ICC, payable from its
advisory fee, calculated daily and payable monthly, at the annual rate of
0.75% of the first $50 million of the Fund's average daily net assets, 0.60%
of the next $150 million of the Fund's average daily net assets, and 0.50% of
the Fund's average daily net assets in excess of $200 million.
15
<PAGE>
Advisory fees paid by the Fund to ICC and sub-advisory fees
paid by ICC to ABIM for the last three fiscal years were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year Ended
- -------------------------------------------------------------------------------------------------------------
Fees Paid To: May 31, 1998 May 31, 1997 May 31, 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ICC $2,090,159 $853,103(1) $318,234(2)
- -------------------------------------------------------------------------------------------------------------
ABIM $1,535,410 $680,636(3) $365,697(3)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------
(1) Net of fee waivers of $141,648.
(2) Net of fee waivers of $232,890.
(3) Net of fee waivers for the fiscal years ended May 31, 1997 and 1996 of
$49,796 and $55,124.
Each of the Investment Advisory Agreement and the
Sub-Advisory Agreement has an initial term of two years and will continue in
effect from year to year thereafter if such continuance is specifically
approved at least annually by the Fund's Board of Directors, including a
majority of the Independent Directors who have no direct or indirect financial
interest in such agreements, by votes cast in person at a meeting called for
such purpose, or by a vote of a majority of the outstanding Shares (as defined
under "Capital Stock"). The Fund or ICC may terminate the Investment Advisory
Agreement on 60 days' written notice without penalty. The Investment Advisory
Agreement will terminate automatically in the event of assignment (as defined
in the Investment Company Act).
ICC also serves as the Fund's transfer and dividend
disbursing agent and provides accounting services to the Fund. (See
"Custodian, Transfer Agent Accounting Services.")
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the
"Distributor") serves as the exclusive distributor of the Fund's Shares
pursuant to a Distribution Agreement ("Distribution Agreement") effective
August 31, 1997.
The Distribution Agreement provides that ICC Distributors
shall; (i) use reasonable efforts to sell Shares upon the terms and conditions
contained in the Distribution Agreement and the Fund's then current
Prospectus; (ii) use its best efforts to conform with the requirements of all
federal and state laws relating to the sale of the Shares; (iii) adopt and
follow procedures as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. and any other applicable
self-regulatory organization; (iv) perform its duties under the supervision of
and in accordance with the directives of the Fund's Board of Directors and the
Fund's Articles of Incorporation and By-Laws; and (v) provide the Fund's Board
of Directors with a written report of the amounts expended in connection with
the Distribution Agreement. ICC Distributors shall devote reasonable time and
effort to effect sales of Shares but shall not be obligated to sell any
specific number of Shares. The services of ICC Distributors are not exclusive
and ICC Distributors shall not be liable to the Fund or its shareholders for
any error of judgment or mistake of law, for any losses arising out of any
investment, or for any action or inaction of ICC Distributors in the absence
of bad faith, willful misfeasance, or gross negligence in the performance of
ICC Distributors' duties or obligations under the Distribution Agreement or by
reason of ICC Distributors' reckless disregard of its duties and obligations
under the Distribution Agreement. The Distribution Agreement further provides
that the Fund and ICC Distributors will mutually indemnify each other for
losses relating to disclosures in the Fund's registration statement.
16
<PAGE>
The Distribution Agreement may be terminated at any time upon 60
days' written notice by the Fund, without penalty, by the vote of a majority
of the Fund's Independent Directors or by a vote of a majority of the
outstanding Shares of the Fund (as defined under "Capital Stock") or upon 60
days' written notice by the Distributor and shall automatically terminate in
the event of an assignment. The Distribution Agreement has an initial term of
one year from the date of effectiveness. It shall continue in effect
thereafter provided that it is approved at least annually by (i) a vote of a
majority of the outstanding voting securities of the Fund or (ii) a vote of a
majority of the Fund's Board of Directors including a majority of the
Independent Directors and so long as the Fund's Plan of Distribution is
approved at least annually by the Independent Directors in person at a meeting
called for the purpose of voting on such approval. The Distribution Agreement,
including the form of Sub-Distribution Agreement, was initially approved by
the Board of Directors, including a majority of the Independent Directors, on
August 4, 1997 and most recently on March 27, 1998.
ICC Distributors and certain broker-dealers ("Participating
Dealers") have entered into Sub-Distribution Agreements under which such
broker-dealers have agreed to process investor purchase and redemption orders
and respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. Any Sub-Distribution Agreement may be
terminated in the same manner as the Distribution Agreement at any time and
shall automatically terminate in the event of assignment.
In addition, with respect to the Class A and Class B Shares,
the Fund may enter into Shareholder Servicing Agreements with certain
financial institutions, including BT Alex. Brown and certain banks, to act as
Shareholder Servicing Agents, pursuant to which ICC Distributors will allocate
a portion of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. The Fund may also enter into
Shareholder Servicing Agreements pursuant to which the Advisor, the
Distributor, or their respective affiliates, will provide compensation out of
their own resources. Although banking laws and regulations prohibit banks from
distributing shares of open-end investment companies such as the Fund,
according to interpretations by various bank regulatory authorities, financial
institutions are not prohibited from acting in other capacities for investment
companies, such as the shareholder servicing capacities described above.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of the Shareholder Servicing Agents in connection with
the Shareholder Servicing Agreements, the Fund may be required to alter
materially or discontinue its arrangements with the Shareholder Servicing
Agents. Such financial institutions may impose separate fees in connection
with these services and investors should review the Prospectus and this
Statement of Additional Information in conjunction with any such institution's
fee schedule. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
As compensation for providing distribution services as
described above for the Class A Shares, ICC Distributors receives an annual
fee, paid monthly, equal to 0.25% of the average daily net assets of the Class
A Shares. As compensation for providing distribution services as described
above for the Class B Shares, ICC Distributors receives an annual fee, paid
monthly, equal to 0.75% of the average daily net assets of the Class B Shares.
With respect to the Class A Shares, ICC Distributors expects to allocate up to
all of its fee to Participating Dealers. With respect to the Class B Shares,
ICC Distributors expects to retain the entire distribution fee as
reimbursement for front-end payments to Participating Dealers.
As compensation for providing distribution and shareholder
services to the Fund for the last three fiscal years, the Fund's distributor
received aggregate fees in the following amounts:
17
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31,
----------------------------------------------------------------
Fee
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12b-1 Fee $447,239(1) $206,936(3) $130,140(3)
- -------------------------------------------------------------------------------------------------------------
Shareholder Servicing Fee $ 51,052(2) $ 65,473(3) $ 27,369(3)
(Class B Shares)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------
(1) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $110,677 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $336,562.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $11,761 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $39,291.
(3) Fees received by Alex. Brown, the Fund's distributor for the fiscal years
ended May 31, 1997 and May 31, 1996.
ICC Distributors receives no compensation for distributing
the Institutional Shares.
Pursuant to Rule 12b-1 under the Investment Company Act,
which provides that investment companies may pay distribution expenses,
directly or indirectly, only pursuant to a plan adopted by the investment
company's board of directors and approved by its shareholders, the Fund has
adopted two separate Plans of Distribution, one for the Class A Shares and one
for the Class B Shares (collectively, the "Plans"). Under the Plans, the Fund
pays fees as described above to ICC Distributors for distribution and other
shareholder servicing assistance as set forth in the Distribution Agreement,
and ICC Distributors is authorized to make payments out of its fee to
Participating Dealers and Shareholder Servicing Agents. The Plans will remain
in effect from year to year thereafter as specifically approved (a) at least
annually by the Fund's Board of Directors and (b) by the affirmative vote of a
majority of the Independent Directors by votes cast in person at a meeting
called for such purpose. The Plans were most recently approved by the Fund's
Board of Directors, including a majority of the Independent Directors, on
September 16, 1997.
In approving the Plans, the Directors concluded, in the
exercise of reasonable business judgment, that there was a reasonable
likelihood that the Plans would benefit the Fund and its shareholders. The
Plans will be renewed only if the Directors make a similar determination in
each subsequent year. The Plans may not be amended to increase materially the
fee to be paid pursuant to the Distribution Agreement without the approval of
the shareholders of the Fund. The Plans may be terminated at any time by the
vote of a majority of the Fund's Independent Directors or by a vote of a
majority of the outstanding Shares of the related class (as defined under
"Capital Stock").
During the continuance of the Plans, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plan to ICC Distributors
pursuant to the Distribution Agreement, to broker-dealers pursuant to any
Sub-Distribution Agreements and to Shareholder Servicing Agents pursuant to
Shareholder Servicing Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plans, the selection and nomination of the Fund's Independent Directors shall
be committed to the discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers
and Shareholder Servicing Agents may not exceed amounts payable to ICC
Distributors under such Plans. Payments under the Plans are made as described
above regardless of ICC Distributors' actual cost of providing distribution
services and may be used to pay ICC Distributors' overhead expenses. If the
cost of providing distribution
18
<PAGE>
services to the Class A Shares is less than .25% of the average daily net
assets invested in that Class or Class B Shares is less than .75% of the
average daily net assets invested in that Class for any period, the unexpended
portion of the distribution fees may be retained by ICC Distributors. The
Plans do not provide for any charges to the Fund for excess amounts expended
by ICC Distributors and, if either of the Plans is terminated in accordance
with its terms, the obligation of the Fund to make payments to ICC
Distributors pursuant to such Plan will cease and the Fund will not be
required to make any payments past the date the Distribution Agreement
terminates with respect to such Plan.
General Information
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended May 31,
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Class Received Retained Received Retained Received Retained
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Commissions $571,016(1) $536,314(3) $404,583(5) $383,114(5) $173,816(5) $163,936(5)
- -----------------------------------------------------------------------------------------------------------------------------
Class B Contingent
Deferred Sales
Charge $648,704(2) $632,376(4) $318,224(5) $313,208(5) $114,113(5) $114,113(5)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------
(1) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $111,345 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $459,671.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $188,711 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $459,993.
(3) Of commissions received, Alex. Brown retained $106,124 and ICC
Distributors retained $431,090, respectively.
(4) Of sales charges retained, Alex. Brown retained $183,389 and ICC
Distributors retained $448,987, respectively.
(5) By Alex. Brown, the Fund's distributor for the fiscal years ended May 31,
1997 and May 31, 1996.
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all
continuing expenses of the Fund, including, without limitation: investment
advisory and distribution fees; the charges and expenses of any registrar, any
custodian or depository appointed by the Fund for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing of
certificates representing Shares; all costs and expenses in connection with
the registration and maintenance of registration of the Fund and its Shares
with the SEC and various states and other jurisdictions (including filing
fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting and distributing prospectuses and statements
of additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and Directors' meetings and of
preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Directors and Director members of any advisory
board or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Shares; fees and
expenses of legal counsel, including counsel to the Independent Directors, and
of independent auditors, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance
19
<PAGE>
premiums on property or personnel (including officers and Directors) of the
Fund that inure to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the
Fund's operation unless otherwise explicitly assumed by ICC, ABIM or the
Distributor.
The address of ICC Distributors is P.O. Box 7558, Portland,
Maine 04101.
8. BROKERAGE
ABIM is responsible for decisions to buy and sell securities for the
Fund, for the broker-dealer selection and for negotiation of commission rates,
subject to the supervision of ICC. Purchases and sales of securities on a
securities exchange are effected through broker-dealers who charge a
commission for their services. Brokerage commissions are subject to
negotiation between ABIM and the broker-dealers. ABIM may direct purchase and
sale orders to any broker-dealer, including, to the extent and in the manner
permitted by applicable law, its affiliates, and ICC Distributors.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price
for the security. Purchases from underwriters of portfolio securities include
a commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with
affiliates of the Advisors in any transaction in which affiliates of the
Advisors acts as a principal.
If affiliates of the Advisors are participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with rules of the SEC. The Fund believes that the limitation
will not affect its ability to carry out its present investment objective.
ABIM's primary consideration in effecting securities transactions is
to obtain best price and execution of orders on an overall basis. As described
below, however, ABIM may, in its discretion, effect agency transactions with
broker-dealers that furnish statistical, research or other information or
services that are deemed by ABIM to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful
to ABIM with clients other than the Fund. Similarly, any research services
received by ABIM through placement of portfolio transactions of other clients
may be of value to ABIM in fulfilling its obligations to the Fund. No specific
value can be determined for research and statistical services furnished
without cost to ABIM by a broker-dealer. ABIM is of the opinion that because
the material must be analyzed and reviewed by its staff, its receipt does not
tend to reduce expenses, but may be beneficial in supplementing ABIM's
research and analysis. Therefore, it may tend to benefit the Fund by improving
ABIM's investment advice. In over-the-counter transactions, ABIM will not pay
any commission or other remuneration for research services. ABIM's policy is
to pay a broker-dealer higher commissions for particular transactions than
might be charged if a different broker-dealer had been chosen when, in
ABIM's opinion, this policy furthers the overall objective of obtaining best
price and execution. Subject to periodic review by the Fund's Board of
Directors, ABIM is also authorized to pay broker-dealers other than affiliates
of the Advisors higher commissions than another broker may have charged on
brokerage transactions for the Fund for brokerage or research services. The
allocation of orders among broker-dealers and the commission rates paid by the
Fund will be reviewed periodically by the Board. The foregoing policy under
which the Fund
20
<PAGE>
may pay higher commissions to certain broker-dealers in the case of agency
transactions, does not apply to transactions effected on a principal basis. In
addition, consistent with NASD Rules, and subject to seeking the most
favorable price and execution available and such other policies as the Board
may determine.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions through affiliates of the
Advisors. At the time of such authorization, the Board adopted certain
policies and procedures incorporating the standards of Rule 17e- 1 under the
Investment Company Act, which requires that the commissions paid affiliates of
the Advisors must be "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time." Rule 17e-1 also contains requirements for the review of such
transactions by the Board of Directors and requires ICC and ABIM to furnish
reports and to maintain records in connection with such reviews. In the fiscal
year ended May 31, 1998, the Fund paid no brokerage commissions to affiliates
of the Advisors.
ABIM manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities
of the same issuer may vary and the length of time that each account may
choose to hold its investment in such securities may likewise vary. The timing
and amount of purchase by each account will also be determined by its cash
position. If the purchase or sale of securities consistent with the investment
policies of the Fund or one or more of these accounts is considered at or
about the same time, transactions in such securities will be allocated among
the accounts in a manner deemed equitable by ABIM. ABIM may combine such
transactions, in accordance with applicable laws and regulations, in order to
obtain the best net price and most favorable execution. Such simultaneous
transactions, however, could adversely affect the ability of the Fund to
obtain or dispose of the full amount of a security that it seeks to purchase
or sell.
ABIM directed transactions to broker-dealers and paid related
commissions because of research services in the following amounts:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Fiscal Year Ended May 31,
- ---------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transactions Directed $127,658,887 $84,859,723 $25,187,456
- ---------------------------------------------------------------------------------------------------------------
Commissions Paid $249,526 $ 168,045 $ 68,808
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The increasing amounts of commissions reflects the growth of the
Fund.
The Fund is required to identify any securities of its "regular
brokers or dealers" (as such term is defined in the Investment Company Act)
that the Fund has acquired during its most recent fiscal year. As of May 31,
1998, the Fund held a 5.40% repurchase agreement issued by Goldman Sachs &
Company valued at $15,908,000 and 105,000 shares of Travelers Group Inc.,
parent company of Smith Barney, valued at $6,405,000.
21
<PAGE>
9. CAPITAL STOCK
The Fund is authorized to issue 75 million Shares of common stock,
par value $.001 per share. The Board of Directors may increase or decrease the
number of authorized Shares without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated three classes of Shares: Flag Investors Equity Partners Fund
Class A Shares, Flag Investors Equity Partners Fund Class B Shares and Flag
Investors Equity Partners Fund Institutional Shares. In the event separate
series or classes are established, all Shares of the Fund, regardless of
series or class, would have equal rights with respect to voting, except that
with respect to any matter affecting the rights of the holders of a particular
series or class, the holders of each series or class would vote separately.
Each such series would be managed separately and shareholders of each series
would have an undivided interest in the net assets of that series. For tax
purposes, each series would be treated as separate entities. Generally, each
class of Shares issued by a particular series would be identical to every
other class and expenses of the Fund (other than 12b-1 and any applicable
service fees) are prorated between all classes of a series based upon the
relative net assets of each class. Any matters affecting any class exclusively
would be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund.
There are no preemptive, conversion or exchange rights applicable to
any of the Shares. The issued and outstanding Shares are fully paid and
non-assessable. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its portion of the Fund's assets (or the assets allocated
to a separate series of Shares if there is more than one series) after all
debts and expenses have been paid.
As used in this Statement of Additional Information the term
"majority of the outstanding Shares" means the vote of the lesser of (i) 67%
or more of the Shares present at a meeting, if the holders of more than 50% of
the outstanding Shares are present or represented by proxy, or (ii) more than
50% of the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company ("Bankers Trust"), 130 Liberty Street, New
York, New York 10006, has been retained to act as custodian of the Fund's
investments. Bankers Trust receives such compensation from the Fund for its
services as Custodian as may be agreed to from time to time by Bankers Trust
and the Fund. For the period from September 22, 1997 to May 31, 1998, Bankers
Trust was paid $11,578 as compensation for providing custody services to the
Fund. Investment Company Capital Corp., One South Street, Baltimore, Maryland
21202, has been retained to act as transfer and dividend disbursing agent. As
compensation for providing these services, the Fund pays ICC up to $10.12 per
account per year,
22
<PAGE>
plus reimbursement for out-of-pocket expenses incurred in connection
therewith. For the fiscal year ended May 31, 1998, ICC received transfer
agency fees of $74,050.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives an annual fee, calculated daily
and paid monthly as shown below.
Average Daily Net Assets Incremental Fee
- ------------------------ ---------------
0 - $ 10,000,000 $13,000 (fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
For the fiscal years ended May 31, 1998, 1997, and 1996 ICC
received accounting fees of $77,864, $55,940 and $49,269.
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's performance of its
services under the Master Services Agreement: express delivery service,
independent pricing and storage.
ICC also serves as the Fund's investment advisor.
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by
PricewaterhouseCoopers LLP, whose report thereon appears elsewhere herein, and
have been included herein in reliance upon the report of such firm of
accountants given on their authority as experts in accounting and auditing.
PricewaterhouseCoopers LLP has offices at 250 West Pratt Street, Baltimore,
Maryland 21201.
13. LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
14. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the
Fund to that of other open-end diversified management investment companies and
to stock or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than
in terms of yield. The total return quotations, under the rules of the SEC,
must be calculated according to the following formula:
23
<PAGE>
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5, or 10
year periods (or fractional portion thereof) of a
hypothetical $1,000 payment made at the beginning of the
1-, 5- or 10-year periods.
Under the foregoing formula, the time periods used in
advertising will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the advertising for
publication, and will cover one-, five-, and 10-year periods or a shorter
period dating from the effectiveness of the Fund's registration statement or
the date the Fund (or a class or series) commenced operations.
Calculated according to SEC rules, the ending redeemable
value and average annual total return of a hypothetical $1,000 payment for the
periods ended May 31, 1998 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
One-Year Period Since Inception*
Ended May 31, 1998
- ------------------------------------------------------------------------------------------------------------------
Class Ending Average Annual Ending Average Annual
Redeemable Total Return Redeemable Total Return
Value Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A 1,220.07 22.01% 2,120.84 25.65%
Class B 1,228.11 22.81% 2,139.84 25.99%
- -------------------------------------------------------------------------------------------------------------------
Institutional 1,281.40 28.14% 1,740.60 27.38%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
*February 13, 1995 for Class A and B Shares; February 14, 1996 for
Institutional Shares.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth
above to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies
Inc., Morningstar Inc., or SEI Corporation or with the performance of the
Consumer Price Index, the Standard and Poor's 500 Stock Index and other market
indices such as NASDAQ and the Wilshire 5000, the Fund calculates its
aggregate and average annual total return for the specified periods of time by
assuming the investment of $10,000 in Shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment
date. For this alternative computation, the Fund assumes that the $10,000
invested in Shares is net of all sales charges (as distinguished from the
computation required by the SEC where the $1,000 payment is reduced by sales
charges before being invested in Shares). The Fund will, however, disclose the
maximum sales charges and will also disclose that the performance data do not
reflect sales charges and that inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater
24
<PAGE>
prominence in such advertising than the information prescribed under SEC
rules, and all advertisements containing performance data will include a
legend disclosing that such performance data represent past performance and
that the investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.
The Fund's annual portfolio turnover rate (the lesser of the
value of the purchases or sales for the year divided by the average monthly
market value of the portfolio during the year, excluding U.S. Government
securities and securities with maturities of one year or less) may vary from
year to year, as well as within a year, depending on market conditions. In the
fiscal year ended May 31, 1998 the Fund's portfolio turnover rate was 7.94%
and in the fiscal year ended May 31, 1997, the Fund's portfolio turnover rate
was 17.60%.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons held
beneficially or of record 5% or more of the Fund's outstanding shares, as of
July 8, 1998*:
BT Alex. Brown Incorporated 9.88%
FBO 250-10788-16
PO Box 1346
Baltimore, MD 21203-1346
*As of such date, BT Alex. Brown Incorporated owned less than 5% of the Fund's
total outstanding Shares.
As of such date, Directors and officers as a group owned less
than 1% of the Fund's total outstanding Shares.
16. FINANCIAL STATEMENTS
See next page.
