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FLAG INVESTORS
Investing With A Difference
Equity Partners
Fund
Annual Report
May 31, 1999
-----------------------------
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REPORT HIGHLIGHTS
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o Your Fund received Morningstar's highest rating of 5-Stars for its
three-year and overall performance as of May 31, 1999.
o America Online continued to make a significant contribution to the Fund's
performance. It remains our largest holding, though we reduced the
position considerably during the past six months.
o Although stock valuations in general remain high, our experience is that
individual buying opportunities always exist. We substantially increased
our Blyth Industries' holdings because we believed that the stock was
selling at a bargain price relative to its strong business fundamentals
and excellent management.
o We invest for the long-term and encourage share holders to do the same.
Shareholders who held the Fund throughout the sharp decline of 1998 have
been rewarded for sticking to their long-term investment plan during a
period of short-term anxiety.
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FUND PERFORMANCE
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[LINE CHART]
Growth of a $10,000 Investment in Class A Shares*
February 13, 1995--May 31, 1999
2/95 10000
5/95 10770
11/95 11993
5/96 13252
11/96 15576
5/97 17383
11/97 19213
5/98 22208
11/98 22636
5/99 27163
Total Return Performance*
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Class A Class B Class C Institutional
Periods ended 5/31/99 Shares Shares Shares Shares
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6 Months 20.00% 19.57% 19.54% 20.15%
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12 Months 22.31% 21.39% -- 22.57%
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Since Inception 2/13/95 2/13/95 10/28/98 2/12/96
(Cumulative) 171.63% 163.39% 34.06% 113.35%
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* Past performance is not an indicator of future results. These figures
assume the reinvestment of dividends and capital gain 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. Please review the Additional Performance
Information on page 6.
1
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LETTER TO SHAREHOLDERS
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Fellow Shareholders:
We are pleased to report on the progress of your Fund for the periods
ended May 31, 1999.
Performance
The Fund's Class A shares produced a total return of 20.0% and 22.3% for
the six- and twelve-month periods ended May 31, 1999, respectively. The Equity
Partners Fund received a 5-star rating from Morningstar for its three-year and
overall performance as of May 31, 1999. This is Morningstar's highest rating,
which is reserved for the top 10% of funds in each investment category, based on
risk and return.(1)
Over the past year, the Class A Shares net asset value grew by $4.69,
which includes both 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
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(For the 12 months ended 5/31/99)
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Five Best Contributors Gain Per Share Five Worst Contributors Loss Per Share
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America Online $3.20 Conseco* $(0.36)
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IBM $0.60 Sunbeam $(0.29)
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Amgen $0.50 Olin Corp. $(0.15)
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MCI Worldcom* $0.45 Champion Enterprises $(0.13)
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Novell $0.38 Georgia Gulf Corp. $(0.13)
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* MCI Worldcom's per share contribution includes the acquisition of MCI
Communications. Conseco's per share contribution includes the acquisition
of Green Tree Financial.
America Online's contribution to the Fund's performance has been
exceptional and is worthy of comment. Over two years ago, we invested $2.3
million in the stock when it was depressed as a result of problems the company
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(1) Morningstar proprietary ratings reflect historical risk-adjusted
performance as of 5/31/99 and 6/30/99. The ratings are subject to change
every month. Past performance is no guarantee of future results.
Morningstar ratings are calculated from the fund's three-, five-, and
10-year average annual returns (if applicable) in excess of 90-day
Treasury bill returns with appropriate fee adjustments, and a risk factor
that reflects fund performance below 90-day T-bill returns. The Flag
Investors Equity Partners Fund received 5 stars and 5 stars as of 5/31/99
and 6/30/99 for the three-year periods, respectively. The top 10% of the
funds in a broad asset class receive 5 stars, the next 22.5% receive 4
stars, and the next 35% receive 3 stars. In the domestic equity funds
category, the Fund was rated among 3,012 as of 5/31/99 and 3,043 as of
6/30/99, respectively, for the three-year periods. Ratings are for the A
share class only; other classes may vary.
2
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was experiencing at that time. In the last six months, for reasons related to
diversification and valuation, we made several sales totaling $26.3 million,
generating proceeds greater than 10x our original investment. The remaining
shares in the Fund have a value of $40.3 million. We wish they all worked out
this well.
