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FLAG INVESTORS
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FLAG
INVESTORS
EQUITY
PARTNERS
FUND
SEMI-ANNUAL REPORT
NOVEMBER 30, 1997
<PAGE>
REPORT HIGHLIGHTS
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o The Fund's Class A Shares produced a six-month return of 10.5%. The two-year
cumulative return of 60.2% compares very favorably with other equity funds.
o The three years ended November 30, 1997 marked one of the best periods for
stock market returns in this century. However, the current investment
environment can best be described as uncertain as investors focus on the
recent problems in Asia and their impact on U.S. companies and markets.
o Our portfolio strategy is founded in our belief that good opportunities are
available in almost any market. We have described two of the Fund's
investments, Blyth Industries and Ford Motor, in this report to illustrate
our philosophy.
o Your Fund's long-term focus results in low turnover, lower trading costs and
a lesser tax burden for taxable shareholders.
<PAGE>
FUND PERFORMANCE
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Growth of a $10,000 Investment in Class A Shares*
February 13, 1995-November 30, 1997
[GRAPH APPEARS HERE--SEE PLOT POINTS BELOW]
$10,000 invested in the Equity Partners Fund
Class A Shares at inception on February 13, 1995
was worth $19,213 on November 30, 1997.
2/95 $10,000
5/95 10,770
8/95 11,421
11/95 11,993
2/96 12,756
5/96 13,252
8/96 13,329
11/96 15,576
2/97 16,192
5/97 17,383
8/97 18,811
11/97 19,213
Total Return Performance*
Class A Class B Institutional
For the periods ended 11/30/97 Shares Shares Shares
- --------------------------------------------------------------------------------
6 Months 10.5% 10.1% 10.7%
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12 Months 23.4% 22.5% 23.7%
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Since Inception 2/13/95 2/13/95 2/12/96
------- ------- -------
(Cumulative) 92.1% 88.4% 50.4%
- --------------------------------------------------------------------------------
*These figures assume the reinvestment of dividends and capital gains
distributions and exclude the impact of any sales charge. If the sales
charge were reflected, the quoted performance would be lower. Performance
figures for the classes differ because each class maintains a distinct
expense structure. For further details on expense structures, please refer
to the Fund's prospectus. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their
original cost when redeemed. Past performance is not an indicator of future
results. Please review the Additional Performance Information on page 6.
1
<PAGE>
LETTER TO SHAREHOLDERS
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Fellow Shareholders:
We are pleased to report on the progress of your Fund for the period ended
November 30, 1997.
Performance
The Fund's Class A Shares produced a total return of 10.5% and 23.4% for
the six- and 12-month periods ended November 30, 1997, respectively. For the
two-year period, the Fund had a cumulative return of 60.2%, ranking in the top
14% of Lipper Analytical's Equity Funds Universe.1 Since its inception on
February 13, 1995, the Fund's Class A Shares have had a cumulative total return
of 92.1%.
Over the past year, the Class A Shares' net asset value grew by $3.36,
which includes income and capital gains distributions. The largest positive and
negative contributors to this growth are shown in the following table.
Contributions to Net Asset Value Performance
(For the 12 months ended 11/30/97)
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Five Best Contributors Gain Per Share Five Worst Contributors Loss Per Share
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America Online $0.32 Airgas $(0.06)
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Conseco $0.28 Amgen $(0.06)
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USG Corp. $0.22 Noble Affiliates $(0.05)
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Travelers $0.21 Eastman Kodak $(0.05)
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The Learning Company $0.20 American Standard $(0.05)
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America Online, the largest contributor, has almost tripled in value since
we originally purchased it one year ago. Conseco, the second largest
contributor, has appreciated more than five-fold since the Fund's inception in
February 1995, which is when we first purchased this holding.
- ----------
(1) The Lipper ranking is based on performance for the two years ended November
30, 1997 relative to other funds in the category. This ranking indicates
that the Fund ranked #511 out of 3,724 funds in the Equity Funds Universe.
In addition, the Fund ranked #1,394 out of 4,731 funds for the year ended
November 30, 1997, placing in the top 30% in the Equity Funds Universe.