25
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS MAY 31, 1998
Shares Market Value
- --------------------------------------------------------------------------------
COMMON STOCK: 95.5%
BANKING: 3.5%
30,600 Citicorp $ 4,563,225
19,500 Wells Fargo & Company 7,049,250
-----------
11,612,475
-----------
BASIC INDUSTRY: 8.4%
399,000 Airgas, Inc.* 6,059,812
216,000 Georgia Gulf Corp. 5,413,500
144,100 Hercules, Inc. 6,349,406
138,500 Newmont Mining Corp. 3,453,844
146,000 Olin Corp. 6,314,500
-----------
27,591,062
-----------
BUSINESS SERVICES: 1.8%
180,000 First Data Corp. 5,985,000
-----------
CAPITAL GOODS: 2.1%
29,900 Briggs & Stratton Corporation 1,356,713
48,400 Caterpillar, Inc. 2,658,975
32,500 Eaton Corporation 2,918,906
-----------
6,934,594
-----------
CONSUMER DURABLES/NON-DURABLES: 14.6%
405,000 Blyth Industries, Inc.* 12,428,437
240,500 Callaway Golf 4,960,313
250,000 Ford Motor Company 12,968,750
207,500 Philip Morris Companies, Inc. 7,755,312
115,000 Richfood Holdings, Inc. 2,810,313
310,000 Sunbeam Corp. 7,110,625
-----------
48,033,750
-----------
CONSUMER SERVICES: 12.0%
160,000 America Online, Inc.* 13,330,000
150,000 Cendant Corp.* 3,253,125
50,000 Gannett Company, Inc. 3,296,875
611,800 The Learning Company, Inc.* 17,436,300
36,000 Times Mirror Company - Class A 2,304,000
-----------
39,620,300
-----------
26
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Shares Market Value
- --------------------------------------------------------------------------------
COMMON STOCK (continued)
DEFENSE/AEROSPACE: 3.0%
67,080 The Boeing Company $ 3,194,685
58,700 Lockheed Martin Corp. 6,589,075
-----------
9,783,760
-----------
ENERGY: 2.1%
100,000 CalEnergy Company, Inc.* 3,025,000
100,500 Noble Affiliates, Inc. 3,925,781
-----------
6,950,781
-----------
FINANCIAL SERVICES: 10.2%
60,200 American Express Company 6,178,025
65,521 Associates First Capital Corp., Class A 4,901,790
108,000 Freddie Mac 4,914,000
175,000 Green Tree Financial Corporation 7,032,812
36,000 Transamerica Corp. 4,140,000
105,000 Travelers Group, Inc. 6,405,000
-----------
33,571,627
-----------
HEALTH CARE: 5.0%
127,000 Amgen, Inc.* 7,683,500
100,000 Columbia/HCA Healthcare Corp. 3,268,750
82,000 Johnson & Johnson 5,663,125
-----------
16,615,375
-----------
HOTELS/GAMING: 1.6%
130,000 Harrah's Entertainment, Inc.* 3,250,000
61,600 Hilton Hotels Corporation 1,936,550
-----------
5,186,550
-----------
HOUSING: 5.1%
327,500 Champion Enterprises, Inc.* 8,822,031
148,300 USG Corporation* 7,878,438
-----------
16,700,469
-----------
INSURANCE: 5.2%
217,000 Conseco Inc. 10,117,625
93,400 Mid Ocean Limited 7,110,075
-----------
17,227,700
-----------
27
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED) MAY 31, 1998
Shares/
Par (000) Market Value
- --------------------------------------------------------------------------------
COMMON STOCK (concluded)
MULTI-INDUSTRY: 5.8%
164,000 American Standard Co., Inc.* $ 7,913,000
57,000 Loews Corporation 5,172,750
60,000 Monsanto Co. 3,322,500
24,200 Tenneco, Inc. 1,007,325
17,800 United Technologies Corp. 1,673,200
------------
19,088,775
------------
RETAIL: 2.5%
425,000 Kmart Corporation* 8,234,375
------------
TECHNOLOGY: 8.6%
120,100 Cognex Corp.* 2,281,900
86,000 International Business Machines Corporation 10,094,250
97,500 Millipore Corporation 3,254,063
490,300 Novell, Inc.* 5,148,150
34,000 Varian Associates, Inc. 1,634,125
59,500 Xerox Corporation 6,113,625
------------
28,526,113
------------
TELECOMMUNICATIONS: 2.3%
140,000 MCI Communications Corporation 7,485,625
------------
TRANSPORTATION: 1.7%
95,800 Canadian National Railway Company 5,664,175
------------
TOTAL COMMON STOCK
(Cost $221,215,964) 314,812,506
------------
REPURCHASE AGREEMENT: 4.8%
$15,908 Goldman Sachs & Co., 5.40%
Dated 05/29/98, to be repurchased on
06/01/98, collateralized by U.S. Treasury
Bonds with a market value of $16,226,929.
(Cost $15,908,000) 15,908,000
------------
28
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL INVESTMENT IN SECURITIES: 100.3%
(Cost $237,123,964)** $330,720,506
LIABILITIES IN EXCESS OF OTHER ASSETS, NET: (0.3%) (933,806)
------------
NET ASSETS: 100.0% $329,786,700
============
NET ASSET VALUE AND REDEMPTION PRICE PER:
CLASS A SHARE
($198,387,203 / 9,317,787 shares outstanding) $21.29
======
CLASS B SHARE
($37,046,242 / 1,755,771 shares outstanding) $21.10***
======
INSTITUTIONAL SHARE
($94,353,255 / 4,426,600 shares outstanding) $21.32
======
MAXIMUM OFFERING PRICE PER:
CLASS A SHARE
($21.29 / 0.955) $22.29
======
CLASS B SHARE $21.10
======
INSTITUTIONAL SHARE $21.32
======
- -------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
*** Redemption value is $20.26 following a 4% maximum contingent deferred sales
charge.
See accompanying Notes to Financial Statements.
29
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the
Year Ended
May 31,
- --------------------------------------------------------------------------------
1998
Investment Income:
Dividends $ 2,569,469
Interest 1,272,635
-----------
Total income 3,842,104
-----------
Expenses:
Investment advisory fee 2,090,159
Distribution fee 644,257
Registration fees 51,294
Accounting fee 77,864
Transfer agent fee 74,050
Custodian fee 23,692
Directors' fees 10,811
Miscellaneous 156,072
-----------
Total expenses 3,128,199
-----------
Net investment income 713,905
-----------
Realized and unrealized gain on investments:
Net realized gain from security transactions 5,232,557
Change in unrealized appreciation/depreciation of investments 54,454,890
-----------
Net gain on investments 59,687,447
-----------
Net increase in net assets resulting from operations $60,401,352
===========
See accompanying Notes to Financial Statements.
30
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended May 31,
- --------------------------------------------------------------------------------
1998 1997
Increase in Net Assets:
Operations:
Net investment income $ 713,905 $ 635,029
Net realized gain
from security transactions 5,232,557 2,887,321
Change in unrealized appreciation/
depreciation of investments 54,454,890 27,900,712
------------ ------------
Net increase in net assets resulting
from operations 60,401,352 31,423,062
------------ ------------
Distributions to Shareholders from:
Net investment income and short-term gains:
Class A Shares (752,668) (719,423)
Class B Shares (42,361) (23,259)
Institutional Shares (517,867) (149,154)
Net realized long-term and mid-term gains:
Class A Shares (1,489,329) (392,581)
Class B Shares (268,284) (40,703)
Institutional Shares (755,157) (85,452)
------------ ------------
Total distributions (3,825,666) (1,410,572)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares 123,536,819 73,706,538
Value of shares issued in reinvestment
of dividends 3,468,071 1,249,106
Cost of shares repurchased (24,608,945) (7,920,314)
------------ ------------
Increase in net assets derived from
capital share transactions 102,395,945 67,035,330
------------ ------------
Total increase in net assets 158,971,631 97,047,820
Net Assets:
Beginning of period 170,815,069 73,767,249
------------ ------------
End of period (including undistributed net
investment income of $55,727 and $257,965,
respectively) $329,786,700 $170,815,069
============ ============
See accompanying Notes to Financial Statements.
31
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
Feb. 13, 1995(1)
through
For the Year Ended May 31, May 31,
- ---------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S><C>
Per Share Operating Performance:
Net asset value at beginning of
period $ 16.93 $ 13.09 $ 10.77 $ 10.00
-------- -------- ------- -------
Income from Investment Operations:
Net investment income 0.05 0.08 0.17 0.12
Net realized and unrealized gain
on investments 4.60 3.96 2.29 0.65
-------- -------- ------- -------
Total from Investment Operations 4.65 4.04 2.46 0.77
Less Distributions:
Net investment income and
short-term gains (0.10) (0.13) (0.14) --
Net realized mid-term and
long-term gains (0.19) (0.07) -- --
-------- -------- ------- -------
Total distributions (0.29) (0.20) (0.14) --
-------- -------- ------- -------
Net asset value at end of period $ 21.29 $ 16.93 $ 13.09 $ 10.77
======== ======== ======= =======
Total Return 27.76% 31.17% 23.05% 7.70%
Ratios to Average Daily Net Assets:
Expenses 1.24% 1.35%(2) 1.35%(2) 1.35%(2,4)
Net investment income 0.29% 0.61%(3) 1.52%(3) 3.74%(3,4)
Supplemental Data:
Net assets at end of period (000) $198,387 $113,030 $64,230 $38,612
Portfolio turnover rate 7.94% 17.60% 0.73% --
</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 1.48%, 1.77% and 3.76% (annualized)
for the years ended May 31, 1997, 1996 and the period ended May 31, 1995,
respectively.
(3) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 0.48%, 1.10% and 1.33%
(annualized) for the years ended May 31, 1997, 1996 and the period ended May
31, 1995, respectively.
(4) Annualized.
See accompanying Notes to Financial Statements.
32
<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)
through
For the Year Ended May 31, May 31,
- ---------------------------------------------------------------------------------------------
1998 1997 1996 1995
<S><C>
Per Share Operating Performance:
Net asset value at beginning of
period $ 16.84 $ 13.03 $10.75 $10.00
------- ------- ------ ------
Income from Investment Operations:
Net investment income
(Expenses in excess of income) (0.06) (0.04) 0.07 0.07
Net realized and unrealized gain
on investments 4.54 3.96 2.31 0.68
------- ------- ------ ------
Total from Investment Operations 4.48 3.92 2.38 0.75
Less Distributions:
Net investment income
and short-term gains (0.03) (0.04) (0.10) --
Net realized mid-term and
long-term gains (0.19) (0.07) -- --
------- ------- ------ ------
Total distributions (0.22) (0.11) (0.10) --
------- ------- ------ ------
Net asset value at end of period $ 21.10 $ 16.84 $13.03 $10.75
======= ======= ====== ======
Total Return 26.81% 30.28% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses 1.98% 2.10%(2) 2.10%(2) 2.10%(2,4)
Net investment income
(Expenses in excess of income) (0.47)% (0.16)%(3) 0.71%(3) 1.97%(3,4)
Supplemental Data:
Net assets at end of period (000) $37,046 $15,670 $5,302 $2,159
Portfolio turnover rate 7.94% 17.60% 0.73% --
</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 2.23%, 2.52% and 4.22% (annualized)
for the years ended May 31, 1997, 1996 and the period ended May 31, 1995,
respectively.
(3) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been (0.28)%, 0.29%, and
(0.15%) (annualized) for the years ended May 31, 1997, 1996, and the period
ended May 31, 1995, respectively.
(4) Annualized.
See accompanying Notes to Financial Statements.
33
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
Feb. 12, 1996(1)
For the Year through
Ended May 31, May 31,
- -----------------------------------------------------------------------------------------
1998 1997 1996
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 16.94 $ 13.10 $12.72
------- ------- ------
Income from Investment Operations:
Net investment income 0.10 0.14 0.04
Net realized and unrealized gain
on investments 4.59 3.95 0.34
------- ------- ------
Total from Investment Operations 4.69 4.09 0.38
Less Distributions:
Net investment income and short-term gains (0.14) (0.18) --
Net realized mid-term and long-term gains (0.19) (0.07) --
------- ------- ------
Total distributions (0.33) (0.25) --
------- ------- ------
Net asset value at end of period $ 21.32 $ 16.94 $13.10
======= ======= ======
Total Return 28.14% 31.58% 3.23%
Ratios to Average Daily Net Assets:
Expenses 0.98% 1.10%(2) 1.10%(2,4)
Net investment income 0.54% 0.81%(3) 1.20%(3,4)
Supplemental Data:
Net assets at end of period (000) $94,354 $42,115 $4,235
Portfolio turnover rate 7.94% 17.60% 0.73%
</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.
See accompanying Notes to Financial Statements.
34
<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 front-end sales charge and the Class B Shares have a
contingent deferred sales charge. In addition each class has a different
distribution fee. The Institutional Shares do not have a front-end sales charge,
a contingent deferred sales charge or a 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
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 than 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 not readily
available, the Investment Advisor, under the direction of the Board of
Directors determines a fair value using policy and 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.
35
<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 is recorded on an accrual basis and
includes the pro rata scientific method for amortization of
premiums and accretion of discounts when appropriate. Expenses
are recorded as incurred. 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.
36
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, 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. This fee is based on the Fund's
average daily net assets and 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. At May 31, 1998, the amount owed under the advisory agreement amounted
to $226,672.
As compensation for its subadvisory services, ICC pays ABIM a fee from its
advisory fee. This fee is based on the Fund's average daily net assets and 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 reduce its aggregate fees so that ordinary Fund 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. No fees were reduced for the
year ended May 31, 1998.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997 PNC Bank served as the Fund's custodian.
From September 22, 1997 to May 31, 1998, the Fund paid $11,578 in custody
expenses.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors") 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, 1998 distribution fees aggregated $378,730 and $265,527 for
37
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- concluded
distribution services for the Class A shares and Class B shares respectively.
The Fund did not pay BT Alex. Brown any commissions for the year ended May 31,
1998. Prior to September 1, 1997 Alex. Brown & Sons, Inc. served as the Fund's
distributor for the same rate of compensation and on substantially the same
terms as ICC Distributors and earned or were paid $77,151 for Class A Shares
and $48,223 for Class B Shares.
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, 1998 was $5,802, and accrued liability was $7,276.
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, 1998 May 31, 1997
------------ ------------
Shares sold 3,375,853 2,175,983
Shares issued to shareholders on
reinvestment of dividends 117,061 71,468
Shares redeemed (852,542) (477,782)
------------ -----------
Net increase in shares outstanding 2,640,372 1,769,669
============ ===========
Proceeds from sale of shares $ 66,318,519 $32,665,187
Value of reinvested dividends 2,136,952 1,040,589
Cost of shares redeemed (16,794,448) (7,100,783)
------------ -----------
$ 51,661,023 $26,604,993
============ ===========
38
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Class B Shares
-----------------------------
For the For the
Year Ended Year Ended
May 31, 1998 May 31, 1997
------------ ------------
Shares sold 860,902 545,380
Shares issued to shareholders on
reinvestment of dividends 16,617 3,986
Shares redeemed (52,451) (25,717)
----------- ----------
Net increase in shares outstanding 825,068 523,649
=========== ==========
Proceeds from sale of shares $16,336,267 $8,263,270
Value of reinvested dividends 302,586 60,224
Cost of shares redeemed (1,036,796) (375,286)
----------- ----------
$15,602,057 $7,948,208
=========== ==========
Institutional Shares
-----------------------------
For the For the
Year Ended Year Ended
May 31, 1998 May 31, 1997
------------ ------------
Shares sold 2,238,106 2,182,989
Shares issued to shareholders on
reinvestment of dividends 56,263 9,854
Shares redeemed (353,873) (30,115)
----------- -----------
Net increase in shares outstanding 1,940,496 2,162,728
=========== ===========
Proceeds from sale of shares $40,882,033 $32,778,081
Value of reinvested dividends 1,028,533 148,292
Cost of shares redeemed (6,777,701) (444,244)
----------- -----------
$35,132,865 $32,482,129
=========== ===========
At May 31, 1998, the amounts payable for fund shares redeemed amounted to
$1,189,301, of which $1,002,179 were attributable to the Class A Shares and
$187,122 were attributable to the Class B Shares.
39
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 4 -- Investment Transactions
At May 31, 1998, the amount owed for securities purchased were $635,714.
Excluding short-term obligations, purchases of investment securities aggregated
$127,606,561 and sales of investment securities aggregated $18,039,365 for the
year ended May 31, 1998.
On May 31, 1998, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $100,101,326 and
aggregate gross unrealized depreciation of all securities in which there is an
excess of tax cost over value was $6,504,784.
NOTE 5 -- Net Assets
On May 31, 1998, net assets consisted of:
Paid-in capital:
Class A Shares $131,887,170
Class B Shares 28,044,712
Institutional Shares 71,757,339
Accumulated net realized gain from security transactions 4,445,210
Unrealized appreciation of investments 93,596,542
Undistributed net investment income 55,727
------------
$329,786,700
============
NOTE 6 -- Shareholder Meeting
Alex. Brown Incorporated, which was the parent corporation of the Fund's
investment advisor, merged into a subsidiary of Bankers Trust Corporation on
September 1, 1997. Due to the change in control of Alex. Brown Incorporated, the
Flag Investors Equity Partners Fund held a special meeting for its shareholders
on August 14, 1997. During the meeting, shareholders approved a new Investment
Advisory between the Fund and ICC and a new SubAdvisory Agreement among the
Fund, ICC and ABIM. The new agreements are substantially the same as the former
agreements.
NOTE 7 -- Federal Tax Information (unaudited)
100% of the net investment income dividends paid by the Fund during the tax
year ended May 31, 1998 qualified for the Dividends Received Deduction. The Fund
paid a long-term capital gain dividend of $0.19 during the tax year ended May
31, 1998. Eighty percent of this dividend was classified as 28% capital gain and
twenty percent was classified as 20% capital gain.
40
<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, 1998 and the related statement of
operations for the year then ended, the statements 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, 1998 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, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended 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 19, 1998
41
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa -Judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt-edged."
Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -Judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than Aaa securities.
A -Possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa -Considered as medium-grade obligations i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba -Judged to have speculative elements; their future cannot be
considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B -Generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa -Of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca -Obligations which are speculative in a high degree. Such
issues are often in default or have other marked shortcomings.
C -The lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates a rating in the
lower end of that generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
<PAGE>
AAA -The highest rating assigned by Standard & Poor's to a debt
obligation. Indicates an extremely strong capacity to pay principal and
interest.
AA -Qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only to a small degree.
A - A strong capacity to pay interest and repay principal
although somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB -Regarded as having an adequate capacity to pay interest
and repay principal. Normally exhibit adequate protection parameters, but
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for bonds in this
category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major risk exposures to adverse
conditions.
The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
Debt rated D is in payment default. The D rating category is
used when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition of the taking of a similar action if
payments on a obligation are jeopardized.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues rated Prime-1 (or supporting institutions)
have a superior ability for repayment of senior short-term debt obligations.
Prime-1 repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
PRIME-2 - Issuers rated Prime-2 (or supporting institutions)
have a strong ability for repayment of senior short-term debt obligations.
This will normally be evidenced by many of the characteristics cited above but
to a lesser degree. Earnings trends and coverage ratios, while sound, may be
more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
PRIME-3 - Issuers rated Prime-3 (or supporting institutions)
have an acceptable ability for repayment of senior short-term obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the
degree of safety regarding timely payment is strong. Those issues determined
to possess extremely strong safety characteristics are denoted with a plus
sign (+) designation.
A-2 - Capacity for timely payment is satisfactory. The
obligation is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rating
categories.
A-3 -Adequate capacity for timely payment. More vulnerable to
the adverse effects of changes in circumstances than obligations carrying the
higher designations.
B - Regarded as having significant speculative characteristics
for timely payment.
C - Currently vulnerable to nonpayment.
D - In payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(1) Registrant's Articles of Incorporation,
incorporated by reference to Exhibit 1(a)
to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on
Form N-1A (Registration No. 33-86832),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-95-000433) on September 22, 1995.
(a)(2) Registrant's Articles Supplementary,
incorporated by reference to Exhibit 1(b)
to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on
Form N-1A (Registration No. 33-86832),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-96-001012) on September 26, 1996.
(a)(3) Registrant's Articles Supplementary dated
June 17, 1997, filed herewith.
(b) By-Laws, as amended through December 18, 1996,
incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration
No. 33-86832), filed with the Securities and
Exchange Commission via EDGAR (Accession No.
950116-97-001816) on October 1, 1997.
(c) Instruments Defining Rights of Securities Holders,
incorporated by reference to Exhibits (1)(a) and 2
to Post-Effective Amendment Nos. 1 and 5,
respectively, to Registrant's Registration
Statement on Form N-1A (Registration No. 33-86832),
filed with the Securities and Exchange Commission
via EDGAR (Accession Nos. 950116-95-000433 and
950116-97-001816) on September 22, 1995 and
October 1, 1997.
(d)(1) Investment Advisory Agreement between
Registrant and Investment Company Capital
Corp., filed herewith.
(d)(2) Sub-Advisory Agreement among Registrant,
Investment Company Capital Corp. and Alex.
Brown Investment Management filed
herewith.
(e)(1) Distribution Agreement dated August 31,
1997 between Registrant and ICC
Distributors, Inc., filed herewith.
(e)(2) Form of Sub-Distribution Agreement between
ICC Distributors, Inc. and Participating
Broker-Dealers, filed herewith.
(e)(3) Form of Shareholder Servicing Agreement
between ICC Distributors, Inc. and
Shareholder Servicing Agents, filed
herewith.
<PAGE>
(f) Not Applicable.
(g) Custodian Agreement dated June 5, 1998 between
Registrant and Bankers Trust Company, filed herewith.
(h) Master Services Agreement between Registrant and
Investment Company Capital Corp., incorporated by
reference to Exhibit 9 to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on
Form N-1A (Registration No. 33-86832), filed with
the Securities and Exchange Commission via EDGAR
(Accession No. 950116-95-000433) on September 22,
1995.
(i) Opinion of Counsel, incorporated by reference to
Exhibit 10 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-95-000433) on
September 22, 1995.
(j) Consent of PricewaterhouseCoopers LLP, filed
herewith.
(k) Not Applicable.
(l) Subscription Agreement, incorporated by reference
to Exhibit 13 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832), filed with the
Securities and Exchange Commission via EDGAR
(Accession No. 950116-95-000433) on
September 22, 1995.
(m)(1) Distribution Plan with respect to Flag
Investors Class A Shares, incorporated by
reference to Exhibit 15(a) to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on
Form N-1A (Registration No. 33-86832),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-97-001816) on October 1, 1997.
(m)(2) Distribution Plan with respect to Flag
Investors Class B Shares, incorporated by
reference to Exhibit 15(b) to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on
Form N-1A (Registration No. 33-86832),
filed with the Securities and Exchange
Commission via EDGAR (Accession No.
950116-97-001816) on October 1, 1997.
(n) Financial Data Schedule, filed herewith.
(o) 18f-3 Plan, with exhibits through March 27, 1998,
filed herewith.
(p) Powers of Attorney, filed herewith.
-2-
<PAGE>
Item 24. Persons Controlled by or under Common Control with Registrant
Provide a list or diagram of all persons directly or
indirectly controlled by or under common control with the Registrant. For any
person controlled by another person, disclose the percentage of voting
securities owned by the immediately controlling person or other basis of that
person's control. For each company, also provide the state or other sovereign
power under the laws of which the company is organized.
None.
Item 25. Indemnification
State the general effect of any contract, arrangements or
statute under which any director, officer, underwriter or affiliated person of
the Registrant is insured or indemnified against any liability incurred in
their official capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Sections 1, 2, 3 and 4 of Article VIII of Registrant's
Articles of Incorporation, included as Exhibit (a) to this Registration
Statement and incorporated herein by reference, provide as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of
the Corporation shall have any liability to the Corporation
or its shareholders for damages. This limitation on
liability applies to events occurring at the time a person
serves as a director or officer of the Corporation whether
or not such person is a director or officer at the time of
any proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance
expenses to its currently acting and its former directors to
the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law. The
Corporation shall indemnify and advance expenses to its
officers to the same extent as to its directors and to such
further extent as is consistent with law. The Board of
Directors of the Corporation may make further provision for
indemnification of directors, officers, employees and agents
in the By-Laws of the Corporation or by resolution or
agreement to the fullest extent permitted by the Maryland
General Corporation Law.
Section 3. No provision of this Article VIII shall be
effective to protect or purport to protect any director or
officer of the Corporation against any liability to the
Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Section 4. References to the Maryland General Corporation
Law in this Article VIII are to such law as from time to
time amended. No further amendment to the Charter of the
Corporation shall decrease, but may expand, any right of any
person under this Article VIII based on any event, omission
or proceeding prior to such amendment.