The largest negative contribution to performance was from Conseco, which
acquired Green Tree Financial last July. The decline in the stock is primarily a
result of concerns regarding the acquisition. We believe at its present
depressed price, Conseco is significantly undervalued at 8x earnings.
Investment Environment
The overall investment environment is generally benign today, with
interest rates and inflation at relatively low levels and the economy and
corporate profits continuing to grow. As always, question marks exist. Today's
primary uncertainty centers around interest rates and the Federal Reserve's
monetary policy in response to possible inflationary pressures. The stock market
has digested recent rate increases and the likelihood of modest Fed tightening,
but investors fear the potential for more significant increases in rates in the
months ahead if inflationary pressures build.
Valuations on stocks in general remain high by historical standards, as is
to be expected when the economic backdrop is highly favorable. Bear markets do
not typically begin simply because valuations are high, though sharp corrections
may occur for that reason. Bear markets typically begin when there is
deterioration in the major fundamental factors that drive stock prices. The
crises that developed in Asia, Russia and Latin America last year are recent
cases in point, and the sharp market decline that followed qualified as a bear
market by our standards, however brief.
Such fundamental changes are difficult to foresee ahead of the market's
ability to anticipate them. Last year's deterioration and the sudden, unexpected
recovery are clear cases in point. With that as a qualifier, at present we see
no crisis or fundamental deterioration on the horizon.
Portfolio Strategy
Though the investment environment is always interesting to observe and
discuss, our focus is on individual companies and stocks. Our experience is that
individual buying opportunities exist in all types of markets, despite the
conditions of the overall market.
3
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LETTER TO SHAREHOLDERS (CONCLUDED)
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A recent case in point was Blyth Industries, a rapidly growing
manufacturer of aromatic candles and related products. Despite very strong
business fundamentals and excellent management, the stock sold down to what we
felt were bargain prices in recent months. It was our largest purchase during
the past six months and now ranks second to America Online in our largest
holdings.
On the sell side, our major activity has been the diversification of the
America Online referenced earlier. In addition, we took advantage of sharp price
gains in cyclical stocks to reduce or eliminate some companies where our
long-term confidence has waned.
On an aggregate basis, we invested approximately $70 million over the past
six months, $45 million of which was net new money flowing into the fund. The
cash percentage was 8.7% at the beginning of the six-month period and 9.7% at
the period's end. Our goal is to be 90-100% invested in stocks as long as we can
find good values which meet our criteria, i.e. undervalued companies with strong
financial characteristics and shareholder-oriented managements.
The five largest holdings are shown in the following table.
Five Largest Equity Holdings
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Security Cost Market Value 5/31/99
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America Online $ 1,129,934 $40,348,754
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Blyth Industries $24,489,196 $26,854,803
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Mattel Incorporated* $12,185,795 $24,256,935
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Canadian National Railway $15,280,556 $21,747,204
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Conseco $20,170,276 $20,488,707
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* Represents the acquisition of The Learning Company by Mattel.
4
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Closing
As always, 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 would like to reemphasize that we are investing for the long-term and
strongly encourage you to share the same long-term approach. Those of you who
owned and held the Fund throughout the sharp decline of 1998 have been greatly
rewarded for sticking to your long-term investment plan during a period of
short-term anxiety.
As a reminder, we have significant personal investments in the Fund and
are long-term partners with you.
Sincerely,
/s/ Lee S. Owen
Lee S. Owen
Portfolio Manager
5
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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. To
further assist in this evaluation, the Securities and Exchange Commission (SEC)
requires that we include, on an annual basis, a line graph comparing the
performance of each of the Fund's classes to that of an appropriate market
index. This graph measures the growth of a $10,000 hypothetical investment from
the inception date of the respective class through the end of the most recent
fiscal year-end. The SEC also requires that we report the total return of each
class, according to a standardized formula, for various time periods through the
end of the most recent calendar quarter.
Both the line graph and the SEC standardized total return figures include
the impact of the maximum initial sales charge for the Class A Shares and the
contingent deferred sales charge applicable to the specified time period for the
Class B and Class C Shares. Returns would be higher for Class A Shares investors
who qualified for a lower initial sales charge or for Class B or Class C Shares
investors who continued to hold their shares past the end of the specified time
period.