Performance figures used in these rankings exclude the impact of any sales
charge. Past performance is not an indicator of future results.
2
<PAGE>
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The losses experienced by the worst contributors have been somewhat modest.
None of these or any other names in the portfolio have a loss greater than 10%
of the Fund's average cost basis. This reflects the fact that we have been
price-conscious in our investments and have avoided any serious fundamental
mistakes.
Investment Environment
For the three years ended November 30, the Standard & Poor's 500 Index (S&P
500) gained 111%, one of the best three-year periods in this century. The Dow
Jones Industrials gained over 20% in each of the three calendar years ending
1997, the first time this has happened in the 101-year history of the index.
These returns have resulted from a nearly perfect investment environment
characterized by growing profits, declining interest rates and the absence of
any real inflation. During this period, investors had very little to worry about
other than the fact that stocks had risen so much.
The recent problems in Asia have now given investors something more
tangible to fear. The Asian problems have already impacted certain companies and
have raised questions about the degree to which other companies' profits may be
hurt.
On a broader level, the availability of inexpensive Asian goods in our
markets may result in even lower inflation but has raised the possibility of
deflation for the first time in many years. As a result, U.S. Treasury bonds
have been in demand, driving the yield on long-term Treasuries below 6%. This
would normally be quite bullish for stocks were it not for the related worries
about profits.
The current environment can therefore be best characterized as uncertain
and volatile. The volatility may continue until we have greater visibility on
the impact of the Asian troubles on the U.S. economy and markets.
Portfolio Strategy
We have always believed that good investment opportunities can be found in
most any market. The past six months were no exception. During the period, we
invested over $72 million, $53 million of which was new money that flowed into
the Fund.
We would like to highlight in this report Blyth Industries, our largest
purchase during the period and now the Fund's second largest holding. It is a
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
classic example of what we try to do, which is buy good companies when the stock
is out of favor and down in price due to temporary concerns. Blyth is the
largest U.S. manufacturer of candles. This well-managed company has had its
sales grow at a 43% annual rate in the past four years as a result of strong
industry growth in the U.S. and abroad, increased market share and acquisitions.
It has increased its margins annually, resulting in four-year compound earnings
per share growth of 50%. Analysts estimate the company will see its earnings per
share grow at 25% in the next several years.
For reasons that were never totally clear to us, some investors were
nervous about the growth the company would report in the October quarter, which
resulted in the stock declining from $39 to $21 in several weeks. We added over
$6 million to our investment during this period at an average cost of $25. This
price is 17x the projected earnings for 1998, which is in our view a very cheap
price to pay for this well-managed, high growth rate company. Incidentally, the
nervousness proved unfounded, as the company reported earnings growth of 30% for
the October quarter, propelling the stock above $30 in a matter of days.
Our largest holding today is Ford Motor, which we also believe represents
good value, although in a very different form than Blyth. Whereas Blyth's value
is being created through rapid growth, Ford's is being created through
restructuring, unlocking for shareholders the value in its non-automotive
businesses.
Recent Asian concerns caused Ford's stock to drop to 6x earnings and a 6%
yield, based on the earnings and dividend anticipated following the spin-off of
their Associates Corp. subsidiary in early 1998. In our judgment, this was
another case of short-term concerns creating long-term value. We increased our
investment accordingly.
The contrast between Blyth and Ford demonstrates a distinctive aspect of
our philosophy. We believe that value comes in many different forms. We allow
ourselves to be as flexible as possible to take advantage of the different
opportunities. This is in contrast to specialty funds that concentrate on one
particular type of stock.
The Fund's five largest holdings are listed in the table on page 5. The
accompanying price/earnings ratios, ranging from 8x to 17x, demonstrate the
statistical value of these stocks in comparison to the S&P 500, selling at 21x
1998 estimated earnings.