-3-
<PAGE>
Sections 1, 2, 3, 4 and 5 of Article XIII of Registrant's
By-Laws, included as Exhibit (b) to this Registration Statement and
incorporated herein by reference, provide as follows:
Section 1. Indemnification. The Corporation shall indemnify
its Directors to the fullest extent that indemnification of
Directors is permitted by the Maryland General Corporation
Law. The Corporation shall indemnify its officers to the
same extent as its Directors and to such further extent as
is consistent with law. The Corporation shall indemnify its
Directors and officers who while serving as Directors or
officers also serve at the request of the Corporation as a
Director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. This Article XIII
shall not protect any such person against any liability to
the Corporation or any shareholder thereof to which such
person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office.
Section 2. Advances. Any current or former Director or
officer of the Corporation claiming indemnification within
the scope of this Article XIII shall be entitled to advances
from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible
under the Maryland General Corporation Law, the Securities
Act of 1933 (the "1933 Act") and the 1940 Act, as such
statutes are now or hereafter in force.
Section 3. Procedure. On the request of any current or
former Director or officer requesting indemnification or an
advance under this Article XIII, the Board of Directors
shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the
1933 Act and the 1940 Act, as such statutes are now or
hereafter in force, whether the standards required by this
Article XIII have been met.
Section 4. Other Rights. The indemnification provided by
this Article XIII shall not be deemed exclusive of any other
right, in respect of indemnification or otherwise, to which
those seeking such indemnification may be entitled under any
insurance or other agreement, vote of shareholders or
disinterested Directors or otherwise, both as to action by a
Director or officer of the Corporation in his official
capacity and as to action by such person in another capacity
while holding such office or position, and shall continue as
to a person who has ceased to be a Director or officer and
shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 5. Maryland Law. References to the Maryland General
Corporation Law in this Article XIII are to such law as from
time to time amended.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
-4-
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the 1940 Act and is, therefore, unenforceable. In the event of a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person in connection with the securities being registered) the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final adjudication of
such issue. In the absence of a determination by a court of competent
jurisdiction, the determinations that indemnification against such liabilities
is proper, and advances can be made, are made by a majority of a quorum of the
disinterested directors of the Fund, or an independent legal counsel in a
written opinion, based on review of readily available facts.
Item 26. Business and Other Connections of the Investment Advisor.
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment advisor and each
director, officer or partner of the investment advisor, is or has been,
engaged within the last two fiscal years, for his or her own account or in the
capacity of director, officer, employee, partner or trustee. (Disclose the
name and principal business address of any company for which a person listed
above serves in the capacity of director, officer, employee, partner or
trustee, and the nature of the relationship.)
During the last two fiscal years, no director or officer of
Investment Company Capital Corp., the Registrant's investment advisor, has
engaged in any other business, profession, vocation or employment of a
substantial nature other than that of the business of investment management
and, through affiliates, investment banking.
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment sub-advisor, and
each director, officer or partner of the investment sub-advisor, is or has
been, engaged within the last two fiscal years, for his or her own account or
in the capacity of director, officer, employee, partner or trustee. (Disclose
the name and principal business address of any company for which a person
listed above serves in the capacity of director, officer, employee, partner or
trustee, and the nature of the relationship.)
The list required by this Item 26 of officers and directors
of Alex. Brown Investment Management ("ABIM"), together with information as to
any other business, profession, vocation or employment of a substantial nature
engaged in by such officers and directors during the past two years, is
incorporated by reference to Schedules A and D of Form ADV, filed by ABIM
pursuant to the Investment Advisors Act of 1940 (SEC File No. 801-21616).
-5-
<PAGE>
Item 27. Principal Underwriters
(a) State the name of each investment company (other than
the Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal underwriter, depositor
or investment advisor.
ICC Distributors, Inc. acts as distributor for BT Alex.
Brown Cash Reserve Fund, Inc., Flag Investors Communications
Fund, Inc.,(formerly Flag Investors Telephone Income Fund,
Inc.) Flag Investors International Fund, Inc., Flag
Investors Emerging Growth Fund, Inc., Flag Investors Total
Return U.S. Treasury Fund Shares of Total Return U.S.
Treasury Fund, Inc., Flag Investors Managed Municipal Fund
Shares of Managed Municipal Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc. (formerly Flag
Investors Intermediate-Term Income Fund, Inc.), Flag
Investors Value Builder Fund, Inc. and Flag Investors
Real Estate Securities Fund, Inc., all registered open-end
management investment companies.
(b) Provide the information with respect to each director,
officer or partner of each principal underwriter named in answer to Item 20.
<TABLE>
<CAPTION>
Position and
Offices Position and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
------------------ -------------- ------------
<S> <C> <C>
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
</TABLE>
--------------------
Two Portland Square
Portland, ME 04101
(c) Not applicable.
-6-
<PAGE>
Item 28. Location of Accounts and Records
State the name and address of each person maintaining
principal possession of each account, book or other document required to be
maintained by section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the rules
under that section.
Investment Company Capital Corp. ("ICC"), Registrant's
investment advisor, transfer agent and dividend disbursing agent, One South
Street, Baltimore, Maryland 21202, maintains physical possession of each such
account, book or other document of the Fund, except for those maintained by
ABIM, the Registrant's sub-advisor, One South Street, Baltimore, Maryland
21202, and by Bankers Trust Company, the Registrant's custodian, 130 Liberty
Street, New York, New York 10006.
In particular, with respect to the records required by Rule
31a-1(b)(1), ICC and ABIM each maintains physical possession of all journals
containing itemized daily records of all purchases and sales of securities,
and, in the case of ICC, sales and redemptions of Fund securities, and Bankers
Trust Company maintains physical possession all receipts and deliveries of
securities (including certificate numbers if such detail is not recorded by
custodian or transfer agent), all receipts and disbursements of cash, and all
other debts and credits.
Item 29. Management Services
Provide a summary of the substantive provisions of any
management-related service contract not discussed in Part A or Part B
disclosing the parties to the contract and the total amount paid and by whom,
for the Fund's last three fiscal years.
Not Applicable.
Item 30. Undertakings
In initial registration statements filed under the
Securities Act, provide an undertaking to file an amendment to the
registration statement with certified financial statements showing the initial
capital received before accepting subscriptions from more than 25 persons if
the Fund intends to raise its initial capital under section 14(a)(3)[15 U.S.C.
80a-14(a)(3)].
(a) Not Applicable.
-7-
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Post-Effective Amendment No. 6 to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of
Baltimore, in the State of Maryland, on the 31st day of July, 1998.
FLAG INVESTORS EQUITY
PARTNERS FUND, INC.
By: /s/ Harry Woolf
-------------------
Harry Woolf
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
* Chairman and
- ---------------------------------------- Director July 31, 1998
Truman T. Semans -------------
Date
* Director July 31, 1998
- ---------------------------------------- -------------
Richard T. Hale Date
* Director July 31, 1998
- ---------------------------------------- -------------
James J. Cunnane Date
* Director July 31, 1998
- ---------------------------------------- -------------
John F. Kroeger Date
* Director July 31, 1998
- ---------------------------------------- -------------
Louis E. Levy Date
* Director July 31, 1998
- ---------------------------------------- -------------
Eugene J. McDonald Date
* Director July 31, 1998
- ---------------------------------------- -------------
Rebecca W. Rimel Date
* Director July 31, 1998
- ---------------------------------------- -------------
Carl W. Vogt Date
/s/ Harry Woolf President July 31, 1998
- ---------------------------------------- -------------
Harry Woolf Date
/s/ Joseph A. Finelli Chief Financial and July 31, 1998
- ---------------------------------------- Accounting Officer -------------
Joseph A. Finelli Date
* By: /s/Amy M. Olmert
----------------------------------
Amy M. Olmert
Attorney-In-Fact
</TABLE>
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
INDEX OF EXHIBITS
EDGAR
Exhibit
Number Document
--------------------------------------------------------------
(a)(1) Registrant's Articles of Incorporation, incorporated by
reference to Exhibit 1(a) to Post-Effective Amendment
No. 1 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-86832), filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 950116-95-000433) on September 22, 1995.
(a)(2) Registrant's Articles Supplementary, incorporated by
reference to Exhibit 1(b) to Post-Effective Amendment
No. 3 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-86832), filed with the
Securities and Exchange Commission via EDGAR (Accession
No. 950116-96-001012) on September 26, 1996.
EX-99.B (a)(3) Registrant's Articles Supplementary dated June 17, 1997,
filed herewith.
(b) By-Laws, as amended through December 18, 1996,
incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-86832), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001816) on
October 1, 1997.
(c) Instruments Defining Rights of Securities Holders,
incorporated by reference to Exhibits (1)(a) and 2 to
Post-Effective Amendment Nos. 1 and 5, respectively, to
Registrant's Registration Statement on Form N-1A
(Registration No. 33- 86832), filed with the Securities
and Exchange Commission via EDGAR (Accession Nos.
950116-95-000433 and 950116-97- 001816) on September
22, 1995 and October 1, 1997.
EX-99.B (d)(1) Investment Advisory Agreement between Registrant and
Investment Company Capital Corp., filed herewith.
EX-99.B (d)(2) Sub-Advisory Agreement among Registrant, Investment
Company Capital Corp. and Alex. Brown Investment
Management filed herewith.
<PAGE>
EX-99.B (e)(1) Distribution Agreement dated August 31, 1997 between
Registrant and ICC Distributors, Inc., filed herewith.
EX-99.B (e)(2) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Broker-Dealers,
filed herewith.
EX-99.B (e)(3) Form of Shareholder Servicing Agreement between ICC
Distributors, Inc. and Shareholder Servicing Agents,
filed herewith.
(f) Not Applicable.
EX-99.B (g) Custodian Agreement dated June 5, 1998 between
Registrant and Bankers Trust Company, filed herewith.
(h) Master Services Agreement between Registrant and
Investment Company Capital Corp., incorporated by
reference to Exhibit 9 to Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832), filed with the Securities
and Exchange Commission via EDGAR (Accession No.
950116-95-000433) on September 22, 1995.
(i) Opinion of Counsel, incorporated by reference to
Exhibit 10 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832), filed with the Securities
and Exchange Commission via EDGAR (Accession No.
950116-95-000433) on September 22, 1995.
EX-99.B (j) Consent of PricewaterhouseCoopers LLP, filed
herewith.
(k) Not Applicable.
(l) Subscription Agreement, incorporated by reference to
Exhibit 13 to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832), filed with the Securities
and Exchange Commission via EDGAR (Accession No.
950116-95-000433) on September 22, 1995.
(m)(1) Distribution Plan with respect to Flag Investors Class
A Shares, incorporated by reference to Exhibit 15(a) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
<PAGE>
33-86832), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001816)
on October 1, 1997.
(m)(2) Distribution Plan with respect to Flag Investors Class
B Shares, incorporated by reference to Exhibit 15(b) to
Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (Registration No.
33-86832), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-97-001816)
on October 1, 1997.
EX-99.B (n) Financial Data Schedule, filed herewith.
EX-99.B (o) 18f-3 Plan, with exhibits through March 27, 1998,
filed herewith.
EX-99.B (p) Powers of Attorney, filed herewith.
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS EQUITY PARTNERS FUND, INC. (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance
with Section 2-105(c) of the Maryland General Corporation Law has adopted a
resolution increasing the total number of shares of capital stock which the
Corporation has the authority to issue to seventy-five million (75,000,000)
shares of Common Stock, of the par value of 1 mil ($.001) per share and of the
aggregate par value of seventy-five thousand dollars ($75,000), all of which
shares are designated as follows: forty million (40,000,000) shares are
designated "Flag Investors Equity Partners Fund Class A Shares," fifteen
million (15,000,000) shares are designated "Flag Investors Equity Partners
Fund Class B Shares," fifteen million (15,000,000) shares are designated "Flag
Investors Equity Partners Fund Institutional Shares" and five million
(5,000,000) shares remain undesignated.
SECOND: Immediately before the increase, the Corporation was
authorized to issue thirty-five million (35,000,000) shares of Common Stock,
of the par value of 1 mil ($.001) per share and of the aggregate par value of
thirty-five thousand dollars ($35,000), all of which shares were designated as
follows: twenty million (20,000,000) shares were designated "Flag Investors
Equity Partners Fund Class A Shares," five million (5,000,000) shares were
designated "Flag Investors Equity Partners Fund Class B Shares," five million
(5,000,000) shares were designated "Flag Investors Equity Partners Fund
Institutional Shares" and five million (5,000,000) shares remained
undesignated.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Equity Partners Fund,
Inc. has caused these Articles Supplementary to be executed by one of its Vice
Presidents and its corporate seal to be affixed and attested by its Secretary
on this 17th day of June, 1997.
[CORPORATE SEAL]
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
By: /s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Vice President
Attest: /s/ Scott J. Liotta
------------------------------
Scott J. Liotta
Vice President and Secretary
The undersigned, Vice President of FLAG INVESTORS EQUITY
PARTNERS FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
By: /s/ Edward J. Veilleux
--------------------------
Edward J. Veilleux
Vice President
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day of
September, 1997 by and between FLAG INVESTORS EQUITY PARTNERS FUND, INC., a
Maryland corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a
Maryland corporation (the "Advisor").
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under
the Investment Advisors Act of 1940, as amended, and engages in the business
of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an
agreement to provide investment advisory and administrative services for the
Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Investment Advisor. The Fund hereby appoints
the Advisor to act as the Fund's investment advisor. The Advisor shall manage
the Fund's affairs and shall supervise all aspects of the Fund's operations
(except as otherwise set forth herein), including the investment and
reinvestment of the cash, securities or other properties comprising the Fund's
assets, subject at all times to the policies and control of the Fund's Board
of Directors. The Advisor shall give the Fund the benefit of its best
judgment, efforts and facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
State of Maryland on November 29, 1994 and all amendments thereto (such
Articles of Incorporation, as presently in effect and as they shall from time
to time be amended, are herein called the "Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto (such
By-laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-laws");
<PAGE>
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the Investment Company Act of 1940 on Form N-8A
under the 1940 Act as filed with the Securities and Exchange Commission (the
"SEC") on November 30, 1994;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-86832)
and under the 1940 Act as filed with the SEC on November 30, 1994 relating to
the shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus,
as presently in effect, and all amendments and supplements thereto are herein
called "Prospectus").
The Fund will furnish the Advisor from time to time with copies,
properly certified or authenticated, of all amendments or supplements to the
foregoing, if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. In carrying out its obligations
under Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's
operations, except for distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective
and policies of the Fund;
(c) provide the Fund with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of
Directors;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items for the
Fund's principal office;
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally or the
Fund, and whether concerning the individual issuers whose securities are
included in the Fund's portfolio or the activities in which they engage, or
with respect to securities which the Advisor considers desirable for inclusion
in the Fund's portfolio;
-2-
<PAGE>
(f) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors;
(g) take all actions necessary to carry into effect the
Fund's purchase and sale programs;
(h) supervise the operations of the Fund's transfer and
dividend disbursing agent;
(i) provide the Fund with such administrative and
clerical services for the maintenance of certain shareholder records, as are
deemed advisable by the Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filings with the SEC and state Blue
Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Fund,
broker-dealer selection, and negotiation of its brokerage commission rates,
the Advisor's primary consideration in effecting securities transactions will
be to obtain the best price and execution on an overall basis. In performing
this function the Advisor shall comply with applicable policies established by
the Board of Directors and shall provide the Board of Directors with such
reports as the Board of Directors may require in order to monitor the Fund's
portfolio transaction activities. In certain instances the Advisor may make
purchases of underwritten issues at prices which include underwriting fees. In
selecting a broker-dealer to execute each particular transaction, the Advisor
will take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size
of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on
a continuing basis. Accordingly, the price to the Fund in any transaction may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Advisor shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of
its having caused the Fund to pay a broker-dealer that provides brokerage and
research services to the Advisor an amount of commission for effecting a
portfolio investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Advisor determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by
such broker-dealer, viewed in terms of either that particular transaction or
the Advisor's overall responsibilities with respect to the Fund. The Advisor
is further authorized to allocate the orders placed by it on behalf of the
Fund to such broker-dealers other than Alex. Brown & Sons
-3-
<PAGE>
Incorporated ("Alex. Brown") who also provide research or statistical material
or other services to the Fund or the Advisor. Such allocation shall be in such
amounts and proportions as the Advisor shall determine and the Advisor will
report on said allocation regularly to the Board of Directors of the Fund,
indicating the broker-dealers to whom such allocations have been made and the
basis therefor.
Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine,
the Advisor may consider services in connection with the sale of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Fund.
Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on an agency basis. The commissions paid
to Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act,
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
If the purchase or sale of securities consistent with the investment policies
of the Fund or one or more other account of the Advisor is considered at or
about the same time, transactions in such securities will be allocated among
the accounts in a manner deemed equitable by the Advisor. Alex. Brown and the
Advisor may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable
execution.
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with the rules of the SEC.
5. Control by Board of Directors. Any management or supervisory
activities undertaken by the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Advisor on behalf of the Fund pursuant
thereto, shall at all times be subject to any applicable directives of the
Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder;
-4-
<PAGE>
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and State
law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without cost to
the Fund, the services of one or more officers of the Fund, to the extent that
such officers may be required by the Fund, for the proper conduct of its
affairs.
(b) The Fund assumes and shall pay or cause to be paid
all other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan of distribution, the charges and
expenses of any registrar, any custodian or depository appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, and
any transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions, chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to
Federal, State or other governmental agencies; the costs and the expenses of
engraving or printing of certificates representing shares of the Fund; all
costs and expenses in connection with registration and maintenance of
registration of the Fund and its shares with the SEC and various states and
other jurisdictions (including filing fees, legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing
of proxy statements and reports to shareholders; fees and travel expenses of
Directors or Director members of any advisory board or committee; all expenses
incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not
"interested persons" (as defined in the 1940 Act) of the Fund and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs
-5-
<PAGE>
and any indemnification related thereto); and all other charges and costs of
the Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors
including a majority of the Fund's Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund and shareholders of the Fund, the
Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor shall continue to supervise the performance of any such
sub-advisor and shall report regularly thereon to the Fund's Board of
Directors, but shall not be responsible for the sub-advisor's performance
under the sub-advisory agreement.
(b) The Advisor may, but shall not be under any duty to,
perform services on behalf of the Fund which are not required by this
Agreement upon the request of the Fund's Board of Directors. Such services
will be performed on behalf of the Fund and the Advisor's charge in rendering
such services may be billed monthly to the Fund, subject to examination by the
Fund's independent accountants. Payment or assumption by the Advisor of any
Fund expense that the Advisor is not required to pay or assume under this
Agreement shall not relieve the Advisor of any of its obligations to the Fund
nor obligate the Advisor to pay or assume any similar Fund expense on any
subsequent occasions.
9. Compensation. For the services to be rendered and the expenses
assumed by the Advisor, the Fund shall pay to the Advisor monthly compensation
at an annual rate of 1.00% of the first $50 million of the Fund's average
daily net assets, .85% of the next $50 million of the Fund's average daily net
assets, .80% of the next $100 million of the Fund's average daily net assets
and .70% of the Fund's average daily net assets exceeding $200 million.
Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for the part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Advisor's compensation for the preceding month shall be
made as promptly as possible.
10. Non-Exclusivity. The services of the Advisor to the Fund are
not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory or other services to others (including other investment
companies) and to engage in other activities, so long as its services under
this Agreement are not impaired thereby. It is understood and agreed that
officers or directors of the Advisor may serve as officers or Directors of the
Fund, and that officers or Directors of the Fund may serve
-6-
<PAGE>
as officers or directors of the Advisor to the extent permitted by law; and
that the officers and directors of the Advisor are not prohibited from
engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, trustees or directors of
any other firm, trust or corporation, including other investment companies.
11. Term and Renewal. This Agreement shall become effective as of
the date hereof and shall continue in force and effect, subject to Section 12
hereof, for two years from the date hereof. Following the expiration of its
initial two-year term, this Agreement shall continue in force and effect from
year to year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities (as defined in the
1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of a party to this Agreement (other than as Directors
of the Fund) by votes cast in person at a meeting specifically called for such
purpose.
12. Termination. This Agreement may be terminated without the
payment of any penalty, by the Fund upon vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) or by the Advisor, upon sixty (60) days' written
notice to the other party. This Agreement shall automatically terminate in the
event of its assignment (as defined in the 1940 Act).
13. Liability of Advisor. In the performance of its duties
hereunder, the Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Advisor shall not be liable for any act or omission which does not constitute
willful misfeasance, bad faith or gross negligence on the part of the Advisor
or its officers, directors or employees, or reckless disregard by the Advisor
of its duties under the Agreement.
14. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Fund and of the Advisor for this purpose shall be One South Street, Baltimore,
Maryland 21202.
15. Questions of Interpretation. Any question of interpretation
of any term or provision of this Agreement having a counterpart in or
otherwise derived from a term or provision of the 1940 Act shall be resolved
by reference to such term or
-7-
<PAGE>
provision of the 1940 Act and to interpretations thereof, if any, by the
United States courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the SEC issued pursuant to the 1940
Act. In addition, where the effect of a requirement of the 1940 Act reflected
in any provision of this Agreement is revised by rule, regulation or order of
the SEC, such provision shall be deemed to incorporate the effect of such
rule, regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective officers as of the day and
year first above written.
[SEAL] FLAG INVESTORS EQUITY PARTNERS
FUND, INC.
Attest: /s/Amy M. Olmert By: /s/Harry Woolf
-------------------- ----------------------------------
Name: Harry Woolf
Title: President
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest: /s/ Amy M. Olmert By: /s/Edward J. Veilleux
-------------------- ----------------------------------
Name: Edward J. Veilluex
Title: Executive Vice President
-8-
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 1st day of September, 1997
by and among FLAG INVESTORS EQUITY PARTNERS FUND, INC., a Maryland corporation
(the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), and ALEX. BROWN INVESTMENT MANAGEMENT, a Maryland limited
partnership (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the
Fund's Board of Directors and the Advisor, and the Sub-Advisor hereby accepts
such appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed
with the State of Maryland on November 29, 1994 and all amendments
thereto (such Articles of Incorporation, as presently in effect and
as they shall from time to time be amended, are herein called the
"Articles of Incorporation");
(b) The Fund's By-laws and all amendments thereto
(such By-laws, as presently in effect and as they shall from time to
time be amended, are herein called the "By-laws");
(c) Resolutions of the Fund's Board of Directors
and shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
<PAGE>
(d) The Fund's Notification of Registration Filed
Pursuant to Section 8(a) of the Investment Company Act of 1940 on
Form N-8A under the 1940 Act as filed with the Securities and
Exchange Commission (the "SEC") on November 30, 1994;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File
No. 33-86832) and under the 1940 Act as filed with the SEC on
November 30, 1994 relating to the shares of the Fund, and all
amendments thereto; and
(f) The Fund's most recent prospectus (such
prospectus, as presently in effect, and all amendments and
supplements thereto are herein called "Prospectus").