While the graphs and the total return figures are required by SEC rules,
such comparisons are of limited utility since the total return of the Fund's
classes are adjusted for sales charges and expenses while the total return of
the indices are not. In fact, if you wished to replicate the total return of
these indices, you would have to purchase the securities they represent, an
effort that would require a considerable amount of money and would incur
expenses that are not reflected in the index results.
The SEC total return figures may differ from total return figures in the
shareholder letter because the time periods may be different and because the SEC
figures include the impact of sales charges while the total return figures in
the shareholder letter do not. 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
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FLAG INVESTORS EQUITY PARTNERS FUND
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Additional Performance Information (continued)
[LINE CHART]
Change in Value of a $10,000 Investment in Class A Shares(1)
February 13, 1995-May 31, 1999
Flag Investors Equity 90-Day U.S.
Partners Fund S&P 500 Composite Treasury Bill
2/95 9550 10000 10000
5/95 10285 11022 10150
11/95 11453 12663 10442
5/96 12656 14156 10721
11/96 14875 16191 11007
5/97 16601 18320 11308
11/97 18348 20808 11596
5/98 21209 23941 11899
11/98 21617 25732 12178
5/99 27938 28974 12448
Average Annual Total Return(1)
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Periods Ended 5/31/99 1 Year 5 Years Since Inception(2)
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Class A Shares 16.81% N/A 24.86%
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(1) These figures assume the reinvestment of dividends and capital gain
distributions. Past performance is not an indicator of future results. The
indices listed above are unmanaged and are widely recognized as indicators
of the performance in their respective sectors. The S&P 500 Composite is
an indicator of general market performance and the 90-Day U.S. Treasury
Bill is a measure of short-term interest rates.
(2) February 13, 1995.
7
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FLAG INVESTORS EQUITY PARTNERS FUND
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Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class B Shares(1)
February 13, 1995-May 31, 1999
[LINE CHART]
Flag Investors Equity 90-Day U.S.
Partners Fund S&P 500 Composite Treasury Bill
2/95 10000 10000 10000
5/95 10750 11022 10150
11/95 11943 12663 10442
5/96 13134 14156 10721
11/96 15383 16191 11007
5/97 17111 18320 11308
11/97 18838 20808 11596
5/98 21398 23941 11899
11/98 21728 25732 12178
5/99 26139 28974 12448
Average Annual Total Return(1)
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Periods Ended 5/31/99 1 Year 5 Years Since Inception(2)
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Class B Shares 17.39% N/A 25.08%
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(1) These figures assume the reinvestment of dividends and capital gain
distributions. Past performance is not an indicator of future results.
(2) February 13, 1995.
8
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FLAG INVESTORS EQUITY PARTNERS FUND
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Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class C Shares(1)
October 28, 1998-May 31, 1999
[LINE CHART]
Flag Investors Equity 90-Day U.S.
Partners Fund S&P 500 Composite Treasury Bill
10/98 10000 10000 10000
11/98 11215 10607 10037
5/99 13406 11943 10260
Aggregate Total Return(1)
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Periods Ended 5/31/99 1 Year 5 Years Since Inception(2)
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Class C Shares N/A N/A 33.06 %
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(1) These figures assume the reinvestment of dividends and capital gain
distributions. Past performance is not an indicator of future results.
(2) October 28, 1998.
9
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FLAG INVESTORS EQUITY PARTNERS FUND
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Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Institutional Shares(1)
February 12, 1996-May 31, 1999
[LINE CHART]
Flag Investors Equity 90-Day U.S.
Partners Fund S&P 500 Composite Treasury Bill
2/96 10000 10000 10000
5/96 10323 10509 10125
11/96 12156 12020 10395
5/97 13584 13600 10679
11/97 15037 15448 10951
5/98 17406 17774 11238
11/98 17757 19103 11501
5/99 22024 21510 11756
Average Annual Total Return(1)
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Periods Ended 5/31/99 1 Year 5 Years Since Inception(2)
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Institutional Shares 22.57% N/A 25.90%
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(1) These figures assume the reinvestment of dividends and capital gain
distributions. Past performance is not an indicator of future results.