4
<PAGE>
Five Largest Holdings
Holding 1998 Estimated Price/Earnings Ratio
--------------------------------------------------------
Ford Motor 9x
--------------------------------------------------------
Blyth Industries 17x
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Conseco 14x
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USG Corporation 8x
--------------------------------------------------------
Philip Morris 13x
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S&P 500 21x
--------------------------------------------------------
One of the most important aspects of our investment philosophy is our focus
on the long term. When we invest in companies we hope and expect to own them for
years, not months, as long as the management and long-term business
characteristics are favorable and the prices are reasonable. Our patience and
willingness to hold good stocks for years result in very little short-term
trading. For example, in the past six months, total sales were just over $9
million, only 5% of the Fund's average market value during the period. Most of
the sales involved selling companies that had appreciated due to their mergers
or pending mergers into other companies.
The Fund's low turnover is in contrast to most mutual funds, where some
studies indicate annual turnover averages 90% industry-wide. Higher turnover
results in higher trading costs and larger short- and long-term capital gains
distributions for taxable shareholders. It also prevents most good investment
ideas from ever reaching their full potential.
Closing
We would like to thank you for your ongoing interest and support and
particularly welcome new shareholders who have invested over the past six
months. We have significant personal investments in the Fund with you and are
focused on creating value for all of us over the long term.
Sincerely,
/s/ Lee S. Owen
- ----------------------
Lee S. Owen
Portfolio Manager
December 31, 1997
5
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares and
4.00% maximum contingent deferred sales charge for the Fund's Class B Shares.
Average Annual Total Return
For the periods ended 12/31/97 1 Year Since Inception*
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Class A Shares 18.89% 23.75%
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Class B Shares 19.61% 23.94%
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Institutional Shares 23.43% 24.01%
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*Inception dates: Class A 2/13/95, Class B 2/13/95, Institutional 2/12/96.
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Net Assets November 30, 1997
(Unaudited)
Market Value
Shares (Note 1)
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COMMON STOCK: 93.6%
Banking: 4.0%
30,600 Citicorp $ 3,670,088
19,500 Wells Fargo & Company 5,991,375
-----------
9,661,463
-----------
Basic Industry: 6.2%
399,000 Airgas, Inc.* 5,586,000
84,100 Hercules, Inc. 4,084,106
138,500 Newmont Mining Corp. 4,163,656
21,000 Olin Corp. 1,039,500
12,000 Solutia Inc. 273,750
-----------
15,147,012
-----------
Business Services: 2.4%
180,000 First Data Corp. 5,096,250
17,000 SEI Corporation 705,500
-----------
5,801,750
-----------
Capital Goods: 2.8%
29,900 Briggs & Stratton Corporation 1,528,638
48,400 Caterpillar, Inc. 2,320,175
32,500 Eaton Corporation 3,069,219
-----------
6,918,032
-----------
Consumer Durables/Non-Durables: 16.7%
405,000 Blyth Industries, Inc.* 10,403,438
88,000 Eastman Kodak Company 5,335,000
250,000 Ford Motor Company 10,750,000
157,500 Philip Morris Companies, Inc. 6,851,250
115,000 Richfood Holdings, Inc. 3,140,937
93,000 Sunbeam Corp. 4,097,813
-----------
40,578,438
-----------
Consumer Services: 7.4%
80,000 America Online, Inc.* 6,040,000
50,000 Gannett Company, Inc. 2,903,125
376,800 The Learning Company, Inc.* 6,829,500
36,000 Times Mirror Company - Class A 2,137,500
-----------
17,910,125
-----------
Defense/Aerospace: 3.8%
67,080 The Boeing Company 3,563,625
58,700 Lockheed Martin Corp. 5,726,919
-----------
9,290,544
-----------
Energy: 1.5%
100,500 Noble Affiliates, Inc. 3,731,063
-----------
7