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements
to the foregoing, if any, and all documents, notices and reports filed with
the SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub-Advisor shall:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to
the Fund's Board of Directors;
(c) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and
regularly report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund; and
(e) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial
data, domestic, foreign or otherwise, whether affecting the economy
generally or the Fund, and whether concerning the individual issuers
whose securities are included in the Fund's portfolio or the
activities in which they engage, or with respect to securities which
the Advisor considers desirable for inclusion in the Fund's
portfolio.
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<PAGE>
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide
the Board of Directors with such reports as the Board of Directors may require
in order to monitor the Fund's portfolio transaction activities. In selecting
a broker-dealer to execute each particular transaction, the Sub-Advisor will
take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size
of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on
a continuing basis. Accordingly, the price to the Fund in any transaction may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Sub-Advisor shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker-dealer that provides brokerage
and research services to the Sub-Advisor an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction, if
the Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by
it on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such
allocations have been made and the basis therefor.
Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the
Directors may determine, the Sub-Advisor may consider services in connection
with the sale of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Subject to the policies established by the Board of
Directors in compliance with applicable law, the Advisor may direct Alex.
Brown & Sons Incorporated ("Alex. Brown") to execute portfolio transactions
for the Fund on an agency basis. The commissions paid to Alex. Brown must be,
as required by Rule 17e-1 under the 1940 Act, "reasonable and fair compared to
the commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar
securities during a comparable period of time." If the purchase or sale of
securities consistent with the investment policies of the Fund or one or more
other accounts of the Sub-Advisor is considered at or about the same time,
-3-
<PAGE>
transactions in such securities will be allocated among the accounts in a
manner deemed equitable by the Sub-Advisor. Alex. Brown and the Sub-Advisor
may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable
execution.
The Fund will not deal with the Sub-Advisor or Alex. Brown
in any transaction in which the Sub-Advisor or Alex. Brown acts as a principal
with respect to any part of the Fund's order. If Alex. Brown is participating
in an underwriting or selling group, the Fund may not buy portfolio securities
from the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Advisor on behalf of the Fund
pursuant hereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times
conform to:
(a) all applicable provisions of the 1940 Act and
any rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of
Incorporation;
(d) the provisions of the By-laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall, subject to compliance
with applicable banking regulations, furnish, at its expense and
without cost to the Fund, the services of the President and certain
Vice Presidents of the Fund, to the extent that such officers may be
required by the Fund for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense
and without cost to the Fund, a trading function in order to carry
out its obligations under Section 3 hereof to place orders for the
purchase and sale of portfolio securities for the Fund.
-4-
<PAGE>
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Advisor under the Investment Advisory Agreement
between the Fund and the Advisor; payments to the Fund's distributor
under the Fund's plan of distribution; the charges and expenses of
any registrar, any custodian or depository appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property,
and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commission chargeable to the Fund in connection
with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees
payable by the Fund to Federal, State or other governmental agencies;
the costs and expenses of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection
with the registration and maintenance of registration of the Fund and
its shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the
costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of
the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used
for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not
"interested persons" (as defined in the 1940 Act) of the Fund and of
independent certified public accountants, in connection with any
matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and Directors)
of the Fund which inure to its benefit; extraordinary expenses
(including but not limited to, legal claims and liabilities and
litigation costs and any indemnification related thereto); and all
other charges and costs of the Fund's operation unless otherwise
explicitly provided herein.
8. Compensation. For the services to be rendered hereunder
by the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly
compensation equal to the sum of the amounts determined by applying the
following annual rates to the Fund's average daily net assets: .75% of the
first $50 million of the Fund's average daily net assets, .60% of the next
$150 million of the Fund's average daily net assets, and .50% of the Fund's
average daily net assets in excess of $200 million. Except as hereinafter set
forth, compensation under this Agreement shall be calculated and accrued daily
and the amounts of the daily accruals paid monthly. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of the month this Agreement is
in effect shall be prorated in a manner consistent with the calculations of
the fees as set forth above. Payment of the Sub-Advisor's compensation for the
preceding month shall be made as promptly as possible.
-5-
<PAGE>
9. Additional Responsibilities. The Sub-Advisor may, but
shall not be under any duty to, perform services on behalf of the Fund which
are not required by this Agreement upon the request of the Fund's Board of
Directors. Such services will be performed on behalf of the Fund and the
Sub-Advisor's charges in rendering such services will be billed monthly to the
Fund, subject to examination by the Fund's independent certified public
accountants. Payment or assumption by the Sub-Advisor of any Fund expense that
the Sub-Advisor is not required to pay or assume under this Agreement shall
not relieve the Sub-Advisor of any of its obligations to the Fund nor obligate
the Sub-Advisor to pay or assume any similar Fund expenses on any subsequent
occasions.
10 Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 12
hereof, for two years from the date hereof.
11. Renewal. Following the expiration of its initial
two-year term, this Agreement shall continue in force and effect from year to
year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested
persons" of a party to this Agreement (other than as Directors of the
Fund) by votes cast in person at a meeting specifically called for
such purpose.
12. Termination. This Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Fund's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund (as defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days'
written notice to the Advisor and the Sub-Advisor. This Agreement may be
terminated at any time, without the payment of any penalty, by the Sub-Advisor
on sixty (60) days' written notice to the Fund and the Advisor. The notice
provided for herein may be waived by any person to whom such notice is
required. This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that partners of the Sub-Advisor may serve as officers
or Directors of the Fund, and that officers or Directors of the Fund may serve
as officers or partners of the Sub-Advisor to the extent permitted by law; and
that the partners of the Sub-Advisory are not
-6-
<PAGE>
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers or
directors of any other firm or corporation, including other investment
companies.
14. Liability of Sub-Advisor. In the performance of its
duties hereunder, the Sub-Advisor shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts within
reasonable limits to ensure the accuracy of all services performed under this
Agreement, but the Sub-Advisor shall not be liable for any act or omission
which does not constitute willful misfeasance, bad faith or gross negligence
on the part of the Sub-Advisor or its officers, directors or employees, or
reckless disregard by the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor, of the Advisor and of the Fund for this purpose shall be One
South Street, Baltimore, Maryland 21202.
16. Questions and Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS EQUITY PARTNERS FUND, INC.
/s/Amy M. Olmert By: /s/ Harry Woolf
- ----------------- -----------------------------------------
Amy M. Olmert Name: Harry Woolf
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
/s/Amy M. Olmert By: /s/ Edward J. Veilleux
- ----------------- -----------------------------------------
Amy M. Olmert Name: Edward J. Veilleux
Title: Executive Vice President
Attest: ALEX. BROWN INVESTMENT MANAGEMENT
/s/Amy M. Olmert By: /s/ J. Dorsey Brown,III
- ----------------- -----------------------------------------
Amy M. Olmert Name: J. Dorsey Brown, III
Title: Chief Executive Officer
-8-
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 31st day of August, 1997, by and between
Flag Investors Equity Partners Fund, Inc., with its principal office and place
of business at One South Street, Baltimore, Maryland 21202 (the "Fund"), and
ICC Distributors, Inc., a Delaware corporation with its principal office and
place of business at Two Portland Square, Portland, Maine 04101 (the
"Distributor").
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment
company, may issue its shares of common stock (the "Shares") in separate
series and classes and continuously offers for sale its Shares to the public;
and
WHEREAS, the Distributor is registered under the Securities Exchange
Act of 1934, as amended ("1934 Act"), as a broker-dealer and is engaged in the
business of selling shares of registered investment companies either directly
to purchasers or through other securities dealers;
WHEREAS, the Fund offers Shares in one or more series as listed in
Appendix A hereto (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Section 16, being herein referred to as a "Series," and
collectively as the "Series") and the Fund offers shares of one or more
classes (each such class together with all other classes subsequently
established by a Series being herein referred to as a "Class," and
collectively as the "Classes");
WHEREAS, the Fund desires that the Distributor offer the Shares of
each Series and Class thereof to the public and the Distributor is willing to
provide those services on the terms and conditions set forth in this Agreement
in order to promote the growth of the Fund and facilitate the distribution of
the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Fund and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Fund has delivered to the Distributor properly certified or
authenticated copies of its Articles of Incorporation and Bylaws
(collectively, as amended from time to time, "Organic Documents"), the Fund's
Notification of Registration filed with the U.S. Securities and Exchange
Commission ("SEC") pursuant to Section 8(a) of the 1940 Act on Form N-8A under
the 1940 Act, the Fund's Registration Statement and all amendments thereto
filed with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the 1940 Act (the "Registration Statement") and its
current Prospectuses and Statements of Additional Information (collectively,
as
<PAGE>
currently in effect and as amended or supplemented, the "Prospectus") and
shall promptly furnish the Distributor with all amendments of or supplements
to the foregoing, each properly certified or authenticated. In addition, the
Fund shall furnish the Distributor with properly certified or authenticated
copies of all documents, notices and reports filed with the SEC.
(b) The Fund has delivered to the Distributor certified copies of the
resolutions of the Board of Directors (the "Board") authorizing the
appointment of the Distributor as distributor and approving this Agreement.
(c) The Fund hereby appoints the Distributor as its principal
underwriter and distributor to sell its Shares to the public and hereby agrees
during the term of this Agreement to sell its Shares to the Distributor upon
the terms and conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to
act as its principal underwriter and distributor except that the rights given
under this Agreement to the Distributor shall not apply to Shares issued in
connection with the merger, consolidation or reorganization of any other
investment company with the Fund; the Fund's acquisition by purchase or
otherwise of all or substantially all of the assets or stock of any other
investment company; or the reinvestment in Shares by the Fund's shareholders
of dividends or other distributions or any other offering by the Fund of
securities to its shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Fund the
Shares needed to fill unconditional orders for unsold Shares of the Fund as
shall then be effectively registered under the Securities Act placed with the
Distributor by investors or securities dealers or depository institutions or
other financial intermediaries acting as agent for their customers or on their
own behalf. Alternatively, the Distributor may act as the Fund's agent, to
offer, and to solicit offers to subscribe to, unsold Shares of the Fund as
shall then be effectively registered under the Securities Act. The Distributor
will promptly forward all orders and subscriptions for Shares of the Fund. The
price which the Distributor shall pay for Shares purchased by it from the Fund
shall be the net asset value, determined as set forth in Section 3(c) hereof,
used in determining the public offering price on which the orders are based.
The price at which the Distributor shall offer and sell Shares to investors
shall be the public offering price, as set forth in Section 3(b) hereof. The
Distributor may sell Shares to securities dealers, depository institutions or
other financial intermediaries acting as agent for their customers that have
entered into agreements with the Distributor pursuant to Section 9 hereof or
acting on their own behalf. The Fund reserves the right to sell its Shares
directly to investors through subscriptions received by the Fund, but no such
direct sales shall affect the sales charges due to the Distributor hereunder.
- 2 -
<PAGE>
(b) The public offering price of the Shares of the Fund, i.e., the
price per Share at which the Distributor or selected dealers or selected
agents (each as defined in Section 11 hereof) may sell Shares to the public or
to those persons eligible to invest in Shares as described in the Fund's
Prospectus, shall be the public offering price determined in accordance with
the then currently effective Prospectus of the Fund or Class thereof under the
Securities Act, relating to such Shares, but not to exceed the net asset value
at which the Distributor, when acting as principal, is to purchase such
Shares, plus, in the case of Shares for which an initial sales charge is
assessed, an initial charge equal to a specified percentage or percentages of
the public offering price of the Shares as set forth in the current Prospectus
relating to the Shares. In the case of Shares for which an initial sales
charge may be assessed, Shares may be sold to certain classes of persons at
reduced sales charges or without any sales charge as from time to time set
forth in the current Prospectus relating to the Shares. The Fund will advise
the Distributor of the net asset value per Share at each time as the net asset
value per Share shall have been determined by the Fund.
(c) The net asset value per Share of each Series or Class thereof
shall be determined by the Fund, or an agent of the Fund, as of the close of
the New York Stock Exchange or such other time as set forth in the applicable
Prospectus on the Fund business day in accordance with the method set forth in
the Prospectus and guidelines established by the Board.
(d) The Fund reserves the right to suspend the offering of Shares of
any Class at any time in the absolute discretion of the Board, and upon notice
of such suspension the Distributor shall cease to offer Shares of the Fund or
Classes thereof specified in the notice.
(e) The Fund, or any agent of the Fund designated in writing to the
Distributor by the Fund, shall be promptly advised by the Distributor of all
purchase orders for Shares received by the Distributor and all subscriptions
for Shares obtained by the Distributor as agent shall be directed to the Fund
for acceptance and shall not be binding until accepted by the Fund. Any order
or subscription may be rejected by the Fund; provided, however, that the Fund
will not arbitrarily or without reasonable cause refuse to accept or confirm
orders or subscriptions for the purchase of Shares. The Fund (or its agent)
will confirm orders and subscriptions upon their receipt, will make
appropriate book entries and, upon receipt by the Fund (or its agent) of
payment thereof, will issue such Shares in certificated or uncertificated form
pursuant to the instructions of the Distributor. The Distributor agrees to
cause such payment and such instructions to be delivered promptly to the Fund
(or its agent).
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Fund may be tendered for
redemption at any time, and the Fund agrees to redeem or repurchase the Shares
so tendered in accordance with its obligations as set forth in the Fund's
Organic Documents and the Prospectus relating to the Shares. The price to be
paid to redeem or repurchase the Shares of the Fund shall be equal to the net
asset value calculated in accordance with the provisions of Section 3(b)
hereof less, in the case of Shares for which a deferred sales charge is
assessed, a deferred sales charge equal to a specified percentage
- 3 -
<PAGE>
or percentages of the net asset value of those Shares as from time to time set
forth in the Prospectus relating to those Shares or their cost, whichever is
less. Shares for which a deferred sales charge may be assessed and that have
been outstanding for a specified period of time may be redeemed without
payment of a deferred sales charge as from time to time set forth in the
Prospectus relating to those Shares.
(b) The Fund or its designated agent shall pay (i) the total amount
of the redemption price consisting of the redemption price less any applicable
deferred sales charge to the redeeming shareholder or its agent and (ii)
except as may be otherwise required by the Conduct Rules (the "Rules") of the
National Association of Securities Dealers, Inc. (the "NASD") and any
interpretations thereof, any applicable deferred sales charges to the
Distributor in accordance with the Distributor's instructions on or before the
third business day subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at
times when the New York Stock Exchange is closed for any reason other than its
customary weekend or holiday closings, when trading thereon is restricted,
when an emergency exists as a result of which disposal by the Fund of
securities owned by the Fund is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or during any other period when the SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of
the Fund upon the terms and conditions contained herein and in the then
current Prospectus. The Distributor shall devote reasonable time and effort to
effect sales of Shares but shall not be obligated to sell any specific number
of Shares. The services of the Distributor to the Fund hereunder are not to be
deemed exclusive, and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long
as the performance of its obligations hereunder is not impaired thereby.
(b) In selling Shares of the Fund, the Distributor shall use its best
efforts in all material respects duly to conform with the requirements of all
federal and state laws relating to the sale of the Shares. None of the
Distributor, any selected dealer, any selected agent or any other person is
authorized by the Fund to give any information or to make any representations
other than as is contained in the Fund's Prospectus or any advertising
materials or sales literature specifically approved in writing by the Fund or
its agents.
(c) The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers or selected agents,
the collection of amounts payable by investors and selected dealers or
selected agents on such sales, and the cancellation of unsettled transactions,
as may be necessary to comply with the requirements of the NASD and any other
applicable self-regulatory organization.
- 4 -
<PAGE>
(d) The Distributor will perform its duties hereunder under the
supervision of and in accordance with the directives of the Board. The
Distributor will perform its duties hereunder in accordance with the Fund's
Organic Documents and Prospectuses and with the instructions and directions of
the Board and will conform to and comply with the requirements of the 1940
Act, the Securities Act and other applicable laws.
(e) The Distributor shall provide the Board with a written report of
the amounts expended in connection with this Agreement as requested by the
Board.
(f) The Distributor represents and warrants to the Fund that:
(i) It is a corporation duly organized and existing and in
good standing under the laws of the State of Delaware and it is duly
qualified to carry on its business in the State of Maine;
(ii) It is empowered under applicable laws and by its
Articles of Incorporation to enter into and perform this Agreement;
(iii) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iv) It has and will continue to have access to the
necessary facilities, equipment and personnel to perform its duties
and obligations under this Agreement;
(v) This Agreement, when executed and delivered, will
constitute a legal, valid and binding obligation of the Distributor,
enforceable against the Distributor in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the rights and remedies
of creditors and secured parties;
(vi) It is registered under the 1934 Act with the SEC as a
broker-dealer, it is a member in good standing of the NASD, it will
abide by the rules and regulations of the NASD, and it will notify
the Fund if its membership in the NASD is terminated or suspended;
and
(vii) The performance by the Distributor of its obligations
hereunder does not and will not contravene any provision of its
Articles of Incorporation.
(g) Notwithstanding anything in this Agreement, including the
Appendices, to the contrary, the Distributor makes no warranty or
representation as to the number of selected dealers or selected agents with
which it has entered into agreements in accordance with Section 11 hereof, as
to the availability of any Shares to be sold through any selected dealer,
selected agent or other intermediary or as to any other matter not
specifically set forth herein.
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<PAGE>
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Fund shall furnish to the Distributor copies of all financial
statements and other documents to be delivered to shareholders or investors at
least two Fund business days prior to such delivery and shall furnish the
Distributor copies of all other financial statements, documents and other
papers or information which the Distributor may reasonably request for use in
connection with the distribution of Shares. The Fund shall make available to
the Distributor the number of copies of its Prospectuses as the Distributor
shall reasonably request.
(b) The Fund shall take, from time to time, subject to the approval
of its Board and any required approval of its shareholders, all action
necessary to fix the number of authorized Shares (if such number is not
limited) and to register the Shares under the Securities Act, to the end that
there will be available for sale the number of Shares as reasonably may be
expected to be sold pursuant to this Agreement.
(c) The Fund shall register or qualify its Shares for sale under the
securities laws of the various states of the United States and other
jurisdictions ("States") as the Fund, in its sole discretion shall determine.
Any registration or qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. The Distributor shall furnish such
information and other material relating to its affairs and activities as may
be required by the Fund in connection with such registration or qualification.
(d) The Fund represents and warrants to the Distributor that:
(i) It is a corporation duly organized and existing and in
good standing under the laws of the State of Maryland;
(ii) It is empowered under applicable laws and by its
Organic Documents to enter into and perform this Agreement;
(iii) All proceedings required by the Organic Documents have
been taken to authorize it to enter into and perform its duties under
this Agreement;
(iv) It is registered as an open-end management investment
company with the SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully
paid and non-assessable;
(vi) This Agreement, when executed and delivered, will
constitute a legal, valid and binding obligation of the Fund,
enforceable against the Fund in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors
and secured parties;
- 6 -
<PAGE>
(vii) The performance by the Fund of its obligations
hereunder does not and will not contravene any provision of its
Articles of Incorporation.
(viii) The Fund's Registration Statement is currently
effective and will remain effective with respect to all Shares of the
Fund's Series and Classes thereof being offered for sale;
(ix) It will use its best efforts to ensure that its
Registration Statement and Prospectuses have been or will be, as the
case may be, carefully prepared in conformity with the requirements
of the Securities Act and the rules and regulations thereunder;
(x) It will use its best efforts to ensure that (A) its
Registration Statement and Prospectuses contain or will contain all
statements required to be stated therein in accordance with the
Securities Act and the rules and regulations thereunder, (B) all
statements of fact contained or to be contained in the Registration
Statement or Prospectuses are or will be true and correct at the time
indicated or on the effective date as the case may be and (C) neither
the Registration Statement nor any Prospectus, when they shall become
effective or be authorized for use, will include an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading to a purchaser of Shares;
(xi) It will from time to time file such amendment or
amendments to its Registration Statement and Prospectuses as, in the
light of then-current and then-prospective developments, shall, in
the opinion of its counsel, be necessary in order to have the
Registration Statement and Prospectuses at all times contain all
material facts required to be stated therein or necessary to make any
statements therein not misleading to a purchaser of Shares ("Required
Amendments");
(xii) It shall not file any amendment to its Registration
Statement or Prospectuses without giving the Distributor reasonable
advance notice thereof (which shall be at least three Fund business
days); provided, however, that nothing contained in this Agreement
shall in any way limit the Fund's right to file at any time such
amendments to its Registration Statement or Prospectuses, of whatever
character, as the Fund may deem advisable, such right being in all
respects absolute and unconditional; and
(xiii) It will use its best efforts to ensure that (A) any
amendment to its Registration Statement or Prospectuses hereafter
filed will, when it becomes effective, contain all statements
required to be stated therein in accordance with the 1940 Act and the
rules and regulations thereunder, (B) all statements of fact
contained in the Registration Statement or Prospectuses will, when it
becomes effective, be true and correct at the time indicated or on
the effective date as the case may be and (C) no such amendment, when
it becomes effective, will include an untrue statement of a material
fact or will omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to
a purchaser of the Shares.
- 7 -
<PAGE>
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in
rendering services to the Fund under this Agreement but shall be under no duty
to take any action except as specifically set forth herein or as may be
specifically agreed to by the Distributor in writing. The Distributor shall
not be liable to the Fund or any of the Fund's shareholders for any error of
judgment or mistake of law, for any loss arising out of any investment, or for
any action or inaction of the Distributor in the absence of bad faith, willful
misfeasance or gross negligence in the performance of the Distributor's duties
or obligations under this Agreement or by reason of the Distributor's reckless
disregard of its duties and obligations under this Agreement
(b) The Distributor shall not be liable to the Fund for any action
taken or failure to act in good faith reliance upon:
(i) the advice of the Fund or of counsel, who may be counsel
to the Fund or counsel to the Distributor;
(ii) any oral instruction which the Distributor receives and
which it reasonably believes in good faith was transmitted by the
person or persons authorized by the Board to give such oral
instruction (the Distributor shall have no duty or obligation to make
any inquiry or effort of certification of such oral instruction);
(iii) any written instruction or certified copy of any
resolution of the Board, and the Distributor may rely upon the
genuineness of any such document or copy thereof reasonably believed
in good faith by the Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of
transmittal, certificate, opinion of counsel, statement, instrument,
report, notice, consent, order, or other document reasonably believed
in good faith by the Distributor to be genuine and to have been
signed or presented by the Fund or other proper party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order,
or any other document or instrument which the Distributor reasonably believes
in good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any
failure or delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
reasonable control including, without limitation, acts of civil or military
authority, national emergencies, labor difficulties (other than those related
to the Distributor's
- 8 -
<PAGE>
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation,
communication or power supply. In addition, to the extent the Distributor's
obligations hereunder are to oversee or monitor the activities of third
parties, the Distributor shall not be liable for any failure or delay in the
performance of the Distributor's duties caused, directly or indirectly, by the
failure or delay of such third parties in performing their respective duties
or cooperating reasonably and in a timely manner with the Distributor.