(2) February 12, 1996.
10
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FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Net Assets May 31, 1999
Shares Market Value
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- --------------------------------------
COMMON STOCK: 90.3%
- --------------------------------------
Banking: 1.7%
195,000 Wells Fargo Company.............................. $ 7,800,000
------------
Basic Industry: 1.0%
216,000 Georgia Gulf Corporation......................... 3,226,500
100,000 Olin Corporation................................. 1,325,000
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4,551,500
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Business Services: 0.9%
90,000 First Data Corporation........................... 4,044,375
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Consumer Durables/Non - Durables: 11.7%
959,100 Blyth Industries, Inc.(1)........................ 26,854,803
240,500 Callaway Golf.................................... 3,953,219
250,000 Ford Motor Company............................... 14,265,625
207,500 Philip Morris Companies, Inc. ................... 8,001,719
115,000 Richfood Holdings, Inc........................... 1,473,437
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54,548,803
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Consumer Services: 19.5%
338,000 America Online, Inc.(1).......................... 40,348,754
853,950 Cendant Corporation(1)........................... 15,744,703
50,000 Gannett Company, Inc............................. 3,612,500
917,520 Mattel, Inc...................................... 24,256,935
322,500 Sinclair Broadcasting-- Group A(1)............... 4,474,688
36,000 Times Mirror Co.-- Class A....................... 2,121,750
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90,559,330
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Defense/Aerospace: 1.0%
117,400 Lockheed Martin Corporation...................... 4,747,362
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Energy: 0.9%
120,000 Midamerican Energy Hldgs.(1)..................... 4,050,000
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11
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FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Net Assets (continued) May 31, 1999
Shares Market Value
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- --------------------------------------
COMMON STOCK (continued)
- --------------------------------------
Financial Services: 7.8%
60,200 American Express Company......................... $ 7,295,487
131,042 Associates First Capital Corp.-- Class A......... 5,372,722
181,500 Citigroup, Inc. ................................. 12,024,375
108,000 Freddie Mac...................................... 6,297,750
72,000 Transamerica Corp................................ 5,283,000
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36,273,334
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Health Care Services: 8.3%
254,000 Amgen, Inc.(1)................................... 16,065,500
80,000 Cardinal Health, Inc............................. 4,830,000
220,000 Columbia/HCA Healthcare Corporation.............. 5,183,750
41,000 Johnson & Johnson................................ 3,797,625
110,000 Wellpoint Health Networks, Inc.(1)............... 9,068,125
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38,945,000
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Hotels/Gaming: 2.4%
530,000 Harrah's Entertainment, Inc.(1).................. 11,461,250
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Housing: 4.1%
516,900 Champion Enterprises, Inc.(1).................... 10,564,150
148,300 USG Corporation.................................. 8,397,487
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18,961,637
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Insurance: 6.9%
670,387 Conseco, Inc..................................... 20,488,707
188,908 XL Limited-- Class A............................. 11,487,968
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31,976,675
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Multi-Industry: 5.1%
164,000 American Standard Companies, Inc.(1)............. 7,585,000
4,000 Berkshire Hathaway-- Class B(1).................. 9,272,000
57,000 Loews Corp....................................... 4,634,812
35,600 United Technologies Corporation.................. 2,209,425
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23,701,237
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12
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FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Net Assets (continued) May 31, 1999
Shares/Par (000) Market Value
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- --------------------------------------
COMMON STOCK (continued)
- --------------------------------------
Retail: 1.4%
425,000 Kmart Corporation(1)............................. $ 6,534,375
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Technology: 9.7%
257,500 Cognex Corporation(1)............................ 6,920,312
172,000 International Business Machines Corporation...... 20,005,750
490,300 Novell Inc.(1)................................... 11,522,050
119,000 Xerox Corporation................................ 6,686,312
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45,134,424
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Telecommunications: 3.2%
174,146 MCI Worldcom, Inc.(1)............................ 15,041,861
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Transportation: 4.7%
339,800 Canadian National Rail Co........................ 21,747,204
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Total Common Stock
(Cost $260,122,176)........................... 420,078,367
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REPURCHASE AGREEMENT: 10.8%
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$50,191 Goldman Sachs & Co., 4.50%
Dated 5/28/99, to be repurchased
on 6/1/99 at $50,216,096,
collateralized by U.S. Treasury Note
with a market value of $24,276,904 and
U.S. Treasury Note with a market value
of $26,918,460.