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Net Assets (concluded) November 30, 1997
(Unaudited)
Market Value
Shares (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCK (continued)
Financial Services: 7.7%
60,200 American Express Company $ 4,748,275
108,000 Freddie Mac 4,455,000
100,000 Green Tree Financial Corporation 3,062,500
11,000 Transamerica Corp. 1,194,187
105,000 Travelers Group, Inc. 5,302,500
-----------
18,762,462
-----------
Health Care: 6.0%
127,000 Amgen, Inc.* 6,492,875
100,000 Columbia/HCA Healthcare Corporation 2,950,000
82,000 Johnson & Johnson 5,160,875
-----------
14,603,750
-----------
Hotels/Gaming: 1.9%
130,000 Harrah's Entertainment, Inc.* 2,608,125
61,600 Hilton Hotels Corporation 1,917,300
-----------
4,525,425
-----------
Housing: 5.5%
327,500 Champion Enterprises, Inc.* 6,304,375
148,300 USG Corporation* 6,951,562
-----------
13,255,937
-----------
Insurance: 6.5%
217,000 Conseco Inc. 10,104,062
93,400 Mid Ocean Limited 5,790,800
-----------
15,894,862
-----------
Multi-Industry: 6.3%
164,000 American Standard Co., Inc.* 6,498,500
37,000 Loews Corporation 3,926,625
60,000 Monsanto Co. 2,621,250
24,200 Tenneco, Inc. 1,048,163
17,800 United Technologies Corp. 1,333,887
-----------
15,428,425
-----------
Retail: 2.9%
25,550 J.C. Penney Co., Inc. 1,641,587
425,000 Kmart Corporation * 5,339,062
------------
6,980,649
------------
Technology: 7.5%
56,000 International Business Machines Corporation 6,135,500
97,500 Millipore Corporation 3,778,125
190,300 Novell, Inc.* 1,760,275
8
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Shares/ Market Value
Par (000) (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCK (concluded)
Technology (concluded)
34,000 Varian Associates, Inc. $ 1,963,500
59,500 Xerox Corporation 4,622,406
------------
18,259,806
------------
Telecommunications: 2.5%
140,000 MCI Communications Corporation 6,151,250
------------
Transportation: 2.0%
95,800 Canadian National Railway Company 4,951,663
------------
Total Common Stock
(Cost $173,362,440) 227,852,656
------------
REPURCHASE AGREEMENT: 8.4%
$20,523 Goldman Sachs & Co., 5.50%
Dated 11/28/97, to be repurchased on
12/1/97, collateralized by U.S. Treasury
Bonds with a market value of $20,934,344.
(Cost $20,523,000) 20,523,000
------------
Total Investment in Securities: 102.0%
(Cost $193,885,440)** 248,375,656
Liabilities in Excess of Other Assets, Net: (2.0)% (4,857,147)
------------
Net Assets: 100.0% $243,518,509
============
Net Asset Value and Redemption Price Per:
Class A Share
($145,205,745 / 7,773,480 shares outstanding) $18.68
======
Class B Share
($25,571,179 / 1,379,078 shares outstanding) $18.54***
======
Institutional Share
($72,741,585 / 3,888,232 shares outstanding) $18.71
======
Maximum Offering Price Per:
Class A Share
($18.68 / 0.955) $19.56
======
Class B Share $18.54
======
Institutional Share $18.71
======
- ----------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
*** Redemption value is $17.80 following a 4% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
9
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Operations
For the Six
Months Ended
November 30,
- --------------------------------------------------------------------------------
1997(1)
Investment Income (Note 1):
Dividends $ 1,220,771
Interest 660,865
-----------
Total income 1,881,636
-----------
Expenses:
Investment advisory fee (Note 2) 913,161
Distribution fee (Note 2) 270,849
Registration fees 39,389
Accounting fee (Note 2) 36,169
Transfer agent fee (Note 2) 32,290
Audit 20,860
Printing and postage 20,491
Custodian fee (Note 2) 16,276
Legal 14,510
Organizational expense (Note 1) 8,180
Miscellaneous 7,178
Directors' fees 6,007
-----------
Total expenses 1,385,360
-----------
Net investment income 496,276
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 3,836,690
Change in unrealized appreciation or depreciation of investments 15,348,563
-----------
Net gain on investments 19,185,253
-----------
Net increase in net assets resulting from operations $19,681,529
===========
- ---------
(1) Unaudited.
See Notes to Financial Statements.