SECTION 8. INDEMNIFICATION
(a) The Fund will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls the
Distributor within the meaning of section 15 of the Securities Act or section
20 of the 1934 Act ("Distributor Indemnitees") free and harmless from and
against any and all claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses of
every nature and character (including the cost of investigating or defending
such claims, demands, actions, suits or liabilities and any reasonable counsel
fees incurred in connection therewith) which any Distributor Indemnitee may
incur, under the Securities Act, under the securities laws of the various
States or under common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in the Fund's
Registration Statement or Prospectuses, arising out of or based upon any
alleged omission to state a material fact required to be stated in any one
thereof or necessary to make the statements in any one thereof not misleading,
or arising out of or based upon any filing made with the regulatory
authorities of any State unless such statement or omission was made in
reliance upon, and in conformity with, information furnished in writing to the
Fund in connection with the preparation of the Registration Statement,
exhibits to the Registration Statement or filings made with the regulatory
authorities of any State by or on behalf of the Distributor ("Distributor
Claims").
After receipt of the Distributor's notice of termination under
Section 13(e), the Fund shall indemnify and hold each Distributor Indemnitee
free and harmless from and against any Distributor Claim; provided, that the
term Distributor Claim for purposes of this sentence shall mean any
Distributor Claim related to the matters for which the Distributor has
requested amendment to the Fund's Registration Statement and for which the
Fund has not filed a Required Amendment, regardless of with respect to such
matters whether any statement in or omission from the Registration Statement
was made in reliance upon, or in conformity with, information furnished to the
Fund by or on behalf of the Distributor.
(b) The Fund may assume the defense of any suit brought to enforce
any Distributor Claim and may retain counsel of good standing chosen by the
Fund and approved by the Distributor, which approval shall not be withheld
unreasonably. The Fund shall advise the Distributor that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Fund assumes the defense of any such suit and
retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Fund does not assume the defense
of any such suit, or if Distributor does not approve of counsel chosen by the
Fund or has been advised that it may have available defenses or claims that
are not available to or conflict with
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<PAGE>
those available to the Fund, the Fund will reimburse any Distributor
Indemnitee named as defendant in such suit for the reasonable fees and
expenses of any counsel that person retains. A Distributor Indemnitee shall
not settle or confess any claim without the prior written consent of the Fund,
which consent shall not be unreasonably withheld or delayed.
(c) The Distributor will indemnify, defend and hold the Fund and its
several officers and directors (collectively, the "Fund Indemnitees"), free
and harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable counsel
fees and other expenses of every nature and character (including the cost of
investigating or defending such claims, demands, actions, suits or liabilities
and any reasonable counsel fees incurred in connection therewith), but only to
the extent that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses
result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact
contained in the Fund's Registration Statement or Prospectus or any
alleged omission of a material fact required to be stated or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon, and in conformity
with, information furnished to the Fund in writing in connection with
the preparation of the Registration Statement or Prospectus by or on
behalf of the Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set
forth in Section 7 of this Agreement (collectively, "Fund Claims").
(d) The Distributor may assume the defense of any suit brought to
enforce any Fund Claim and may retain counsel of good standing chosen by the
Distributor and approved by the Fund, which approval shall not be withheld
unreasonably. The Distributor shall advise the Fund that it will assume the
defense of the suit and retain counsel within ten (10) days of receipt of the
notice of the claim. If the Distributor assumes the defense of any such suit
and retains counsel, the defendants shall bear the fees and expenses of any
additional counsel that they retain. If the Distributor does not assume the
defense of any such suit, or if the Fund does not approve of counsel chosen by
the Distributor or has been advised that it may have available defenses or
claims that are not available to or conflict with those available to the
Distributor, the Distributor will reimburse any Fund Indemnitee named as
defendant in such suit for the reasonable fees and expenses of any counsel
that person retains. A Fund Indemnitee shall not settle or confess any claim
without the prior written consent of the Distributor, which consent shall not
be unreasonably withheld or delayed.
(e) The Fund's and the Distributor's obligations to provide
indemnification under this Section is conditioned upon the Fund or the
Distributor receiving notice of any action brought against a Distributor
Indemnitee or Fund Indemnitee, respectively, by the person against whom such
action is brought within twenty (20) days after the summons or other first
legal process is served. Such notice shall refer to the person or persons
against whom the action is brought. The failure to
- 10 -
<PAGE>
provide such notice shall not relieve the party entitled to such notice of any
liability that it may have to any Distributor Indemnitee or Fund Indemnitee
except to the extent that the ability of the party entitled to such notice to
defend such action has been materially adversely affected by the failure to
provide notice.
(f) The provisions of this Section and the parties' representations
and warranties in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Fund Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the
benefit of each person that may be a Distributor Indemnitee or Fund Indemnitee
at any time and their respective successors and assigns (it being intended
that such persons be deemed to be third party beneficiaries under this
Agreement).
(g) The Distributor agrees promptly to notify the Fund of the
commencement of any litigation or proceeding of which it becomes aware arising
out of or in any way connected with the issuance or sale of Shares. The Fund
agrees promptly to notify the Distributor of the commencement of any
litigation or proceeding of which it becomes aware arising out of or in any
way connected with the issuance or sale of its Shares.
(h) Nothing contained herein shall require the Fund to take any
action contrary to any provision of its Organic Documents or any applicable
statute or regulation or shall require the Distributor to take any action
contrary to any provision of its Articles of Incorporation or Bylaws or any
applicable statute or regulation; provided, however, that neither the Fund nor
the Distributor may amend their Organic Documents or Articles of Incorporation
and Bylaws, respectively, in any manner that would result in a violation of a
representation or warranty made in this Agreement, except if required by any
applicable statute or regulation.
(i) Nothing contained in this section shall be construed to protect
the Distributor against any liability to the Fund or the security holders of
the Fund to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Fund shall advise the Distributor immediately: (i) of any request
by the SEC for amendments to the Fund's Registration Statement or Prospectus
or for additional information; (ii) in the event of the issuance by the SEC of
any stop order suspending the effectiveness of the Fund's Registration
Statement or any Prospectus or the initiation of any proceedings for that
purpose; (iii) of the happening of any material event which makes untrue any
statement made in the Fund's then current Registration Statement or Prospectus
or which requires the making of a change in either thereof in order to make
the statements therein not misleading; and (iv) of all action of the SEC with
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<PAGE>
respect to any amendments to the Fund's Registration Statement or Prospectus
which may from time to time be filed with the Commission under the 1940 Act or
the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with
the distribution of Shares of the Fund and each Class thereof, the Distributor
shall receive: (i) any applicable sales charge assessed upon investors in
connection with the purchase of Shares; (ii) from the Fund, any applicable
contingent deferred sales charge ("CDSC") assessed upon investors in
connection with the redemption of Shares; (iii) from the Fund, the
distribution service fees with respect to the Shares of those Classes as
designated in Appendix A for which a plan under Rule 12b-1 under the 1940 Act
(a "Plan") is effective (the "Distribution Fee"); and (iv) from the Fund, the
shareholder service fees with respect to the Shares of those Classes as
designated in Appendix A (the "Service Fee"). The Distribution Fee and Service
Fee shall be accrued daily by each applicable Fund or Class thereof and shall
be paid monthly as promptly as possible after the last day of each calendar
month but in any event on or before the fifth (5th) Fund business day after
month-end, at the rate or in the amounts set forth in Appendix A and, as
applicable, the Plan(s). The Fund grants and transfers to the Distributor a
general unperfected lien and security interest in any and all securities and
other assets of the Fund now or hereafter maintained in an account at the
Fund's custodian on behalf of the Fund to secure any Distribution Fees and
Service Fees owed the Distributor by the Fund under this Agreement.
(b) The Fund shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Series
and the Classes thereof, all CDSCs properly payable by the shareholders in
accordance with the terms of the applicable Prospectus and shall cause the
Transfer Agent to pay such amounts over to the Distributor as promptly as
possible after each month end.
(c) Except as specified in Sections 8 and 10(a), the Distributor
shall be entitled to no compensation or reimbursement of expenses for the
services provided by the Distributor pursuant to this Agreement. The
Distributor may receive compensation from the Fund's investment advisors,
other service providers or their respective affiliates (collectively, the
"Advisor") for its services hereunder or for additional services all as may be
agreed to between the Advisor and the Distributor. Notwithstanding anything in
this Agreement to the contrary, to the extent the Distributor receives
compensation from the Advisor that is disclosed to the Board, the Fund will
indemnify, defend and hold each Distributor Indemnitees free and harmless from
and against any and all claims, demands, actions, suits, judgments,
liabilities, losses, damages, costs, charges, reasonable counsel fees and
other expenses of every nature and character (including the cost of
investigating or defending such claims, demands, actions, suits or liabilities
and any reasonable counsel fees incurred in connection therewith) related in
any way to such payment.
(d) The Fund shall be responsible and assumes the obligation for
payment of all its expenses, including fees and disbursements of its counsel
and auditors, in connection with the
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<PAGE>
preparation and filing of the Registration Statement and Prospectuses
(including but not limited to the expense of setting in type the Registration
Statement and Prospectuses and printing sufficient quantities for internal
compliance, regulatory purposes and for distribution to current shareholders).
(e) The Fund shall bear the cost and expenses (i) of the registration
of its Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Fund, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Fund; and (iv) payable to each State for continuing registration or
qualification therein until the Fund decides to discontinue registration or
qualification. The Distributor shall pay all expenses relating to the
Distributor's broker-dealer qualification.
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into
sub-distribution agreements with securities dealers of its choice ("selected
dealers") and with depository institutions and other financial intermediaries
of its choice ("selected agents") for the sale of Shares and to fix therein
the portion of the sales charge, if any, that may be allocated to the selected
dealers or selected agents; provided, that all such agreements shall be in
substantially the form of agreement as set forth in Appendix B hereto. Shares
of each Series or Class thereof shall be resold by selected dealers or
selected agents only at the public offering price(s) set forth in the
Prospectus relating to the Shares. The Distributor shall offer and sell Shares
of the Fund only to such selected dealers as are members in good standing of
the NASD. The Distributor shall have the right to enter into shareholder
servicing agreements with financial intermediaries of its choice; provided,
that all such agreements shall be in substantially the form of agreement as
set forth in Appendix C hereto.
(b) The Distributor will supervise the Fund's relationship with
selected dealers and agents and may make payments to those selected dealers
and agents in such amounts as the Distributor may determine from time to time
in its sole discretion. The amount of payments to selected dealers and agents
by the Distributor may be reviewed by the Board from time to time; provided,
however, that no payment by the Distributor to any selected dealer or agent
with respect to a Share shall exceed the amount of payments made to the
Distributor hereunder with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information
related to the Fund as proprietary information of the Fund and, on behalf of
itself and its employees, to keep confidential all such information, except
that the Distributor may:
(i) prepare or assist in the preparation of periodic reports
to shareholders and regulatory bodies such as the SEC;
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<PAGE>
(ii) provide information typically supplied in the
investment company industry to companies that track or report price,
performance or other information regarding investment companies; and
(iii) release such other information as approved in writing
by the Fund, which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Fund without the consent of the Fund if the Distributor reasonably
believes that it may be exposed to civil or criminal legal proceedings for
failure to comply, when requested to release any information by duly
constituted authorities or when so requested by the Fund.
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series
or class listed in Appendix A on the later of (i) August 31, 1997 or (ii) the
date on which the Fund's Registration Statement relating to Shares of the Fund
becomes effective. Upon effectiveness of this Agreement, it shall supersede
all previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Fund.
(b) This Agreement shall continue in effect with respect to a Series
Fund for a period of one year from its effectiveness and thereafter shall
continue in effect with respect to the Series until terminated; provided, that
continuance is specifically approved at least annually (i) by the Board or by
a vote of a majority of the outstanding voting securities of the Fund and (ii)
by a vote of a majority of Directors of the Fund (I) who are not parties to
this Agreement or interested persons of any such party (other than as
Directors of the Fund) and (II) with respect to each Class of a Series for
which there is an effective Plan, who do not have any direct or indirect
financial interest in any such Plan applicable to the Class or in any
agreements related to the Plan, cast in person at a meeting called for the
purpose of voting on such approval.
(c) This Agreement may be terminated at any time with respect to a
Series, without the payment of any penalty, (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Series or, with respect
to each Class for which there is an effective Plan, a majority of Directors of
the Fund who do not have any direct or indirect financial interest in any such
Plan or in any agreements related to the Plan, on 60 days' written notice to
the Distributor or (ii) by the Distributor on 60 days' written notice to the
Fund.
(d) This Agreement shall automatically terminate upon its assignment
and upon the termination of the Distributor's membership in the NASD.
(e) If the Fund does not file a Required Amendment within fifteen
days following receipt of a written request from the Distributor to do so, the
Distributor may, at its option, terminate this Agreement immediately.
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<PAGE>
(f) The obligations of Sections 5(e), 6(d), 8, 9 and 10 shall survive
any termination of this Agreement with respect to a Series or Class thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the
Distributor to the Fund or the Fund to the Distributor shall be deemed
sufficiently given if personally delivered or sent by telegram, facsimile or
registered, certified or overnight mail, postage prepaid, addressed by the
party giving such notice to the other party at the last address furnished by
the other party to the party giving such notice, and unless and until changed
pursuant to the foregoing provisions hereof each such notice shall be
addressed to the Fund or the Distributor, as the case may be, at their
respective principal places of business.
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's
obligations hereunder, nothing herein shall be deemed to limit or restrict the
Distributor's right, or the right of any of the Distributor's employees,
agents, officers or directors who may also be a director, officer or employee
of the Fund, or affiliated persons of the Fund to engage in any other business
or to devote time and attention to the management or other aspects of any
other business, whether of a similar or dissimilar nature, or to render
services of any kind to any other corporation, trust, firm, individual or
association.
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Fund establishes one or more series of Shares
or one or more classes of Shares after the effectiveness of this Agreement,
such series of Shares or classes of Shares, as the case may be, shall become
Series and Classes under this Agreement upon approval of this Agreement by the
Fund with respect to the series of Shares or class of Shares and the execution
of an amended Appendix A reflecting the applicable names and terms. The
Distributor may elect not to make any such series or classes subject to this
Agreement.
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Fund and the Fund
shall not be liable to the Distributor for consequential damages under any
provision of this Agreement except that Distributor Claims, as that term is
used in Section 8(a), shall include consequential damages related to, arising
out of or based upon any filing made with the regulatory authorities of any
State.
(b) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Distributor and the Fund.
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<PAGE>
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Maryland.
(d) This Agreement constitutes the entire agreement between the
Distributor and the Fund and supersedes any prior agreement with respect to
the subject matter hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any
number of counterparts, and all of the counterparts taken together shall be
deemed to constitute one and the same instrument.
(f) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to be
illegal or invalid.
(g) Section headings in this Agreement are included for convenience
only and are not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Fund shall be liable to the Distributor only with respect to
those Series and Classes of the Fund and the Distributor shall look solely to
the Fund to satisfy any liability of a Series or Class thereof to the
Distributor.
(j) Each of the undersigned warrants and represents that they have
full power and authority to sign this Agreement on behalf of the party
indicated and that their signature will bind the party indicated to the terms
hereof.
(k) The terms "vote of a majority of the outstanding voting
securities," "interested person," "affiliated person" and "assignment" shall
have the meanings ascribed thereto in the 1940 Act.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
FLAG INVESTORS EQUITY PARTNERS
FUND, INC.
By: /s/ Amy M. Olmert
------------------------------
Name: Amy M. Olmert
Secretary
ICC DISTRIBUTORS, INC.
By: /s/ John Y. Keffer
------------------------------
John Y. Keffer
President
- 17 -
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
DISTRIBUTION AGREEMENT
Appendix A
as of August 31, 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Distribution Service
Series Class Fee Fee
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flag Investors Equity Partners Fund, Inc. Class A 0.25% ----
Class B 0.75% 0.25%
Institutional Class ---- ----
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
A - 1
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares
("Shares") to the public in accordance with the terms and conditions contained
in the Prospectus of each Fund. The term "Prospectus" as used herein refers to
each prospectus on file with the Securities and Exchange Commission which is
part of the registration statement of each Fund under the Securities Act of
1933 (the "Securities Act"). In connection with the foregoing you may serve as
a participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each
Fund, in each case subject to the terms and conditions
B - 1
<PAGE>
set forth in the Prospectus of each Fund. You are to review each Share
purchase or redemption order submitted through you or with your assistance for
completeness and accuracy. You further agree to undertake from time to time
certain shareholder servicing activities for customers of yours who have
purchased Shares and who use your facilities to communicate with the Funds or
to effect redemptions or additional purchases of the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
3. Compensation. As compensation for such services, you will look solely
to the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable
to you by your customer pursuant to a Prospectus, the Distributor will pay you
no less often than annually a shareholder processing and service fee (as we
may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which
you are to be compensated, and provided that in all cases your name is
transmitted with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of
the Funds. We agree to furnish to you as many copies of each Prospectus,
annual and interim reports and proxy solicitation materials as you may
reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered
under, or are not exempt from, the applicable registration or licensing
requirements of such jurisdiction. You agree that in performing the services
under this Agreement, you at all times, will comply with the Conduct Rules
(formerly the Rules of Fair Practice) of the NASD, including, without
limitation, the provisions of Rule 2830 (formerly Section 26) of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commission for any purposes whatsoever unless authorized by the then current
Prospectus in respect of a particular class of Shares or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which
B - 2
<PAGE>
we reasonably determine are not made in accordance with the terms of the
relevant prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to make appropriate notice filings
in certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any
Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder.
In carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of
1934, as amended, or the rules and regulations promulgated by the Securities
and Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment, as defined in the
Investment Company Act. This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members
of the Board of Directors or Trustees of such Fund who are not "interested
persons" (as such phrase is defined in the Investment Company Act) and who
have no direct or indirect financial interest in the operation of the
Distribution Agreement between such Fund and the Distributor or by the vote of
a majority of the outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and
those pertaining to this agreement should be sent to the address listed below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
B - 3
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
---------------------------
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
Confirmed and accepted:
Firm Name:___________________________________________________________
By:__________________________________________________________________
Signature
_____________________________________________________________________
Printed Name and Title
Date:________________________________________________________________
Address:_____________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Clears Through:______________________________________________________
Phone No.:___________________________________________________________
B - 4
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to
Customers showing their positions in Shares; (iv) arranging for bank wires;
(v) responding to Customer inquiries relating to the services performed by
you; (v) providing subaccounting with respect to Shares beneficially owned by
Customers; (vii) as required by law, forwarding shareholder communications
from us (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
and (viii) providing such other similar services as we may reasonably request
to the extent you are permitted to do so under applicable statutes, rules or
regulations. You will provide to Customers a schedule of any fees that you may
charge directly to them for such services. You hereby represent that such fees
are not unreasonable or excessive. Shares purchased by you on behalf of
Customers will be registered with our transfer agent in your name or in the
name of your nominee. The Customer will be the beneficial owner of Shares
purchased and held by you in accordance with the Customer's
C - 1
<PAGE>
instructions ("Customers' Shares") and the Customer may exercise all rights of
a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such
of these records available to us as we may reasonably request in connection
with our operations, and (ii) promptly notify us if you experience any
difficulty in maintaining the records described in the foregoing clauses in an
accurate and complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you)
as may be reasonably necessary or beneficial in order to provide the
aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies
of which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be
an independent contractor and will have no authority to act as agent for us in
any matter or in any respect. You may, upon prior written notice to us,
delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you and your offices, employees, agents or assigns
regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of Shares by or on behalf of Customers. You and your
employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will cause our distributor to pay you, and you will accept
as full payment therefore, a fee (as we may determine from time to time in
writing) computed as a percentage of the average daily net assets of the
Customers' Shares held of record by you from time to time, which fee will be
computed daily and payable no less often than annually. For purposes of
determining the fees payable under this Section 5, the average daily net
assets of the Customer's Shares will be computed in the manner specified in
our registration statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes
of purchases and redemptions. The fee rate stated above may be prospectively
increased or decreased by us or by our distributor, at any time upon notice to
you. Further, we may, in our discretion and without notice, suspend or
withdraw the sale of Shares, including the sale of such shares to you for the
account of any Customer or Customers.
C - 2
<PAGE>
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any
auditors designated by us), in connection with the preparation of reports to
our Board of Directors concerning this Agreement and the monies paid or
payable by us pursuant hereto, as well as any other reports or filings that
may be required by law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and
is terminable, without penalty, at any time by us or by you upon ten days'
notice to the other party hereto and shall automatically terminate in the
event of its assignment, as that term is defined in the Investment Company Act
of 1940, as amended.
Section 9. This Agreement will be construed in accordance with the laws
of the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at
the address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
C - 3
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: _______________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:___________________________________________________________
By:__________________________________________________________________
Name:________________________________________________________________
Address:_____________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Date:________________________________________________________________
C - 4
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares
("Shares") to the public in accordance with the terms and conditions contained
in the Prospectus of each Fund. The term "Prospectus" as used herein refers to
each prospectus on file with the Securities and Exchange Commission which is
part of the registration statement of each Fund under the Securities Act of
1933 (the "Securities Act"). In connection with the foregoing you may serve as
a participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other
related functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders
with the foregoing and other matters relating to their investments in each
Fund, in each case subject to the terms and conditions set forth in the
Prospectus of each Fund. You are to review each Share purchase or redemption
order submitted through you or with your assistance for completeness and
accuracy. You further agree to undertake from time to time certain shareholder
servicing activities for customers of yours who have purchased Shares and who
use your facilities to communicate with the Funds or to effect redemptions or
additional purchases of the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in
the Prospectus of each Fund and in such printed information as the Distributor
may subsequently prepare. No person is authorized to distribute any sales
material relating to any Fund without the prior written approval of the
Distributor.
<PAGE>
3. Compensation. As compensation for such services, you will look solely
to the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable
to you by your customer pursuant to a Prospectus, the Distributor will pay you
no less often than annually a shareholder processing and service fee (as we
may determine from time to time in writing) computed as a percentage of the
average daily net assets maintained with each Fund during the preceding period
by shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which
you are to be compensated, and provided that in all cases your name is
transmitted with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of
the Funds. We agree to furnish to you as many copies of each Prospectus,
annual and interim reports and proxy solicitation materials as you may
reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD").
Your expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree
that you will not offer Shares to persons in any jurisdiction in which you may
not lawfully make such offer due to the fact that you have not registered
under, or are not exempt from, the applicable registration or licensing
requirements of such jurisdiction. You agree that in performing the services
under this Agreement, you at all times, will comply with the Conduct Rules
(formerly the Rules of Fair Practice) of the NASD, including, without
limitation, the provisions of Rule 2830 (formerly Section 26) of such Rules.
You agree that you will not combine customer orders to reach breakpoints in
commission for any purposes whatsoever unless authorized by the then current
Prospectus in respect of a particular class of Shares or by us in writing. You
also agree that you will place orders immediately upon their receipt and will
not withhold any order so as to profit therefrom. In determining the amount
payable to you hereunder, we reserve the right to exclude any sales which we
reasonably determine are not made in accordance with the terms of the relevant
prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares
under the Securities Act. The Funds intend to make appropriate notice filings
in certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your
right to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
<PAGE>
8. Record Keeping. You will (i) maintain all records required by law to
be kept by you relating to transactions in Shares and, upon request by any
Fund, promptly make such of these records available to the Fund as the Fund
may reasonably request in connection with its operations and (ii) promptly
notify the Fund if you experience any difficulty in maintaining the records
described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except
for lack of good faith and for obligations expressly assumed by it hereunder.
In carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of
1934, as amended, or the rules and regulations promulgated by the Securities
and Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party,
without penalty, upon ten days' notice to the other party and shall
automatically terminate in the event of its assignment, as defined in the
Investment Company Act. This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members
of the Board of Directors or Trustees of such Fund who are not "interested
persons" (as such phrase is defined in the Investment Company Act) and who
have no direct or indirect financial interest in the operation of the
Distribution Agreement between such Fund and the Distributor or by the vote of
a majority of the outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and
those pertaining to this agreement should be sent to the address listed below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
_________________________
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
<PAGE>
Confirmed and accepted:
Firm Name:___________________________________________________________
By:__________________________________________________________________
Signature
_____________________________________________________________________
Printed Name and Title
Date:________________________________________________________________
Address:_____________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Clears Through:______________________________________________________
Phone No.:___________________________________________________________
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to
Customers showing their positions in Shares; (iv) arranging for bank wires;
(v) responding to Customer inquiries relating to the services performed by
you; (v) providing subaccounting with respect to Shares beneficially owned by
Customers; (vii) as required by law, forwarding shareholder communications
from us (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to Customers;
and (viii) providing such other similar services as we may reasonably request
to the extent you are permitted to do so under applicable statutes, rules or
regulations. You will provide to Customers a schedule of any fees that you may
charge directly to them for such services. You hereby represent that such fees
are not unreasonable or excessive. Shares purchased by you on behalf of
Customers will be registered with our transfer agent in your name or in the
name of your nominee. The Customer will be the beneficial owner of Shares
purchased and held by you in accordance with the Customer's instructions
("Customers' Shares") and the Customer may exercise all rights of a
shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such
of these records available to us as we may reasonably request in connection
with our operations, and (ii) promptly notify us if you experience
<PAGE>
any difficulty in maintaining the records described in the foregoing clauses
in an accurate and complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you)
as may be reasonably necessary or beneficial in order to provide the
aforementioned services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies
of which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be
an independent contractor and will have no authority to act as agent for us in
any matter or in any respect. You may, upon prior written notice to us,
delegate your responsibilities hereunder to another person or persons;
provided, however, that notwithstanding any such delegation, you will remain
responsible for the performance of all your responsibilities under this
Agreement. By your written acceptance of this Agreement, you agree and do
release, indemnify and hold us harmless from and against any and all direct or
indirect liabilities or losses resulting from requests, directions, actions or
inactions of or by you and your offices, employees, agents or assigns
regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of Shares by or on behalf of Customers. You and your
employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by
you hereunder, we will cause our distributor to pay you, and you will accept
as full payment therefore, a fee (as we may determine from time to time in
writing) computed as a percentage of the average daily net assets of the
Customers' Shares held of record by you from time to time, which fee will be
computed daily and payable no less often than annually. For purposes of
determining the fees payable under this Section 5, the average daily net
assets of the Customer's Shares will be computed in the manner specified in
our registration statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for purposes
of purchases and redemptions. The fee rate stated above may be prospectively
increased or decreased by us or by our distributor, at any time upon notice to
you. Further, we may, in our discretion and without notice, suspend or
withdraw the sale of Shares, including the sale of such shares to you for the
account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any
auditors designated by us), in connection with the preparation of reports to
our Board of Directors concerning this Agreement and the monies paid or
payable by us pursuant hereto, as well as any other reports or filings that
may be required by law.
<PAGE>
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and
is terminable, without penalty, at any time by us or by you upon ten days'
notice to the other party hereto and shall automatically terminate in the
event of its assignment, as that term is defined in the Investment Company Act
of 1940, as amended.
Section 9. This Agreement will be construed in accordance with the laws
of the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at
the address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: __________________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:___________________________________________________________
By:__________________________________________________________________
Name:________________________________________________________________
Address:_____________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Date:________________________________________________________________
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of June 5, 1998 between BANKERS TRUST COMPANY (the
"Custodian") and FLAG INVESTORS EQUITY PARTNERS FUND, INC. (the "Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian
on behalf of the Customer under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
("Property") pursuant to the terms and conditions set forth herein. For
purposes of this Agreement, "delivery" of Property shall include the
acquisition of a security entitlement (as that term is defined in the New York
Uniform Commercial Code ("UCC")) with respect thereto. Without limitation,
such Property shall include stocks and other equity interests of every type,
evidences of indebtedness, other instruments representing same or rights or
obligations to receive, purchase, deliver or sell same and other non-cash
investment property of the Customer ("Securities") and cash from any source
and in any currency ("Cash"), provided that the Custodian shall have the
right, in its sole discretion, to refuse to accept as Property any property of
a Customer that the Custodian considers not to be appropriate or in proper
form for deposit for any reason. The Custodian shall not be responsible for
any property of the Customer held or received by the Customer or others and
not delivered to the Custodian or any Subcustodian.
2. Maintenance of Property at Custodian and Subcustodian Locations.
Pursuant to Instructions, the Customer shall direct the Custodian to (a)
settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain Cash and Cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's
transactions in such Securities. Instructions to settle Securities
transactions in any country shall be deemed to authorize the holding of such
Property in that country.
3. Custody Account. The Custodian agrees to establish and maintain a
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Customer acknowledges
its responsibility as a principal for all of its obligations to the Custodian
arising under or in connection with this Agreement, warrants its authority to
deposit in the Account any Property received therefor by the Custodian or a
Subcustodian and to give, and authorize others to give, instructions relative
thereto. The Custodian may deliver securities of the same class in place of
those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for
Account, on behalf of the Customer, all Property in such Account and, to the
extent such Property constitutes financial assets for purposes of the New York
UCC, shall maintain those financial assets in such Account as security
entitlements in favor of the Customer. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions, except that until
the Custodian
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receives Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property,
as the same become payable and credit the same to the
Account;
(b) present for payment all Securities held in the Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for
payment upon presentation to the extent that the Custodian
or Subcustodian is actually aware of such opportunities and
hold the cash received in the Account pursuant to this
Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received
for the Account, endeavor to receive Instructions, provided
that if such Instructions are not received in time for the
Custodian to take timely action, no action shall be taken
with respect thereto;
(d) whenever notification of a rights entitlement or a
fractional interest resulting from a rights issue, stock
dividend or stock split is received for the Account and such
rights entitlement or fractional interest bears an
expiration date, if after endeavoring to obtain Instructions
such Instructions are not received in time for the Custodian
to take timely action or if actual notice of such actions
was received too late to seek Instructions, sell in the
discretion of the Custodian (which sale the Customer hereby
authorizes the Custodian to make) such rights entitlement or
fractional interest and credit the Account with the net
proceeds of such sale;
(e) execute in the Customer's name for the Account, whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in the Account;
(f) pay for the Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in the Account by any
governmental authority. In the event there is insufficient
Cash available in the Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in the Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with
the payment of any such taxes to cooperate with the
Custodian in furnishing information, executing documents or
otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) -
(f), including, without limitation, affiliates of the
Custodian or any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to maintain the Property in the Account directly in
one of its U.S. branches or indirectly through custody
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accounts which have been established by the Custodian with the following other
securities intermediaries: (a) one of its U.S. branches or another U.S. bank
or trust company or branch thereof located in the U.S. which is itself
qualified under the Investment Company Act of 1940, as amended ("1940 Act"),
to act as custodian (individually, a "U.S. Subcustodian"), or a U.S.
securities depository or clearing agency or system in which the Custodian or a
U.S. Subcustodian participates (individually, a "U.S. Securities System") or
(b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S.
Subcustodian"; U.S. Subcustodians and non-U.S. Subcustodians, collectively,
"Subcustodians"), or a non- U.S. depository or clearing agency or system in
which the Custodian or any Subcustodian participates (individually, a
"non-U.S. Securities System"; U.S. Securities System and non-U.S. Securities
System, collectively, "Securities System"), provided that in each case in
which a U.S. Subcustodian or U.S. Securities System is employed, each such
Subcustodian or Securities System shall have been approved by Instructions;
provided further that in each case in which a non-U.S. Subcustodian or
non-U.S. Securities System is employed, (a) such Subcustodian or Securities
System either is (i) a "qualified U.S. bank" as defined by Rule 17f-5 under
the 1940 Act ("Rule 17f-5") or (ii) an "eligible foreign custodian" within the
meaning of Rule 17f-5 or such Subcustodian or Securities System is the subject
of an order granted by the U.S. Securities and Exchange Commission ("SEC")
exempting such agent or the subcustody arrangements thereto from all or part
of the provisions of Rule 17f-5 and (b) the agreement between the Custodian
and such non-U.S. Subcustodian has been approved by Instructions; it being
understood that the Custodian shall have no liability or responsibility for
determining whether the approval of any Subcustodian or Securities System has
been proper under the 1940 Act or any rule or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S Subcustodian
and non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Directors to directly approve its
foreign custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested
by the Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Customer's Board of Directors to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to the
Customer information concerning such non-U.S. Subcustodians and non-U.S.
Securities Systems similar in kind and scope as that furnished to the Customer
in connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the normal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in the Account which
is maintained by the Custodian through a Subcustodian employed pursuant to
Section 4:
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(a) The Custodian will identify on its books as belonging to the
Customer, any Property maintained through such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be
subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be maintained in
an account holding only assets for customers of the
Custodian.
(d) Any agreement the Custodian shall enter into with a
Subcustodian with respect to maintaining Property shall
require that (i) the Account will be adequately indemnified
or its losses adequately insured; (ii) the Securities so
maintained will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of
such Subcustodian or its creditors except a claim for
payment in accordance with such agreement for their safe
custody or administration and expenses related thereto,
(iii) beneficial ownership of such Securities will be freely
transferable without the payment of money or value other
than for safe custody or administration and expenses related
thereto; and (iv) adequate records will be maintained
identifying the Property maintained pursuant to such
agreement as belonging to the Custodian, on behalf of its
customers and (v) to the extent permitted by applicable law,
officers of or auditors employed by, or other
representatives of or designated by, the Custodian,
including the independent public accountants of or
designated by, the Customer be given access to the books and
records of such Subcustodian relating to its actions under
its agreement pertaining to any Property held by it
thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such
persons designated by the Custodian.
6. Use of Securities System. With respect to Property in the Account
which is maintained by the Custodian or any Subcustodian through a Securities
System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian shall be required
by its agreement with the Custodian to, identify on its
books such Property as being maintained for the account of
the Custodian or Subcustodian for its customers.
(b) Any Property maintained through a Securities System for the
account of the Custodian or a Subcustodian will be subject
only to the instructions of the Custodian or such
Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be
maintained in an account holding only assets for customers
of the Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any
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other U.S. bank or trust company which is itself qualified under the 1940 Act
to act as custodian, as its agent to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct; provided, however,
that the appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether maintained directly by the
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on the Custodian's books as
belonging to the Account and not for the Custodian's own interest. The
Custodian shall keep accurate and detailed accounts of all investments,
receipts, disbursements and other transactions for the Account. All accounts,
books and records of the Custodian relating thereto shall be open to
inspection and audit at all reasonable times during normal business hours by
any person designated by the Customer. All such accounts shall be maintained
and preserved in the form reasonably requested by the Customer. The Custodian
will supply to the Customer from time to time, as mutually agreed upon, a
statement in respect to any Property in the Account maintained by the
Custodian or by a Subcustodian. In the absence of the filing in writing with
the Custodian by the Customer of exceptions or objections to any such
statement within sixty (60) days of the mailing thereof, the Customer shall be
deemed to have approved such statement and in such case or upon written
approval of the Customer of any such statement, such statement shall be
presumed to be for all purposes correct with respect to all information set
forth therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions from the Customer's
independent certified public accountants with respect to the Custodian's
activities hereunder in connection with the preparation of the Customer's Form
N-1A and the Customer's Form N-SAR or other periodic reports to the SEC and
with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's independent
certified public accountants with respect to the services provided by the
Custodian under this Agreement, including, without limitation, the Custodian's
accounting system, internal accounting control and procedures for safeguarding
Property, including Property deposited and/or maintained in a securities
system or with a Subcustodian. Such report shall be of sufficient scope and in
sufficient detail as may reasonably be required by the Customer and as may
reasonably be obtained by the Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the Custodian which can
provide the Customer, on a daily basis, with the ability to view on-line or to
print on a hard copy various reports of Account activity and of Property being
held in the Account. To the extent that such service shall include market
values of Securities in the Account, the Customer hereby acknowledges that the
Custodian now obtains and may in the future obtain information on such values
from outside sources that the Custodian considers to be reliable and the
Customer agrees that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or completeness of any
such information furnished or obtained by or through such service and (ii)
shall be without liability in selecting and utilizing such service or
furnishing any information derived therefrom.
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<PAGE>
9. Holding of Securities, Nominees, etc. Securities in the Account
which are maintained by the Custodian or any Subcustodian may be held directly
by such entity in the name of the Customer or in bearer form or maintained in
the Custodian's or Subcustodian's name, or in the name of the Custodian's or
Subcustodian's nominee. Securities that are maintained through a Subcustodian
or which are eligible for deposit in a Securities System as provided above may
be maintained with the Subcustodian or the Securities System in an account for
the Custodian's or Subcustodian's customers, unless prohibited by law, rule,
or regulation. The Custodian or Subcustodian, as the case may be, may combine
certificates representing Securities held in the Account with certificates of
the same issue held by it as fiduciary or as a custodian. In the event that
any Securities in the name of the Custodian or its nominee or held by a
Subcustodian and registered in the name of such Subcustodian or its nominee
are called for partial redemption by the issuer of such Security, the
Custodian may, subject to the rules or regulations pertaining to allocation of
any Securities System in which such Securities have been deposited, allot, or
cause to be allotted, the called portion of the respective beneficial holders
of such class of Security in any manner the Custodian deems to be fair and
equitable. Securities maintained with a Securities System shall be maintained
subject to the rules of that Securities System governing the rights and
obligations among the Securities System and its participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the Account, the
Custodian shall perform such services and only such services relative thereto
as are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit
A attached hereto (as such service therein described may be in effect from
time to time) (the "Proxy Service") or (iii) as may otherwise be agreed upon
between the Custodian and the Customer. The liability and responsibility of
the Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of
the immediately preceding sentence shall be as set forth in the description of
the Proxy Service and as may be agreed upon by the Custodian and the Customer
in connection with the furnishing of any such additional service and shall not
be affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in
the Account, execute any form of proxy to vote thereon, or give any consent or
take any action (except as provided in Section 3) with respect thereto except
upon the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of the Customer.
12. Settlement Procedures. Securities will be transferred, exchanged
or delivered by the Custodian or a Subcustodian upon receipt by the Custodian
of Instructions which include all information required by the Custodian.
Settlement and payment for Securities received for the Account and delivery of
Securities out of the Account may be effected in accordance with the customary
or established securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction occurs,
including, without limitation, delivering Securities to the purchaser thereof
or to a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such Securities
from such purchaser or dealer, as such practices and procedures may be
modified or supplemented in accordance with the standard operating procedures
of the Custodian in effect from time to time for that jurisdiction or market.
The Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities
trading or securities
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<PAGE>
processing practices and procedures in the applicable jurisdiction or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, the Account, on a contractual basis, as outlined
in the applicable Service Standards as defined below and provided to the
Customer by the Custodian, the Custodian may, at its sole option, reverse such
credits or debits to the Account in the event that the transaction does not
settle, or the income is not received in a timely manner, and the Customer
agrees to hold the Custodian harmless from any losses which may result
therefrom.
The applicable Service Standards shall be defined as the Global
Guide, the Policies and Standards Manual, and any other documents issued by
the Custodian from time to time specifying the procedures for communicating
with the Customer, the terms of any additional services to be provided to the
Customer, and such other matters as may be agreed between the Customer and the
Custodian from time to time.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any Instructions to settle the
purchase of any securities for the Account, unless there are sufficient
immediately available funds in the relevant currency in the Account, provided
that, if, after all expenses, debits and withdrawals of Cash in the relevant
currency ("Debits") applicable to the Account have been made and if after all
Conditional Credits, as defined below, applicable to the Account have been
made final entries as set forth in (c) below, the amount of immediately
available funds in the relevant currency in such Account is at least equal to
the aggregate purchase price of all Securities for which the Custodian has
received Instructions to settle on that date ("Settlement Date"), the
Custodian, upon settlement, shall credit the Securities to the Account by
making a final entry on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable to
the Account have been made, there remains outstanding any Conditional Credit
(as defined below) applicable to the Account or the amount of immediately
available funds in a given currency in such Account are less than the
aggregate purchase price in such currency of all securities for which the
Custodian has received Instructions to settle on the Settlement Date, the
Custodian, upon settlement, may provisionally credit the Securities to the
Account by making a conditional entry on its books and records ("Conditional
Credit"), pending receipt of sufficient immediately available funds in the
relevant currency in the Account.
(c) If, within a reasonable time after the posting of a Conditional
Credit and after all Debits applicable to the Account have been made,
immediately available funds in the relevant currency at least equal to the
aggregate purchase price in such currency of all securities subject to a
Conditional Credit on a Settlement Date are deposited into the Account, the
Custodian shall make the Conditional Credit a final entry on its books and
records. In such case, the Customer shall be liable to the Custodian only for
late charges at a rate which the Custodian customarily charges for similar
extensions of credit.
(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not on deposit in the Account, or (ii) any Proceeding
shall occur, the Custodian may sell such of the Securities subject to the
Conditional Credit as it selects in its sole discretion and shall apply the
net proceeds of such sale to cover such Debit, including related late charges,
and any remaining proceeds shall be credited to the Account. If such proceeds
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are insufficient to satisfy such debt in full, the Customer shall continue to
be liable to the Custodian for any shortfall. The Custodian shall make the
Conditional Credit a final entry on its books as to the Securities not
required to be sold to satisfy such Debit. Pending payment in full by the
Customer of the purchase price for Securities subject to a Conditional Credit,
and the Custodian's making a Conditional Credit a final entry on its books,
and unless consented to by the Custodian, the Customer shall have no right to
give further Instructions in respect of Securities subject to a Conditional
Credit. The Custodian shall have the sole discretion to determine which
Securities shall be deemed to have been paid for by the Customer out of funds
available in the Account. Any such Conditional Credit may be reversed (and any
corresponding Debit shall be canceled) by the Custodian unless and until the
Custodian makes a final entry on its books crediting such Securities to the
Account. The term "Proceeding" shall mean any insolvency, bankruptcy,
receivership, reorganization or similar proceeding relating to the Customer,
whether voluntary or involuntary.
(e) The Customer agrees that it will not intentionally use the
Account to facilitate the purchase of securities without sufficient funds in
the Account (which funds shall not include the expected proceeds of the sale
of the purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at prices
as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger, consolidation,
reorganization, recapitalization or readjustment.
(d) Upon conversion of Securities pursuant to their terms into other
securities.
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed or in order
to satisfy requirements for additional or substitute collateral.
(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect any restrictions
applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer against delivery of the shares to be redeemed to the Custodian, a
Subcustodian or the Customer's transfer agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the Custodian, a Subcustodian
or the Customer's transfer agent.
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<PAGE>
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Portfolio's investment advisor and a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc., relating to compliance with
the rules of The Options Clearing Corporation, the Commodities Futures Trading
Commission or of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be released only
upon payment to the Custodian of monies for the premium due and a receipt for
the Securities which are to be held in escrow. Upon exercise of the option, or
at expiration, the Custodian will receive the Securities previously deposited
from broker. The Custodian will act strictly in accordance with Instructions
in the delivery of Securities to be held in escrow and will have no
responsibility or liability for any such Securities which are not returned
promptly when due other than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to facilitate
security trading or receipt of income from Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section 21.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian in accordance with Section 22 below (i) in writing
(including, without limitation, facsimile transmission) or by tested telex
signed or given by such one or more person or persons as the Customer shall
have from time to time authorized in writing to give the particular class of
Instructions in question and whose name and (if applicable) signature and
office address have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service and
communications system offered by the Custodian or other electronic instruction
system acceptable to the Custodian, or (iii) a telephonic or oral
communication by one or more persons as the Customer shall have from time to
time authorized to give the particular class of Instructions in question and
whose name has been filed with the Custodian; or (iv) upon receipt of such
other form of instructions as the Customer may from time to time authorize in
writing and which the Custodian has agreed in writing to accept. Instructions
in the form of oral communications shall be confirmed by the Customer by
tested telex or writing in the manner set forth in clause (i) above, but the
lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific transactions
or to types or classes of transactions, and may be in the form of standing
instructions.
The Custodian shall have the right to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with
the Custodian pursuant to this Section has been authorized by the Customer to
give the Instructions in question and that such authorization has not been
revoked. The Custodian may act upon and conclusively rely on, without any
liability to the Customer or any
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other person or entity for any losses resulting therefrom, any Instructions
reasonably believed by it to be furnished by the proper person or persons as
provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions
of this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in the Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian
shall not be responsible for the title, validity or genuineness of any
Property or other property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement and shall be held harmless in
acting upon, and may conclusively rely on, without liability for any loss
resulting therefrom, any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed or
furnished by the proper party or parties, including, without limitation,
Instructions, and shall be indemnified by the Customer for any losses,
damages, costs and expenses (including, without limitation, the fees and
expenses of counsel) incurred by the Custodian and arising out of action taken
or omitted with reasonable care by the Custodian hereunder or under any
Instructions. The Custodian shall be liable to the Customer for any act or
omission to act of any Subcustodian to the same extent as if the Custodian
committed such act itself. With respect to a Securities System, the Custodian
shall only be responsible or liable for losses arising from employment of such
Securities System caused by the Custodian's own failure to exercise reasonable
care. In the event of any loss to the Customer by reason of the failure of the
Custodian or a Subcustodian to utilize reasonable care, the Custodian shall be
liable to the Customer to the extent of the Customer's actual damages at the
time such loss was discovered without reference to any special conditions or
circumstances. In no event shall the Custodian be liable for any consequential
or special damages. The Custodian shall be entitled to rely, and may act, on
advice of counsel (who may be counsel for the Customer) on all matters and
shall be without liability for any action reasonably taken or omitted pursuant
to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be
fully responsible for the security of the Customer's connecting terminal,
access thereto and the proper and authorized use thereof and the initiation
and application of continuing effective safeguards with respect thereto and
agree to defend and indemnify the Custodian and hold the Custodian harmless
from and against any and all losses, damages, costs and expenses (including
the fees and expenses of counsel) incurred by the Custodian as a result of any
improper or unauthorized use of such terminal by the Customer or by any
others.
All collections of funds or other property paid or distributed in
respect of Securities in the Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have
no liability for any loss occasioned by delay in the actual receipt of notice
by the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in the Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution
of securities transactions
- 10 -
<PAGE>
or affect the value of Property; acts of war, terrorism, insurrection or
revolution; strikes or work stoppages; the inability of a local clearing and
settlement system to settle transactions for reasons beyond the control of the
Custodian or hurricane, cyclone, earthquake, volcanic eruption, nuclear
fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage
or expense suffered by the Customer, insofar as such loss, damage or expense
arises from the performance of the Custodian's duties hereunder by reason of
the Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under
this Agreement.