(Cost $50,191,000) .............................. 50,191,000
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Total Investments
(Cost $310,313,176)(2)............................... 101.1% $470,269,367
Liabilities in Excess of Other Assets ................. (1.1)% (4,886,906)
------ ------------
Net Assets--100.0% ..................................... 100.0% $465,382,461
====== ============
13
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FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Net Assets (concluded) May 31, 1999
Shares Market Value
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Net Asset Value and Redemption Price Per:
Class A Share
($283,950,179 / 11,059,354 shares).......................... $25.68
======
Class B Share
($52,602,990 / 2,080,403 shares)............................ $25.29(3)
======
Class C Share
($3,440,816 / 136,145 shares)............................... $25.27(4)
======
Institutional Share
($125,388,476 / 4,868,511 shares)........................... $25.75
======
Maximum Offering Price Per:
Class A Share
($25.68 / .955) ............................................ $26.89
======
Class B Share.................................................. $25.29
======
Class C Share.................................................. $25.27
======
Institutional Share............................................ $25.75
======
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(1) Non-income producing security.
(2) Also aggregate cost for federal tax purposes.
(3) Redemption value is $24.28 following a 4% maximum contingent deferred
sales charge.
(4) Redemption value is $25.02 following a 1% maximum contingent deferred
sales charge.
See Accompanying Notes to Financial Statements.
14
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FLAG INVESTORS EQUITY PARTNERS FUND
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Statement of Operations
For the
Year Ended
May 31,
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1999
Investment Income:
Dividends ................................................. $ 3,116,912
Interest .................................................. 1,187,579
Less: Foreign taxes withhold .............................. (22,551)
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Total income ..................................... 4,281,940
------------
Expenses:
Investment advisory fee ................................... 2,864,847
Distribution fees ......................................... 974,019
Transfer agent fee ........................................ 145,421
Professional fees ......................................... 138,444
Accounting fee ............................................ 94,427
Registration fees ......................................... 79,325
Custodian fee ............................................. 55,913
Directors' fees ........................................... 14,458
Miscellaneous ............................................. 63,527
------------
Total expenses ................................... 4,430,381
------------
Expenses in excess of income .............................. (148,441)
------------
Realized and unrealized gain on investments:
Net realized gain from security transactions .............. 14,945,270
Change in unrealized appreciation/depreciation
of investments ......................................... 66,359,649
------------
Net gain on investments .......................... 81,304,919
------------
Net increase in net assets resulting from operations ......... $ 81,156,478
============
See Accompanying Notes to Financial Statements.
16
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FLAG INVESTORS EQUITY PARTNERS FUND
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Statements of Changes in Net Assets
For the Years Ended May 31,
- --------------------------------------------------------------------------------
1999 1998
Increase in Net Assets:
Operations:
Net investment income/(expenses
in excess of income) .......................... $ (148,441) $ 713,905
Net realized gain from security transactions .... 14,945,270 5,232,557
Change in unrealized appreciation/
depreciation of investments ................... 66,359,649 54,454,890
------------ ------------
Net increase in net assets resulting
from operations ............................... 81,156,478 60,401,352
------------ ------------
Distributions to Shareholders from:
Net investment income and net realized
short-term gains:
Class A Shares .............................. (93,263) (752,668)
Class B Shares .............................. -- (42,361)
Class C Shares .............................. -- --
Institutional Shares ........................ (58,366) (517,867)
Net realized long-term gains:
Class A Shares .............................. (2,930,694) (1,489,329)
Class B Shares .............................. (498,363) (268,284)
Class C Shares .............................. (394) --
Institutional Shares ........................ (1,271,314) (755,157)
------------ ------------
Total distributions ...................... (4,852,394) (3,825,666)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares .................... 116,694,761 123,536,819
Value of shares issued in
reinvestment of dividends ..................... 4,540,061 3,468,071
Cost of shares repurchased ...................... (61,943,145) (24,608,945)
------------ ------------
Increase in net assets derived from capital
share transactions ............................ 59,291,677 102,395,945
------------ ------------
Total increase in net assets .................... 135,595,761 158,971,631
Net Assets:
Beginning of year ............................... 329,786,700 170,815,069
------------ ------------
End of year (including distributions in excess
of net investment income of $(17,473) and
undistributed net investment income of
$55,727, respectively) ........................ $465,382,461 $329,786,700
============ ============
See Accompanying Notes to Financial Statements.