10
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Changes in Net Assets
For the Six For the
Months Ended Year Ended
November 30, May 31,
- --------------------------------------------------------------------------------
1997(1) 1997
Increase/(Decrease) in Net Assets:
Operations:
Net investment income $ 496,276 $ 635,029
Net realized gain from security transactions 3,836,690 2,887,321
Change in unrealized appreciation or
depreciation of investments 15,348,563 27,900,712
------------ ------------
Net increase in net assets resulting
from operations 19,681,529 31,423,062
------------ ------------
Distributions to Shareholders from:
Net investment income:
Class A Shares (203,965) (551,174)
Class B Shares -- (5,815)
Institutional Shares (120,416) (112,532)
Net realized short-term gains:
Class A Shares -- (168,249)
Class B Shares -- (17,444)
Institutional Shares -- (36,622)
Net realized mid-term and long-term gains:
Class A Shares -- (392,581)
Class B Shares -- (40,703)
Institutional Shares -- (85,452)
------------ ------------
Total distributions (324,381) (1,410,572)
------------ ------------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 62,375,905 73,706,538
Value of shares issued in reinvestment
of dividends 240,251 1,249,105
Cost of shares repurchased (9,269,864) (7,920,313)
------------ ------------
Increase in net assets derived from
capital share transactions 53,346,292 67,035,330
------------ ------------
Total increase in net assets 72,703,440 97,047,820
Net Assets:
Beginning of period 170,815,069 73,767,249
------------ ------------
End of period $243,518,509 $170,815,069
============ ============
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(1) Unaudited.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
November 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 16.93
--------
Income from Investment Operations:
Net investment income 0.04
Net realized and unrealized gain on investments 1.74
--------
Total from Investment Operations 1.78
--------
Less Distributions:
Distributions from net investment income and net realized
short-term gains (0.03)
Distributions from net realized mid-term
and long-term gains --
--------
Total distributions (0.03)
--------
Net asset value at end of period $ 18.68
========
Total Return(3) 10.53%
Ratios to Average Daily Net Assets:
Expenses(4) 1.29%(6)
Net investment income(5) 0.43%(6)
Supplemental Data:
Net assets at end of period (000) $145,206
Portfolio turnover rate 10.02%(6)
Average commissions per share(7) $ 0.0591
- -------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) 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.
(5) 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.
(6) Annualized.
(7) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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<TABLE>
<CAPTION>
For the Period
Feb. 13, 1995(2)
For the Year Ended May 31, through May 31,
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 13.09 $ 10.77 $ 10.00
-------- ------- -------
Income from Investment Operations:
Net investment income 0.08 0.17 0.12
Net realized and unrealized gain on investments 3.96 2.29 0.65
-------- ------- -------
Total from Investment Operations 4.04 2.46 0.77
-------- ------- -------
Less Distributions:
Distributions from net investment income and net realized
short-term gains (0.13) (0.14) --
Distributions from net realized mid-term
and long-term gains (0.07) -- --
-------- ------- -------
Total distributions (0.20) (0.14) --
-------- ------- -------
Net asset value at end of period $ 16.93 $ 13.09 $ 10.77
======== ======= =======
Total Return(3) 31.17% 23.05% 7.70%
Ratios to Average Daily Net Assets:
Expenses(4) 1.35% 1.35% 1.35%(6)
Net investment income(5) 0.61% 1.52% 3.74%(6)
Supplemental Data:
Net assets at end of period (000) $113,030 $64,230 $38,612
Portfolio turnover rate 17.60% 0.73% --
Average commissions per share(7) $ 0.0677 -- --
</TABLE>
13
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
November 30,
- --------------------------------------------------------------------------------
1997(1)
Per Share Operating Performance:
Net asset value at beginning of period $ 16.84
-------
Income from Investment Operations:
Net investment income/(expenses in excess of income) (0.01)
Net realized and unrealized gain on investments 1.71
-------
Total from Investment Operations 1.70
-------
Less Distributions:
Distributions from net investment income
and net realized short-term gains --
Distributions from net realized mid-term
and long-term gains --
-------
Total distributions --
-------
Net asset value at end of period $ 18.54
=======
Total Return(3) 10.09%
Ratios to Average Daily Net Assets:
Expenses(4) 2.04%(6)
Net investment income/(expenses in excess of income)(5) (0.21)%(6)
Supplemental Data:
Net assets at end of period (000) $25,571
Portfolio turnover rate 10.02%(6)
Average commissions per share(7) $0.0591
- --------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) 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.