The provisions of this Section shall survive termination of this
Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the
Customer agrees to indemnify the Custodian and its nominees, for any loss,
damage or expense suffered or incurred by the Custodian or its nominees
arising out of any violation of any investment restriction or other
restriction or limitation applicable to the Customer pursuant to any contract
or any law or regulation. The provisions of this Section shall survive
termination of this Agreement.
18. Fees and Expenses. The Customer agrees to pay to the Custodian
such compensation for its services pursuant to this Agreement as may be
mutually agreed upon in writing from time to time and the Custodian's
reasonable out-of-pocket or incidental expenses in connection with the
performance of this Agreement, including (but without limitation) legal fees
as described herein and/or deemed necessary in the judgment of the Custodian
to keep safe or protect the Property in the Account. The initial fee schedule
is attached hereto as Exhibit B. Such fees will not be abated by, nor shall
the Custodian be required to account for, any profits or commissions received
by the Custodian in connection with its provision of custody services under
this Agreement. The Customer hereby agrees to hold the Custodian harmless from
any liability or loss resulting from any taxes or other governmental charges,
and any expense related thereto, which may be imposed, or assessed with
respect to any Property in the Account and also agrees to hold the Custodian,
its Subcustodians, and their respective nominees harmless from any liability
as a record holder of Property in the Account. The Custodian is authorized to
charge the Account for such items and the Custodian shall have a lien on the
Property in the Account for any amount payable to the Custodian under this
Agreement, including but not limited to amounts payable pursuant to Section 13
and pursuant to indemnities granted by the Customer under this Agreement. The
provisions of this Section shall survive the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and
which may be deducted from any income received from any Property in the
Account, the Custodian shall perform such services with respect thereto as are
described in Exhibit C attached hereto and shall in connection therewith be
subject to the standard of care set forth in such Exhibit C. Such standard of
care shall not be affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties
hereto. No waiver of any provision hereto shall be deemed a continuing waiver
unless it is so designated. No failure or delay on the part of either party in
exercising any power or right under this Agreement operates as a waiver, nor
does any single or partial
- 11 -
<PAGE>
exercise of any power or right preclude any other or further exercise thereof
or the exercise of any other power or right.
21. Termination. This Agreement may be terminated by the Customer or
the Custodian by ninety (90) days' written notice to the other; provided that
notice by the Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in the Account and to whom the Cash in
the Account shall be paid. If notice of termination is given by the Custodian,
the Customer shall, within ninety (90) days following the giving of such
notice, deliver to the Custodian a written notice specifying the names of the
persons to whom the Custodian shall deliver the Securities in the Account and
to whom the Cash in the Account shall be paid. In either case, the Custodian
will deliver such Property to the persons so specified, after deducting
therefrom any amounts which the Custodian determines to be owed to it
hereunder. In addition, the Custodian may in its discretion withhold from such
delivery such Property as may be necessary to settle transactions pending at
the time of such delivery. The Customer grants to the Custodian a lien and
right of setoff against the Account and all Property held therein from time to
time in the full amount of the foregoing obligations. If within ninety (90)
days following the giving of a notice of termination by the Custodian, the
Custodian does not receive from the Customer a written notice specifying the
names of the persons to whom the Custodian shall deliver the Securities in the
Account and to whom the Cash in the Account shall be paid, the Custodian, at
its election, may deliver such Securities and pay such Cash to a bank or trust
company doing business in the State of New York to be held and disposed of
pursuant to the provisions of this Agreement, or may continue to hold such
Securities and Cash until a written notice as aforesaid is delivered to the
Custodian, provided that the Custodian's obligations shall be limited to
safekeeping.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof
and (b) shall be deemed effective when received, or, in the case of a telex,
when sent to the proper number and acknowledged by a proper answerback.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, the Custodian shall
be entitled to use available Cash in the Account, and to dispose of Securities
in the Account as is necessary. In any such case and without limiting the
foregoing, the Custodian shall be entitled to take such other actions or
exercise such other options, powers and rights as the Custodian now or
hereafter has as a secured creditor under the New York UCC or any other
applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to the Account as herein provided, is not
prohibited by law or any governing documents or contracts to which it is
subject;
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<PAGE>
(ii) the terms of this Agreement do not violate any
obligation by which it is bound, whether arising by contract, operation of law
or otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms; and
(iv) it will deliver to the Custodian a duly executed
Secretary's Certificate in the form of Exhibit D attached hereto or such other
evidence of such authorization as the Custodian may reasonably require,
whether by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any
obligation by which it is bound, whether arising by contract, operation of law
or otherwise;
(ii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon it in accordance
with its terms;
(iii) it will deliver to the Customer such evidence of such
authorization as the Customer may reasonably require, whether by way of a
certified resolution or otherwise; and
(iv) Custodian is qualified as a custodian under Section
26(a) of the 1940 Act and warrants that it will remain so qualified or upon
ceasing to be so qualified shall promptly notify the Customer in writing.
25. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Custodian.
26. Publicity. Customer shall furnish to Custodian in accordance with
Section 22 above, prior to any distribution thereof, copies of any material
prepared for distribution to any persons who are not parties hereto that refer
in any way to the Custodian. Customer shall not distribute or permit the
distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
27. Submission to Jurisdiction. Any suit, action or proceeding
arising out of this Agreement may be instituted in any State or Federal court
sitting in the City of New York, State of New York, United States of America,
and the Customer irrevocably submits to the non-exclusive jurisdiction of any
such court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to
the laying of venue of any such suit, action or proceeding brought in such a
court and any claim that such suit, action or proceeding was brought in an
inconvenient forum.
28. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered
by each of the parties hereto.
- 13 -
<PAGE>
29. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such
providing party. The foregoing shall not be applicable to any information that
is publicly available when provided or thereafter becomes publicly available
other than through a breach of this Agreement, or that is required or
requested to be disclosed by any bank or other regulatory examiner of the
Custodian, Customer, or any Subcustodian, any auditor of the parties hereto,
by judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section shall survive the termination of
this Agreement.
30. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity
or enforceability of any other provision of this Agreement.
31. Entire Agreement. This Agreement together with any Exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior
writings with respect thereto.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
33. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered
by each of the parties hereto.
- 14 -
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused its duly
authorized signatories to execute this Agreement as of the date first written
above.
FLAG INVESTORS EQUITY PARTNERS
FUND, INC.
By: /s/ Amy M. Olmert
--------------------
Name: Amy M. Olmert
Title: Secretary
BANKERS TRUST COMPANY
By: /s/Richard Fogarty
--------------------
Name: Richard Fogarty
Title: Vice President
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<PAGE>
EXHIBIT A
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Equity Partners Fund, Inc..
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless
otherwise defined below.
The Custodian provides a service, described below, for the
transmission of corporate communications in connection with shareholder
meetings relating to Securities held in the countries specified in the
applicable Service Standards. For the United States and Canada, the term
"corporate communications" means the proxy statements or meeting agenda, proxy
cards, annual reports and any other meeting materials received by the
Custodian. For countries other than the United States and Canada, the term
"corporate communications" means the meeting agenda only and does not include
any meeting circulars, proxy statements or any other corporate communications
furnished by the issuer in connection with such meeting. Non-meeting related
corporate communications are not included in the transmission service to be
provided by the Custodian except upon request as provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in
the official language of the country in which the related
security is held, the Custodian will as soon as practicable
after receipt of the original meeting agenda by a
Subcustodian provide an English translation prepared by that
Subcustodian.
2) If an English translation of the meeting agenda is
furnished, the local language agenda will not be furnished
unless requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof
or any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based
thereon.
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language
agendas, and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention
to any required procedures will be very important. Upon timely
<PAGE>
receipt of voting instructions, the Custodian will promptly forward such
instructions to the applicable Subcustodian. If voting instructions are not
timely received, the Custodian shall have no liability or obligation to take
any action.
For Securities held in markets other than those set forth in the
first paragraph, the Custodian will not furnish the material described above
or seek voting instructions. However, if requested to exercise voting rights
at a specific meeting, the Custodian will endeavor to do so on a reasonable
efforts basis without any assurance that such rights will be so exercised at
such meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account unless
other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
applicable Service Standards. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after
their inclusion or deletion and this Exhibit A will be deemed to be
automatically amended to include or delete such countries as the case may be.
- 2 -
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Equity Partners Fund, Inc.
BANKERS TRUST CUSTODY FEE SCHEDULE
FOR
BT ALEC. BROWN MUTUAL FUNDS
(FLAG INVESTORS FUNDS AND ISI FUNDS)
Effective October 1, 1997
CUSTODY FEES
1. DOMESTIC SAFEKEEPING FEES
ANNUAL ASSET FEE (BY FUND- EXCEPT CASH RESERVE)
Market Value Basis Point
$0 - $100 million 1.00
Over $100 million 0.75
ANNUAL ASSET FEE (CASH RESERVE FUND)
Market Value Basis Point
$0 - $1 billion 1.00
$1 billion - $3 billion 0.75
Over $3 billion 0.50
2. DOMESTIC TRANSACTION FEES
TRANSACTION TYPE $USD
AUTOMATED DEPOSITORY: DTC/PTC/FED 10.00
MANUAL DEPOSITORY: DTC/PTC/ FED 15.00
PHYSICAL AUTOMATED 15.00
PHYSICAL MANUAL 20.00
P&I PAYMENTS 5.00
REDEMPTIONS 10.00
REORGANIZATIONS Included in safekeeping charge
<PAGE>
3. GLOBAL SAFEKEEPING AND ASSET FEES
Receive and
Annual Deliver
Country Asset Fee Transactions
- ------- --------- ------------
Argentina 35 Basis $100
Points
Australia 3 Basis Points $50
Austria 5 Basis Points $75
Bangladesh 40 Basis $150
Points
Belgium 4 Basis Points $60
Botswana 50 Basis $150
Points
Brazil 30 Basis $70
Points
Canada 2 Basis Points $20
Cedel/Euroclear 3 Basis Points $20
Chile 30 Basis $80
Points
China 30 Basis $75
Points
Columbia 35 Basis $100
Points
Czech Republic 20 Basis $70
Points
Denmark 4 Basis Points $50
Ecuador 45 Basis $100
Points
Egypt 45 Basis $80
Points
Finland 10 Basis $75
Points
France 5 Basis Points $50
Germany 3 Basis Points $30
Ghana 50 Basis $150
Points
Greece 35 Basis $120
Points
Hong Kong 5 Basis Points $30
Hungary 45 Basis $150
Points
India (Physical) 60 Basis $200
Points
India (Dematerialized) 25 Basis $140
Points
- 2 -
<PAGE>
Indonesia 8 Basis Points $35
Ireland 5 Basis Points $50
Israel 40 Basis $50
Points
Italy 3 Basis Points $50
Japan 3 Basis Points $35
Jordan 30 Basis $100
Points
Kenya 50 Basis $150
Points
Luxembourg 4 Basis Points $60
Malaysia 7 Basis Points $50
Mauritius 50 Basis $140
Points
Mexico 5 Basis Points $30
Morocco 30 Basis $130
Points
Netherlands 4 Basis Points $45
New Zealand 4 Basis Points $50
Norway 5 Basis Points $50
Pakistan 30 Basis $150
Points
Peru 50 Basis $100
Points
Philippines 8 Basis Points $30
Poland 45 Basis $100
Points
Portugal 4 Basis Points $75
Russia 50 Basis $300
Points
Singapore 7 Basis Points $50
Slovakia 25 Basis $100
Points
South Africa 5 Basis Points $30
South Korea 15 Basis $50
Points
Spain 6 Basis Points $50
Sri Lanka 12 Basis $60
Points
Sweden 4 Basis Points $50
Switzerland 3 Basis Points $50
Taiwan 15 Basis $100
Points
Thailand 7 Basis Points $100
- 3 -
<PAGE>
Tunisia 45 Basis $50
Points
Turkey 15 Basis $50
Points
United Kingdom 2 Basis Points $15
Venezuela 35 Basis $100
Points
Zambia 50 Basis $150
Points
Zimbabwe 50 Basis $150
Points
4. DDA RELATED CHARGES
Cash Connector Services $25 per month per account
(MTC, MTD, EBR, BTC Reporting)
Statement Rendition (CDS) Services
Account Maintenance $50 per month per account
Debit Postings $0.35 per posting
Credit Postings $0.35 per posting
Money Transfer Charges*
Outgoing Payments $6.00
Incoming Payments No Charge
Book to Book Transfers No Charge
*Above Money Transfer Charges assume electronic instruction via bank-provided
software. Manual instructions received via facsimile, etc. will incur a charge
of $25 per transaction.
Overdraft Rate: Prime + 1.00%
NOTES
o Market Values will be provided by the Fund Accountant at
month-end to determine monthly assets for billing purposes.
o A manual transaction is an instruction that is received in
writing, i.e. facsimile
o The standard Global Custody Service includes: asset
safekeeping, trade settlement, income collection, corporate
action processing including proxy voting and tax reclaims where
appropriate.
- 4 -
<PAGE>
o Third party FX transactions and other cash movements with no
associated security transaction (e.g. free payments/receipts)
are charged at $10 per U.S. wire and $25 per non-U.S. wire. No
fee is levied for FX transactions executed with Bankers Trust.
o Fees are billed monthly in arrears.
This Exhibit B shall be amended upon delivery by the Custodian of a new
Exhibit B to the Customer and acceptance thereof by the Customer and shall be
effective as of the date of acceptance by the Customer or a date agreed upon
between the Custodian and the Customer.
- 5 -
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Equity Partners Fund, Inc.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in the Account
in the countries specified in the applicable Service Standards. Terms used
herein as defined terms shall unless otherwise defined have the meanings
ascribed to them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to income from
any Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer
and advise what documentation, if any, is required to obtain the exemption.
Upon receipt of such documentation from the Customer, the Custodian will file
for exemption on the Customer's behalf and notify the Customer when it has
been obtained.
In connection with providing the foregoing service, the Custodian
shall be entitled to apply categorical treatment of the Customer according to
the Customer's nationality, the particulars of its organization and other
relevant details that shall be supplied by the Customer. It shall be the duty
of the Customer to inform the Custodian of any change in the organization,
domicile or other relevant fact concerning tax treatment of the Customer and
further to inform the Custodian if the Customer is or becomes the beneficiary
of any special ruling or treatment not applicable to the general nationality
and category or entity of which the Customer is a part under general laws and
treaty provisions. The Custodian may rely on any such information provided by
the Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the
jurisdictions in question. In addition, the Custodian may seek the advice of
counsel or other professional tax advisers in such jurisdictions. The
Custodian is entitled to rely, and may act, on information set forth in such
services and on advice received from a Subcustodian, counsel or other
professional tax advisers and shall be without liability to the Customer for
any action reasonably taken or omitted pursuant to information contained in
such services or such advice.
<PAGE>
EXHIBIT D
[Name of Entity]
Certificate of the Secretary
I, _____________________ [Name of Secretary], hereby certify
that I am the Secretary of [Name of Entity], a ________________ [type of entity]
organized under the laws of ________________________[jurisdiction] (the
"Customer"), and as such I am duly authorized to, and do hereby, certify that:
1. Good Standing. The Customer's organizational documents,
and all amendments thereto, have been filed with the appropriate governmental
officials of _____________________[jurisdiction], the Customer continues to be
in existence and is in good standing, and no action has been taken to repeal
such organizational documents, the same being in full force and effect on the
date hereof.
2. Organizational Documents. The Customer's [name of
organizational documents - i.e., Bylaws, Articles of Incorporation, etc.] have
been duly adopted and no action has been taken to repeal such [name of
organizational documents], the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf
of the Customer, which resolutions (i) have not in any way been revoked or
rescinded, (ii) have been in full force and effect since their adoption, to
and including the date hereof, and are now in full force and effect, and (iii)
are the only corporate proceedings of the Customer now in force relating to or
affecting the matters referred to therein, including, without limitation,
confirming that the Customer is duly authorized to appoint Bankers Trust
Company as Custodian of assets delivered to it by the Customer and enter into
a certain custody agreement with Bankers Trust Company (the "Agreement")
setting forth the terms and conditions of such appointment, and that certain
designated officers, including those identified in paragraph 4 of this
Certificate, are authorized to (a) execute said Agreement in such form as the
officers executing the same have approved, such approval to be conclusively
evidenced by their execution and delivery thereof, and (b) execute any
instructions in connection with the Agreement, in conformity with the
requirements of the Customer's [name of organizational documents], and other
pertinent documents to which the Customer may be bound.
4. Incumbency. The following named individuals are duly
elected (or appointed), qualified and acting officers of the Customer holding
those offices set forth opposite their respective names as of the date hereof,
each having full authority, acting individually, to bind the Customer, as a
legal matter, with respect to all matters pertaining to the Agreement, and to
execute and deliver said Agreement on behalf of the Customer, and the
signatures set forth opposite the respective names and titles of said officers
are their true, authentic signatures:
Name Title Signature
---- ----- ---------
- -------------------- -------------------- --------------------
- -------------------- -------------------- --------------------
- 2 -
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this ____
day of _______________[Date], 1997.
By: __________________________________
Name: __________________________________
Title: Secretary
I, __________________________[Name of Confirming Officer],
__________________[Title] of the Customer, hereby certify that on this ___ day
of _______________[Date], 19__, _____________________[NAME OF SECRETARY] is
the duly elected Secretary of the Customer and that the signature above is
his/her genuine signature.
By: _________________________________
Name: _________________________________
Title: _________________________________
- 3 -
<PAGE>
EXHIBIT E
CASH MANAGEMENT ADDENDUM (this "Addendum") to the CUSTODIAN
AGREEMENT (the "Agreement") between BANKERS TRUST COMPANY (the "Custodian")
and FLAG INVESTORS EQUITY PARTNERS FUND, INC. (the "Customer").
WHEREAS, the Custodian will provide cash management services
to the Customer, and the Custodian and the Customer desire to confirm their
understanding with respect to such services;
NOW, THEREFORE, the Custodian and the Customer agree as
follows:
1. Until the Custodian receives Instructions to the
contrary, the Custodian will hold all Cash received for the Account in deposit
accounts maintained with Subcustodians for the benefit of the Custodian's
clients, will credit to the Account interest on such Cash at rates and times
the Custodian shall from time to time determine and will receive compensation
therefor out of any amounts paid by Subcustodians in respect of such Cash.
2. To the extent the Custodian may from time to time inform
the Customer with respect to one or more currencies, the Custodian will sweep
Cash in such currencies to deposit accounts maintained with one or more
Subcustodians until the Custodian notifies the Customer otherwise or receives
Instructions to the contrary.
3. The Customer acknowledges that it has received and
reviewed the current policies of the Custodian regarding cash management
services, which are attached to this Addendum.
4. Capitalized terms used but not defined in this Addendum
are used with the respective meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, this Addendum has been executed as of
the date of the Agreement.
BANKERS TRUST COMPANY
By: /s/ Richard Fogarty
------------------------------------
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
By: /s/ Amy M. Olmert
------------------------------------
- 4 -
<PAGE>
Global Custody Cash Management Program
In the Global Custody cash management program, currencies on
which Bankers Trust pays interest are divided into two categories: (1)
currencies on which we pay interest based on a market benchmark rate for
overnight deposits, and (2) currencies on which we pay interest based on a
rate paid by the London branch of Bankers Trust Company or the local
subcustodian.
Currencies on which we pay interest based on a market
benchmark rate for overnight deposits (which we call "Benchmark Rate
Currencies"):
o For each of these currencies, the interest rate we pay is based
on a specific market benchmark (such as Effective Fed Funds)
and is calculated by taking an average of the benchmark rate
and subtracting a spread. (See Schedule A)
o Currently, the only Benchmark Rate Currency is the U.S. Dollar.
Over time we will be considering additional currencies to
include in this category.
o Operationally, most balances in Benchmark Rate Currencies are
swept overnight into deposits at the London branch of Bankers
Trust Company. Where you have selected a short-term investment
fund, your U.S. Dollar balances in the U.S. will be swept
overnight in accordance with your instructions.
Currencies on which we pay interest based on a rate paid by
the London branch of Bankers Trust Company or the local subcustodian (which we
call "Base Rate Currencies"):
o For each of these currencies, the interest rate we pay is based
on the rate paid by the London branch or the local subcustodian
on overnight deposits in the currency. In either case, interest
is calculated by using the overnight rate (which will be the
actual overnight, a weekly average, or monthly average rate,
depending on the currency) and subtracting a spread. (See
Schedule A)
o Currencies that are part of the sweep program will earn
interest based on the base rate, which will be the higher of
the rate offered by the London branch of Bankers Trust Company
or the local subcustodian.
o Currencies that are not part of the sweep program will
generally earn interest based on the rate paid by the local
subcustodian. We may at times be able to sweep certain currency
balances into deposits of Bankers Trust Company's London branch
in order to be able to earn a higher rate for you. On those
days, any such currency will be treated as part of the sweep
program, and you will earn interest on all of your balances in
that currency at the higher rate for that day.
o Currently, there are 39 Base Rate Currencies, 21 of which are
included in our sweep program to the London branch.
<PAGE>
o Operationally, most balances in Base Rate Currencies that are
part of our sweep program are swept overnight into deposits at
the London branch, while balances in Base Rate Currencies that
are not part of our sweep program remain with the local
subcustodian.
For each currency on which we pay interest:
o We will notify you periodically in writing of changes in
spreads and updates to the cash management program. These
program updates also will be available through Global Custody
Flash Notices.
o You earn interest at the calculated rate on your entire
contractual balance without any action on your part and without
any minimum balance requirements. This is the case regardless
of whether we are able to invest your balances at or near the
applicable benchmark or base rate and regardless of whether
your contractual balance may exceed your actual balance.
o Our program generally requires that overnight balances in each
currency remain with (or are swept to) a subcustodian we
designate for that currency. Nevertheless, we pay our stated
rate of interest on any balances that, because of transactions
in your account, are held overnight with an alternate
subcustodian if we receive interest on that currency from that
subcustodian. If the alternate subcustodian does not pay
interest, however, these balances are excluded from our
program.
o The minimum rate paid is 0.50%, except for the Japanese Yen
(for which it is 0.05%) and the Singapore Dollar (for which it
is 0.25%). Please note that this is also subject to change as
appropriate for any currency.
o You will have continuous access through Globe*View, BTWorld, or
Globe*Link or other agreed electronic on-line system to the
interest rate earned during the previous "rate averaging
period". Because we may use weekly or monthly average rates to
calculate the interest you earn, we do not know the actual
interest rate until the weekly or monthly period is completed.
o For swept currencies, from time to time we may not be able to
sweep the full amount of your balances to the London branch
because of operational constraints or because your balance on a
contractual basis temporarily exceeds your actual balance. You
will, however, always receive credit for interest based on your
entire contractual balance. To the extent you would have earned
a lower rate on balances not swept, we will make up the
difference. To the extent that actual balances are higher than
contractually posted balances due to purchase fails or
otherwise, we will retain the interest earned as compensation.
o The effective rate we pay on overnight balances will generally
differ from the effective rate we receive (whether from the
London branch or the local subcustodian). Any difference
between the effective rate we receive and the effective rate we
pay (which may be positive or negative, but is generally
positive) is kept by us and covers our fee for running the cash
- 2 -
<PAGE>
management program and the related costs we absorb.