17
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FLAG INVESTORS EQUITY PARTNERS FUND
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Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the Period
Year Ended Feb. 13, 1995(1)
May 31, For the Years Ended May 31, through May 31,
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period........................ $ 21.29 $ 16.93 $ 13.09 $ 10.77 $ 10.00
-------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income/(expenses in excess of income).......... (0.01) 0.05 0.08 0.17 0.12
Net realized and unrealized gain on investments............... 4.70 4.60 3.96 2.29 0.65
-------- -------- -------- -------- --------
Total from Investment Operations.............................. 4.69 4.65 4.04 2.46 0.77
Less Distributions:
Net investment income and net realized short-term gains....... (0.03) (0.10) (0.13) (0.14) --
Net realized long-term gains.................................. (0.27) (0.19) (0.07) -- --
-------- -------- -------- -------- --------
Total distributions........................................... (0.30) (0.29) (0.20) (0.14) --
-------- -------- -------- -------- --------
Net asset value at end of period.............................. $ 25.68 $ 21.29 $ 16.93 $ 13.09 $ 10.77
======== ======== ======== ======== ========
Total Return(2).................................................. 22.31% 27.76% 31.17% 23.05% 7.70%
Ratios to Average Daily Net Assets:
Expenses(3)................................................... 1.20% 1.24% 1.35% 1.35% 1.35%(5)
Net investment income/(expenses in excess of income)(4)....... (0.02)% 0.29% 0.61% 1.52% 3.74%(5)
Supplemental Data:
Net assets at end of period (000)............................. $283,950 $198,387 $113,030 $ 64,230 $ 38,612
Portfolio turnover rate....................................... 21.21% 7.94% 17.60% 0.73% --
</TABLE>
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(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) 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 and 1996 and for the period ended May 31,
1995, respectively.
(4) 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 and 1996 and for the period
ended May 31, 1995, respectively.
(5) Annualized.
See Accompanying Notes to Financial Statements.
18 & 19
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FLAG INVESTORS EQUITY PARTNERS FUND
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Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the Period
Year Ended Feb. 13, 1995(1)
May 31, For the Years Ended May 31, through May 31,
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period........................ $ 21.10 $ 16.84 $ 13.03 $ 10.75 $ 10.00
------- ------- ------- ------- -------
Income from Investment Operations:
Net investment income/
(expenses in excess of income)............................. (0.14) (0.06) (0.04) 0.07 0.07
Net realized and unrealized gain on
investments................................................ 4.60 4.54 3.96 2.31 0.68
------- ------- ------- ------- -------
Total from Investment Operations.............................. 4.46 4.48 3.92 2.38 0.75
Less Distributions:
Net investment income and
net realized short-term gains.............................. -- (0.03) (0.04) (0.10) --
Net realized long-term gains.................................. (0.27) (0.19) (0.07) -- --
------- ------- ------- ------- -------
Total distributions........................................... (0.27) (0.22) (0.11) (0.10) --
------- ------- ------- ------- -------
Net asset value end of period................................. $ 25.29 $ 21.10 $ 16.84 $ 13.03 $ 10.75
======= ======= ======= ======= =======
Total Return(2).................................................. 21.39% 26.81% 30.28% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses(3)................................................... 1.95% 1.98% 2.10% 2.10% 2.10%(5)
Net investment income/(expenses in excess of income)(4)....... (0.77)% (0.47)% (0.16)% 0.71% 1.97%(5)
Supplemental Data:
Net assets at end of period (000)............................. $52,603 $37,046 $15,670 $ 5,302 $ 2,159
Portfolio turnover rate....................................... 21.21% 7.94% 17.60% 0.73% --
</TABLE>
- ----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) 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 and 1996 and for the period ended May 31,
1995, respectively.