(5) 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.
(6) Annualized.
(7) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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<TABLE>
<CAPTION>
For the Period
Feb. 13, 1995(2)
For the Year Ended May 31, through May 31,
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
<S><C>
Per Share Operating Performance:
Net asset value at beginning of period $ 13.03 $10.75 $10.00
------- ------ ------
Income from Investment Operations:
Net investment income/(expenses in excess of income) (0.04) 0.07 0.07
Net realized and unrealized gain on investments 3.96 2.31 0.68
------- ------ ------
Total from Investment Operations 3.92 2.38 0.75
------- ------ ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.04) (0.10) --
Distributions from net realized mid-term
and long-term gains (0.07) -- --
------- ------ ------
Total distributions (0.11) (0.10) --
------- ------ ------
Net asset value at end of period $ 16.84 $13.03 $10.75
======= ====== ======
Total Return(3) 30.28% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses(4) 2.10% 2.10% 2.10%(6)
Net investment income/(expenses in excess of income)(5) (0.16)% 0.71% 1.97%(6)
Supplemental Data:
Net assets at end of period (000) $15,670 $5,302 $2,159
Portfolio turnover rate 17.60% 0.73% --
Average commissions per share(7) $0.0677 -- --
</TABLE>
15
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
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Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the Six For the Feb. 12, 1996(2)
Months Ended Year Ended through
November 30, May 31, May 31,
- --------------------------------------------------------------------------------------
1997(1) 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 0.07 0.14 0.04
Net realized and unrealized gain
on investments 1.74 3.95 0.34
------- ------- ------
Total from Investment Operations 1.81 4.09 0.38
------- ------- ------
Less Distributions:
Distributions from net investment income
and net realized short-term gains (0.04) (0.18) --
Distributions from net realized
mid-term and long-term gains -- (0.07) --
------- ------- ------
Total distributions (0.04) (0.25) --
------- ------- ------
Net asset value at end of period $ 18.71 $ 16.94 $13.10
======= ======= ======
Total Return 10.70% 31.58% 3.23%
Ratios to Average Daily Net Assets:
Expenses(3) 1.04%(5) 1.10% 1.10%(5)
Net investment income(4) 0.75%(5) 0.81% 1.20%(5)
Supplemental Data:
Net assets at end of period (000) $72,742 $42,115 $4,235
Portfolio turnover rate 10.02%(5) 17.60% 0.73%
Average commissions per share(6) $0.0591 $0.0677 --
</TABLE>
- -------
(1) Unaudited.
(2) Commencement of operations.
(3) Without the waiver of advisory fees (Note 2), the ratio of expenses to
average daily net assets would have been 1.22% and 1.55% (annualized) for
the year ended May 31, 1997 and the period ended May 31, 1996, respectively.
(4) Without the waiver of advisory fees (Note 2), the ratio of net investment
income to average daily net assets would have been 0.70% and 0.75%
(annualized) for the year ended May 31, 1997 and the period ended May 31,
1996, respectively.
(5) Annualized.
(6) Disclosure is required for fiscal years beginning after September 1, 1995.
Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
See Notes to Financial Statements.
16
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
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 and commenced operations February
13, 1995, is registered under the Investment Company Act of 1940 as a
diversified, open-end investment management company. Its objective is to seek
long-term growth of capital and, secondarily, current income primarily through a
policy of diversified investments in equity securities, including common stocks
and convertible securities.
The Fund consists of three share classes: Class A Shares and Class B
Shares, which both commenced February 13, 1995, and Institutional Shares, which
commenced February 12, 1996.