Obviously, there will be currencies on which we will not pay
interest because of local regulations, insufficient scale, or other reasons.
However, we hope to identify additional currencies where we can begin paying
interest and we will announce those to you as soon as practical.
Although currently most cash balances in our overnight sweep
program are swept into deposits at the London branch of Bankers Trust Company,
we reserve the right to utilize other branches or affiliates for the overnight
sweep program.
As you know, overdrafts are not permitted in the normal
course of business in any currency. Should they occur in any currency, your
account will be charged a fee to settle transactions in advance of receipt of
funds. If the overdraft is not promptly cured (and in any event upon the
expiration of 30 days) after the investment manager has been notified of the
outstanding overdraft, the account's home currency will be used to cure the
overdraft and the associated foreign exchange will be done by Bankers Trust at
market rates. (Other currencies may be utilized to the extent the home
currency is insufficient.) Investment managers that have not cured overdrafts
within such period will be deemed to have directed such foreign exchange
transaction. Accounts subject to ERISA will be deemed to have engaged in the
transaction under the authority of the class exemptions available to qualified
professional asset managers and in-house investment managers. To the extent
that the overdraft is less than the U.S. dollar equivalent of $50,000, Bankers
Trust's foreign exchange desk will bundle the transaction with other small
amounts for other clients.
- 3 -
<PAGE>
Schedule A
New Cash Management Program - Global Custody
Overnight Uninvested Cash Balances
(* - Denotes currencies in sweep program)
Currencies Rates
---------- -----
Argentine Peso Base Rate less 100
Australian Dollar* Base Rate less 130
Austrian Schilling* Base Rate less 125
Belgian Franc* Base Rate less 225
British Pound Sterling* Base Rate less 165
Canadian Dollar* Base Rate less 150
Czech Koruna Base Rate less 75
Danish Krone* Base Rate less 100
Deutsche Mark* Base Rate less 150
Dutch Guilder* Base Rate less 175
European Currency Unit* Base Rate less 125
Finnish Markka* Base Rate less 150
French Franc* Base Rate less 110
Greek Drachma Base Rate less 75
Hong Kong Dollar* Base Rate less 225
Hungarian Forint Base Rate less 75
Indonesian Rupiah Base Rate less 100
Irish Punt* Base Rate less 100
Israeli Shekel Base Rate less 75
Italian Lira* Base Rate less 125
Japanese Yen Base Rate less 75
Jordanian Dinar Base Rate less 150
Korean Won Base Rate less 75
Malaysian Ringgit Base Rate less 150
Mexican Peso Base Rate less 150
New Taiwan Dollar Base Rate less 75
New Zealand Dollar* Base Rate less 100
Norwegian Krone* Base Rate less 150
Philippine Peso Base Rate less 100
Polish Zloty Base Rate less 150
Portuguese Escudo* Base Rate less 125
Singapore Dollar Base Rate less 150
Slovak Koruna Base Rate less 100
South African Rand* Base Rate less 200
Spanish Peseta* Base Rate less 200
- 4 -
<PAGE>
Swedish Krona* Base Rate less 200
Swiss Franc* Base Rate less 100
Thai Baht Base Rate less 150
Turkish Lira Base Rate less 75
U.S. Dollar* Effective Fed Funds less 100(1)
We reserve the right, in our sole discretion, to adjust the base rates and
benchmark rates used and the spreads charged at any time and for any reason.
We will notify you periodically in writing of changes in spreads and updates
to the cash management program. These program updates also will be available
through Global Custody Flash Notices.
(1) Not applicable if U.S. Dollars are swept to a short-term investment fund.
- 5 -
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Flag Investors Equity Partners Fund, Inc.:
We consent to the inclusion of our report dated June 19, 1998 on our audit of
the financial statements and financial highlights of Flag Investors Equity
Partners Fund, Inc. in the Statement of Additional Information with respect to
this Post-Effective Amendment No. 6 to the Registration Statement on Form N-1A
under the Securities Act of 1933 and the Investment Company Act of 1940 of
Flag Investors Equity Partners Fund, Inc. We also consent to the references to
our Firm under the heading "Financial Highlights" in the Prospectuses and
"Independent Accountants" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 30, 1998
<PAGE>
Flag Investors Equity Partners Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B and Institutional Class
Adopted December 13, 1995
Amended through March 26, 1997
With Exhibits through March 27, 1998
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has
been adopted by the Board of Directors (the "Board") of Flag Investors Equity
Partners Fund, Inc. (the "Fund"), including a majority of the Directors of the
Fund who are not "interested persons" of the Fund (the "Independent
Directors") pursuant to Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"),
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co.
Act Releases Nos. IC-20813, IC-14695 and IC-15592, respectively)
(collectively, the "Order"). At its organizational meeting held on December
13, 1995, the Fund elected to rely on Rule 18f-3 rather than the Order, as
permitted by Rule 18f-3 subject to certain conditions, and created a multiple
class distribution arrangement for three classes of shares of the common stock
of the Fund's one existing series (the "Series"). The multiple class
distribution arrangement will be effective on the date of effectiveness of the
post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B and
Institutional Class) and future classes of Fund shares. The Flag Investors
Class A Shares and Class B Shares have been offered since the Fund's inception
on February 13, 1995. The Institutional Shares have been offered since
February 12, 1996.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors,
must periodically review the Plan for its continued appropriateness, and must
approve any material amendment of the Plan as it relates to any class of any
Series covered by the Plan. This Plan must be amended to properly describe
(through additional exhibits hereto or otherwise) each additional class of
shares approved by the Fund's Board of Directors. Before any material
amendment of the Plan, the Fund is required to obtain a finding by a majority
of the Board, and a majority of the Independent Directors, that the Plan as
proposed to be amended, including the expense allocations, is in the best
interests of each class individually and the Fund as a whole.
<PAGE>
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being
changed hereby, and the rights, obligations and features of each of the
classes of the Fund shall be as set forth in the Fund's Articles of
Incorporation and Bylaws, as each such document is amended or restated to
date, the resolutions that are adopted with respect to the classes of the Fund
and that are adopted pursuant to the Plan to date, and related materials of
the Board, as set forth in Exhibit A hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting,
dividend, liquidation and other rights, preferences, powers, restrictions,
limitations, qualifications, designations and terms and conditions, except
that (i) each class shall have a different class designation (e.g., Class A,
Class B, Class C, etc.); (ii) each class of shares shall separately bear any
distribution expenses in connection with the plan adopted pursuant to Rule
12b-1 under the 1940 Act (a "Rule 12b-1 Plan"), if any, for such class (and
any other costs relating to obtaining shareholder approval of the Rule 12b-1
Plan for such class, or an amendment of such plan) and shall separately bear
any expenses associated with any non-Rule 12b-1 Plan service payments
("service fees") that are made under any servicing agreement, if any, entered
into with respect to that class; (iii) holders of the shares of the class
shall have exclusive voting rights regarding the Rule 12b-1 Plan relating to
such class (e.g., the adoption, amendment or termination of a Rule 12b-1
Plan), regarding the servicing agreements relating to such class and regarding
any matter submitted to shareholders in which the interests of that class
differ from the interests of any other class; (iv) each new class of shares
may bear, to the extent consistent with rulings and other published statements
of position by the Internal Revenue Service, the expenses of the Fund's
operation that are directly attributable to such class ("Class Expenses")(1);
and (v) each class may have conversion features unique to such class,
permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating
to each respective class of shares (including any costs
- --------
(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares,
(ii) stationery, printing, postage, and delivery expenses related to preparing
and distributing materials such as shareholder reports, prospectuses, and
proxy statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to
a class of shares, (vii) account expenses relating solely to a class of
shares, (viii) auditors' fees, litigation expenses, and legal fees and
expenses relating solely to a class of shares, and (ix) expenses incurred in
connection with shareholder meetings as a result of issues relating solely to
a class of shares.
-2-
<PAGE>
relating to implementing such plans or any amendment thereto) will be borne
exclusively by that class; (ii) any incremental transfer agency fees relating
to a particular class will be borne exclusively by that class; and (iii) Class
Expenses relating to a particular class will be borne exclusively by that
class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various
classes of shares of the Fund are required to comply with the Fund's internal
control structure pursuant to applicable auditing standards, including
Statement on Auditing Standards No. 55, and to be reviewed as part of the
independent accountants' review of such internal control structure. The
independent accountants' report on the Fund's system of internal controls
required by Form N-SAR, Item 77B, is not required to refer expressly to the
procedures for calculating the classes' net asset values.
-3-
<PAGE>
Exhibits to Registrant's 18f-3 Plan
1. Articles of Incorporation filed as Exhibit (1)(a) to Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832), filed with the Securities and Exchange
Commission via EDGAR on September 22, 1995 is incorporated herein by
reference.
2. Articles Supplementary filed as Exhibit (1)(b) to Post-Effective
Amendment No. 3 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832), filed with the Securities and Exchange
Commission via EDGAR on September 26, 1996 is incorporated herein by
reference.
3. Articles Supplementary filed as Exhibit (a)(3) to this Post-Effective
Amendment No. 6 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-86832) and is incorporated herein by reference.
4. By-Laws, as amended through December 18, 1996 are filed as Exhibit
(2) to Post-Effective Amendment No. 5 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-86832), filed with the
Securities and Exchange Commission via EDGAR on October 5, 1997.
5. Distribution Agreement between Registrant and ICC Distributors, Inc.
filed as Exhibit (e)(1) to this Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-86832) and is incorporated herein by reference.
6. Form of Sub-Distribution Agreement between ICC Distributors, Inc. and
Participating Broker-Dealers filed as Exhibit(e)(2) to this
Post-Effective Amendment No. 6 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-86832) and is incorporated herein
by reference.
7. Registrant's Amended Distribution Plan with respect to Class A Shares
filed as Exhibit(15)(a) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-86832), filed with the Securities and Exchange Commission via
EDGAR on October 5, 1997.
8. Registrant's Amended Distribution Plan with respect to Class B Shares
filed as Exhibit(15)(a) to Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-86832), filed with the Securities and Exchange Commission via
EDGAR on October 5, 1997.
9. Prospectus relating to Flag Investors Equity Partners Fund Class A
and Class B Shares is filed as part of this Registration Statement on
Form N-1A (Registration No. 33-86832) and, as amended from time to
time, is incorporated herein by reference.
10. Prospectus relating to Flag Investors Equity Partners Fund
Institutional Shares is filed as part of this Registration Statement
on Form N-1A (Registration No. 33-86832) and, as amended from time to
time, is incorporated herein by reference.
-4-
<PAGE>
Date Approved: December 14, 1994
Approval of Distribution Agreements, Plans of Distribution
and Sub-Distribution Agreement
Class A Shares and Class B Shares
RESOLVED, that the proposed Distribution Agreement, between the Fund
and Alex. Brown & Sons Incorporated ("Alex. Brown") for distribution of the
Fund's Flag Investors Class A Shares (the "Class A Shares") be, and the same
hereby is, approved, in substantially the form presented to this meeting, and
that the appropriate officers of the Fund be, and they hereby are, authorized
and directed to enter into and execute such Distribution Agreement with such
modifications as said officers shall deem necessary or appropriate or as may
be required to conform with the requirements of any applicable statute,
regulation or regulatory body;
FURTHER RESOLVED, that the proposed Plan of Distribution for the
Class A Shares (the "Class A Plan") is determined to be reasonably likely to
benefit the Fund and its shareholders;
FURTHER RESOLVED, that the expenditures contemplated by the Class A
Plan are comparable to other expenditures for similar funds;
FURTHER RESOLVED, that the Class A Plan be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proposed Distribution Agreement between
the Fund and Alex. Brown for distribution of the Fund's Flag Investors Class B
Shares (the "Class B Shares") be, and the same hereby is, approved, in
substantially the form presented to this meeting, and that the appropriate
officers of the Fund be, and they hereby are, authorized and directed to enter
into and execute such Distribution Agreement with such modifications as said
officers shall deem necessary or appropriate or as may be required to conform
with the requirements of any applicable statute, regulation or regulatory
body;
FURTHER RESOLVED, that the proposed Plan of Distribution for the
Class B Shares (the "Class B Plan") is determined to be reasonably likely to
benefit the Fund and its shareholders;
FURTHER RESOLVED, that the expenditures contemplated by the Class B
Plan are comparable to other expenditures for similar funds;
FURTHER RESOLVED, that the Class B Plan be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proposed form of Sub-Distribution
Agreement be, and the same hereby is, approved; and
-5-
<PAGE>
Approved: December 13, 1995
Resolution of Board Creating Flag Investors Equity Partners Fund
Institutional Shares
RESOLVED, that the total number of shares of common stock , par value
$.001 per share, that Flag Investors Equity Partners Fund, Inc. (The "Fund")
is authorized to issue is hereby increased from thirty million (30,000,000) to
thirty-five million (35,000,000) and that from such amount, five million
(5,000,000) authorized and unissued shares be, and hereby are, designated and
classified as the "Flag Investors Equity Partners Fund Institutional Shares";
FURTHER RESOLVED, that the proper officers of the Fund be, and each
of them hereby is, authorized and directed to file Articles Supplementary to
the Fund's Articles of Incorporation to effectuate the increase in authorized
shares and to designate and classify the new class;
RESOLVED, that the Distribution Agreement between Flag Investors
Equity Partners Fund, Inc. (The "Fund") and Alex. Brown & Sons Incorporated
for the Flag Investors Institutional Shares of the Fund be, and the same
hereby is, approved;
FURTHER RESOLVED, that the proper officers of the Fund be, and they
hereby are, authorized and directed to enter into and execute said
Distribution Agreement on behalf of the Fund, and to take all other actions
that such officer deems necessary or appropriate in connection with the
execution of such agreement, the taking of any action to establish
conclusively such officer's authority therefore and the approval and
ratification thereof by the Fund.
Approved: March 27, 1998
Appointment of New Distributor and Approval of New Distribution
Agreement and Forms of Sub-Distribution and Shareholder
Servicing Agreements
RESOLVED, that the proposed Distribution Agreement between Flag
Investors Equity Partners Fund, Inc. and ICC Distributors, Inc. for each class
of the Fund's shares, be, and the same hereby is, approved in substantially
the form presented to this meeting and that the appropriate officers of the
Fund be, and they hereby are, authorized and directed to enter into and
execute such Distribution Agreement with such modifications as said officers
shall deem necessary or appropriate or as may be required to conform with the
requirements of any applicable statute, regulation or regulatory body.
RESOLVED, that the proposed form of Sub-Distribution Agreement for
the Flag Investors Family of Funds be, and hereby is, approved in
substantially the form presented to this meeting; and
-6-
<PAGE>
FURTHER RESOLVED, that the proposed form of Shareholder Servicing
Agreement for the Flag Investors Family of Funds be, and the same hereby is,
approved in substantially the form submitted to this meeting.
FURTHER RESOLVED, that the proper officers of Flag Investors Equity
Partners Fund, Inc. be, and they hereby are, authorized and directed in the
name and on behalf of their respective Funds, to take all necessary or
appropriate actions to effect the purposes of the foregoing resolutions,
including any steps necessary to terminate the Funds' prior distribution
arrangements with Alex. Brown & Sons Incorporated, such termination to be
effective upon the consummation of the Merger, or at such other time as such
officers shall determine.
-7-
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as Chairman and a director of the Fund such Registration Statement and any and
all such pre-and post-effective amendments filed with the Securities and
Exchange Commission under the 1933 Act and the 1940 Act, and any other
instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/Truman T. Semans
-------------------
Truman T. Semans
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as a director of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/Richard T. Hale
------------------
Richard T. Hale
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as a director of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/John F. Kroeger
------------------
John F. Kroeger
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as a director of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/Eugene J. McDonald
---------------------
Eugene J. McDonald
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as a director of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/Louis E. Levy
----------------
Louis E. Levy
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as a director of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/James J. Cunnane
-------------------
James J. Cunnane
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, her true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
her name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as a director of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and
seal as of the date set forth below.
/s/Rebecca W. Rimel
-------------------
Rebecca W. Rimel
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as a director of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/Carl W. Vogt
---------------
Carl W. Vogt
Date: July 31, 1998
-------------
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in
his name, place and stead, which said attorney-in-fact and agent may deem
necessary or advisable or which may be required to enable Flag Investors
Equity Partners Fund, Inc. (the "Fund") to comply with the Securities Act of
1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as
amended (the "1940 Act"), and any rules, regulations or requirements of the
Securities and Exchange Commission in respect thereof, in connection with the
Fund's Registration Statement on Form N-1A pursuant to the 1933 Act and the
1940 Act, together with any and all pre-and post-effective amendments thereto,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned
as President of the Fund such Registration Statement and any and all such
pre-and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their
substitute or substitutes, shall lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal as of the date set forth below.
/s/Harry Woolf
--------------
Harry Woolf
Date: July 31, 1998
-------------
<PAGE>
[ARTICLE] 6
[CIK] 0000933402
[NAME] FLAG INVESTERS
[SERIES]
[NUMBER] 001
[NAME] EQTY PTR CI A
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] MAY-31-1998
[PERIOD-END] MAY-31-1998
[INVESTMENTS-AT-COST] 237,123,964
[INVESTMENTS-AT-VALUE] 330,720,506
[RECEIVABLES] 1,200,140
[ASSETS-OTHER] 60,493
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 331,981,139
[PAYABLE-FOR-SECURITIES] 635,714
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,558,725
[TOTAL-LIABILITIES] 2,194,439
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 131,887,170
[SHARES-COMMON-STOCK] 9,317,787
[SHARES-COMMON-PRIOR] 6,677,416
[ACCUMULATED-NII-CURRENT] 55,727
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4,445,210
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 93,596,542
[NET-ASSETS] 198,387,203
[DIVIDEND-INCOME] 2,569,469
[INTEREST-INCOME] 1,272,635
[OTHER-INCOME] 0
[EXPENSES-NET] 3,128,199
[NET-INVESTMENT-INCOME] 713,905
[REALIZED-GAINS-CURRENT] 5,232,557
[APPREC-INCREASE-CURRENT] 54,454,890
[NET-CHANGE-FROM-OPS] 60,401,352
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 517,511
[DISTRIBUTIONS-OF-GAINS] 1,724,486
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,375,853
[NUMBER-OF-SHARES-REDEEMED] 852,542
[SHARES-REINVESTED] 117,061
[NET-CHANGE-IN-ASSETS] 158,971,631
[ACCUMULATED-NII-PRIOR] 257,965
[ACCUMULATED-GAINS-PRIOR] 2,122,176
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,090,159
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,128,199
[AVERAGE-NET-ASSETS] 151,489,864
[PER-SHARE-NAV-BEGIN] 16.93
[PER-SHARE-NII] 0.05
[PER-SHARE-GAIN-APPREC] 4.60
[PER-SHARE-DIVIDEND] (0.07)
[PER-SHARE-DISTRIBUTIONS] (0.22)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 21.29
[EXPENSE-RATIO] 1.24
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000933402
[NAME] FLAG INVESTORS
[SERIES]
[NUMBER] 002
[NAME] EQTY PTR CI B
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] MAY-31-1998
[PERIOD-END] MAY-31-1998
[INVESTMENTS-AT-COST] 237,123,964
[INVESTMENTS-AT-VALUE] 330,720,506
[RECEIVABLES] 1,200,140
[ASSETS-OTHER] 60,493
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 331,981,139
[PAYABLE-FOR-SECURITIES] 635,714
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,558,725
[TOTAL-LIABILITIES] 2,194,439
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 28,044,712
[SHARES-COMMON-STOCK] 1,755,771
[SHARES-COMMON-PRIOR] 930,703
[ACCUMULATED-NII-CURRENT] 55,727
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4,445,210
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 93,596,542
[NET-ASSETS] 37,046,242
[DIVIDEND-INCOME] 2,569,469
[INTEREST-INCOME] 1,272,635
[OTHER-INCOME] 0
[EXPENSES-NET] 3,128,199
[NET-INVESTMENT-INCOME] 713,905
[REALIZED-GAINS-CURRENT] 5,232,557
[APPREC-INCREASE-CURRENT] 54,454,890
[NET-CHANGE-FROM-OPS] 60,401,352
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 310,645
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 860,902
[NUMBER-OF-SHARES-REDEEMED] 52,451
[SHARES-REINVESTED] 16,617
[NET-CHANGE-IN-ASSETS] 158,971,631
[ACCUMULATED-NII-PRIOR] 257,965
[ACCUMULATED-GAINS-PRIOR] 2,122,176
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,090,159
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,128,199
[AVERAGE-NET-ASSETS] 26,551,162
[PER-SHARE-NAV-BEGIN] 16.84
[PER-SHARE-NII] (0.06)
[PER-SHARE-GAIN-APPREC] 4.54
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] (0.22)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 21.10
[EXPENSE-RATIO] 1.98
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
[ARTICLE] 6
[CIK] 0000933402
[NAME] FLAG INVESTORS
[SERIES]
[NUMBER] 003
[NAME] EQTY PTR INST
<TABLE>
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] MAY-31-1998
[PERIOD-END] MAY-31-1998
[INVESTMENTS-AT-COST] 237,123,964
[INVESTMENTS-AT-VALUE] 330,720,506
[RECEIVABLES] 1,200,140
[ASSETS-OTHER] 60,493
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 331,981,139
[PAYABLE-FOR-SECURITIES] 635,714
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 1,558,725
[TOTAL-LIABILITIES] 2,194,439
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 71,757,339
[SHARES-COMMON-STOCK] 4,426,600
[SHARES-COMMON-PRIOR] 2,486,105
[ACCUMULATED-NII-CURRENT] 55,727
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4,445,210
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 93,596,542
[NET-ASSETS] 94,353,255
[DIVIDEND-INCOME] 2,569,469
[INTEREST-INCOME] 1,272,635
[OTHER-INCOME] 0
[EXPENSES-NET] 3,128,199
[NET-INVESTMENT-INCOME] 713,905
[REALIZED-GAINS-CURRENT] 5,232,557
[APPREC-INCREASE-CURRENT] 54,454,890
[NET-CHANGE-FROM-OPS] 60,401,352
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 398,632
[DISTRIBUTIONS-OF-GAINS] 874,392
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,238,106
[NUMBER-OF-SHARES-REDEEMED] 353,873
[SHARES-REINVESTED] 56,263
[NET-CHANGE-IN-ASSETS] 158,971,631
[ACCUMULATED-NII-PRIOR] 257,965
[ACCUMULATED-GAINS-PRIOR] 2,122,176
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,090,159
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 3,128,199
[AVERAGE-NET-ASSETS] 74,358,912
[PER-SHARE-NAV-BEGIN] 16.94
[PER-SHARE-NII] 0.10
[PER-SHARE-GAIN-APPREC] 4.59
[PER-SHARE-DIVIDEND] (0.11)
[PER-SHARE-DISTRIBUTIONS] (0.22)
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 21.32
[EXPENSE-RATIO] 0.98
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