The Class A and Class B Shares are subject to different sales charges. The
Class A Shares have a 4.50% maximum front-end sales charge and the Class B
Shares have a 4.00% maximum contingent deferred sales charge. The Institutional
Shares have neither a front-end sales charge nor a contingent deferred sales
charge. In addition, each class has a different distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation--The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price
reported for the day. If there are no sales or the security is not
traded on a listed exchange, the Fund values the security at its last
bid price in the over-the-counter market. When a market quotation is
unavailable, the Investment Advisor determines a fair value using
procedures that the Board of Directors establishes and monitors. The
Fund values short-term obligations with maturities of 60 days or less
at amortized cost.
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
17
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1 -- concluded
ensures that the collateral's market value, including any accrued
interest, is sufficient if the broker defaults. The Fund's access to
the collateral may be delayed or limited if the broker defaults and the
value of the collateral declines or if the broker enters into an
insolvency proceeding.
C. Federal Income Taxes--The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally
makes reclassifications within its capital accounts to reflect income
and gains that are available for distribution under income tax
regulations.
The Fund is organized as a regulated investment company. As long as
it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net realized
capital gains, it will be exempt from most, if not all, federal income
and excise taxes. As a result, the Fund has made no provisions for
federal income taxes.
D. Securities Transactions, Investment Income, Distributions and
Other--The Fund uses the trade date to account for security
transactions and the specific identification method for financial
reporting and income tax purposes to determine the cost of investments
sold or redeemed. Interest income and expenses are recorded on an
accrual basis. Income and common expenses are allocated to each class
based on its respective average net assets. Class specific expenses
are charged directly to each class. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
The Fund has deferred the costs incurred by its organization and the
initial public offering of shares. These costs are being amortized on
the straight-line method over a five-year period, which began when
the Fund commenced investment activities.
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Bankers Trust New
York 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 based on the Fund's average daily net
assets. This fee is calculated daily and paid monthly at the following annual
rates: 1.00% of the first $50 million, 0.85% of the next $50 million, 0.80% of
the next $100 million and 0.70% of the amount over $200 million.
18
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 2 -- concluded
As compensation for its subadvisory services, ICC pays ABIM a fee from its
advisory fee based on the Fund's average daily net assets. This fee is
calculated daily and paid monthly at the following annual rates: 0.75% of the
first $50 million, 0.60% of the next $150 million and 0.50% of the amount over
$200 million.
ICC has agreed to waive a portion of its fees and reimburse expenses so
that the Fund's total operating expenses for any fiscal year do not exceed 1.35%
of the Class A Shares' average daily net assets, 2.10% of the Class B Shares'
average daily net assets and 1.10% of the Institutional Shares' average daily
net assets. ICC did not waive any fees for the six months ended November 30,
1997.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor or sub-advisor.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly based on the Fund's average daily
net assets. The Fund paid ICC $36,169 for accounting services for the six months
ended November 30, 1997.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $32,290 for
transfer agent services for the six months ended November 30, 1997.
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 November 30, 1997, the Fund accrued $4,912 in custody
expenses.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors"), a member of the Forum Group of
companies, 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. Prior to September 1, 1997, Alex. Brown & Sons
Incorporated served as the Fund's distributor for the same compensation and on
substantially the same terms as ICC Distributors. For the six months ended
November 30, 1997, distribution fees aggregated $270,849, of which $162,787 were
attributable to the Class A Shares and $108,062 were attributable to the Class B
Shares. The Fund did not pay any commissions for the six months ended November
30, 1997.
The Fund's complex offers a retirement plan for eligible Directors.
The actuarially computed pension expense allocated to the Fund for the six
months ended November 30, 1997 was $4,967, and the accrued liability was $7,122.
19
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 3 -- Capital Share Transactions
The Fund is authorized to issue up to 35 million shares of $.001 par value
capital stock (20 million Class A, 5 million Class B, 5 million Institutional
and 5 million undesignated). Transactions in shares of the Fund were as follows:
Class A Shares
------------------------------
For the Six For the
Months Ended Year Ended
Nov. 30, 1997(1) May 31, 1997
---------------- ------------
Shares sold 1,337,339 2,175,983
Shares issued to shareholders on
reinvestment of dividends 10,546 71,468
Shares redeemed (251,821) (477,782)
----------- -----------
Net increase in shares outstanding 1,096,064 1,769,669
=========== ===========
Proceeds from sale of shares $24,540,884 $32,665,187
Value of reinvested dividends 185,614 1,040,589
Cost of shares redeemed (4,556,131) (7,100,783)
----------- -----------
Net increase from capital share transactions $20,170,367 $26,604,993
=========== ===========
Class B Shares
------------------------------
For the Six For the
Months Ended Year Ended
Nov. 30, 1997(1) May 31, 1997
---------------- ------------
Shares sold 467,016 545,380
Shares issued to shareholders on
reinvestment of dividends -- 3,986
Shares redeemed (18,642) (25,717)
---------- ----------
Net increase in shares outstanding 448,374 523,649
========== ==========
Proceeds from sale of shares $8,431,557 $8,263,270
Value of reinvested dividends -- 60,224
Cost of shares redeemed (339,556) (375,286)
---------- ----------
Net increase from capital share transactions $8,092,001 $7,948,208
========== ==========
- ------
(1) Unaudited.
20
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Institutional Shares
--------------------------------
For the Six For the
Months Ended Year Ended
Nov. 30, 1997(1) May 31, 1997
---------------- ------------
Shares sold 1,636,518 2,182,989
Shares issued to shareholders on
reinvestment of dividends 3,103 9,854
Shares redeemed (237,494) (30,115)
----------- -----------
Net increase in shares outstanding 1,402,127 2,162,728
=========== ===========
Proceeds from sale of shares $29,403,464 $32,778,081
Value of reinvested dividends 54,637 148,292
Cost of shares redeemed (4,374,177) (444,244)
----------- -----------
Net increase from capital share transactions $25,083,924 $32,482,129
=========== ===========
- ------
(1) Unaudited.
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $22,074,701 and sales of investment securities aggregated $5,293,547
for the six months ended November 30, 1997.
On November 30, 1997, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $57,596,398
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $3,106,182.
21
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 5 -- Net Assets
On November 30, 1997, net assets consisted of:
Paid-in capital:
Class A Shares $100,396,514
Class B Shares 20,534,656
Institutional Shares 61,708,398
Undistributed net investment income 429,860
Accumulated net realized gain from security transactions 5,958,866
Unrealized appreciation of investments 54,490,215
------------
$243,518,509
============
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 New York
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 Agreement between the Fund and ICC and a new
Sub-Advisory Agreement among the Fund, ICC and ABIM. The new agreements are
substantially the same as the former agreements.
22
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE CARL W. VOGT, ESQ.
Director Director
RICHARD T. HALE HARRY WOOLF
Director President
JOHN F. KROEGER AMY M. OLMERT
Director Secretary
LOUIS E. LEVY JOSEPH A. FINELLI
Director Treasurer
EUGENE J. MCDONALD SCOTT J. LIOTTA
Director Assistant Secretary
REBECCA W. RIMEL
Director
Investment Objective
A mutual fund designed to seek long-term growth of capital and, secondarily,
current income primarily through a policy of diversified investments in equity
securities, including common stocks and convertible securities.
23
<PAGE>
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<PAGE>
- ----------------------------------------------------
This report is prepared for the general
information of shareholders. It is authorized for
distribution to prospective investors only when
preceded or accompanied by an effective prospectus.
For more complete information regarding
any of the Flag Investors Funds, including
charges and expenses, obtain a prospectus from
your investment representative or directly from
the Fund at 1-800-767-FLAG. Read it carefully
before you invest.
- ----------------------------------------------------
<PAGE>
[FLAG INVESTORS LOGO]
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
EQUITY INCOME
Flag Investors Real Estate Securities Fund
Flag Investors Telephone Income Fund
BALANCED
Flag Investors Value Builder Fund
INCOME
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
TAX-FREE INCOME
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
CURRENT INCOME
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