(4) Without the waiver of advisory fees , the ratio of net investment
income/(expenses in excess of income) to average daily net assets would
have been (0.28)%, 0.29% and (0.15%) (annualized) for the years ended May
31, 1997 and 1996, and for the period ended May 31, 1995, respectively.
(5) Annualized.
See Accompanying Notes to Financial Statements.
20 & 21
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class C Shares
(For a share outstanding throughout each period)
For the Period
Oct. 28, 1998(1)
through
May 31,
- --------------------------------------------------------------------------------
1999
Per Share Operating Performance:
Net asset value at beginning of period .................... $ 19.09
-------
Income from Investment Operations:
Expenses in excess of income .............................. (0.03)
Net realized and unrealized gain on investments ........... 6.48
-------
Total from Investment Operations .......................... 6.45
Less Distributions:
Net realized long-term gains .............................. (0.27)
-------
Total distributions ....................................... (0.27)
-------
Net asset value at end of period .......................... $ 25.27
=======
Total Return(2) ............................................. 34.06%
Ratios to Average Daily Net Assets:
Expenses .................................................. 1.85%(3)
Expenses in excess of income .............................. (0.73)%(3)
Supplemental Data:
Net assets at end of period (000) ......................... $ 3,441
Portfolio turnover rate ................................... 21.21%
- ----------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
See Accompanying Notes to Financial Statements.
22
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
For the Period
Feb. 12, 1996(1)
through
For the Years Ended May 31, May 31,
- --------------------------------------------------------------------------------
1999 1998 1997 1996
Per Share Operating Performance:
Net asset value at beginning
of period....................... $ 21.32 $ 16.94 $ 13.10 $ 12.72
-------- ------- ------- -------
Income from Investment Operations:
Net investment income............. 0.04 0.10 0.14 0.04
Net realized and unrealized
gain on investments............. 4.70 4.61 3.95 0.34
-------- ------- ------- -------
Total from Investment Operations.. 4.74 4.71 4.09 0.38
Less Distributions:
Net investment income and net
realized short-term gains....... (0.04) (0.14) (0.18) --
Net realized long-term gains...... (0.27) (0.19) (0.07) --
-------- ------- ------- -------
Total Distributions............... (0.31) (0.33) (0.25) --
-------- ------- ------- -------
Net asset value at end of period.. $ 25.75 $ 21.32 $ 16.94 $ 13.10
======== ======= ======= =======
Total Return........................ 22.53% 28.14% 31.58% 3.23%
Ratios to Average Daily Net Assets:
Expenses(2)....................... 0.95% 0.98% 1.10% 1.10%(4)
Net investment income(3).......... 0.23% 0.54% 0.81% 1.20%(4)
Supplemental Data:
Net assets at end of period (000). $125,388 $94,354 $42,115 $ 4,235
Portfolio turnover rate........... 21.21% 7.94% 17.60% 0.73%
- ----------
(1) Commencement of operations.
(2) Without the waiver of advisory fees, 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, 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.
23
<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 May 31, 1994 and began 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 four share classes: Class A Shares and Class B
Shares, which both began operations February 13, 1995, Class C Shares which
began operations October 28, 1998 and Institutional Shares, which began
operations February 12, 1996.
The Class A, Class B, and Class C Shares are subject to different sales
charges. The Class A Shares have a 4.50% maximum front-end sales charge, the
Class B Shares have a 4.00% maximum contingent deferred sales charge and the
Class C Shares have a 1.00% maximum contingent deferred sales charge. In
addition each of the classes 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 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 the
average of the last bid and asked prices in the over-the-counter
market. When a market quotation is not readily available, 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.
24
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
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 amortization of premiums and accretion of discounts
when appropriate. 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 began investment activities.
25
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), a subsidiary of Bankers Trust
Corporation, is the Fund's investment advisor. 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.
For the year ended May 31, 1999 ICC's advisory fee was $2,864,847 of which
$304,759 was payable at the end of the period.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily and paid monthly based on the Fund's
average daily net assets. For the year ended May 31, 1999, ICC's fee was $94,427
of which $9,336 was payable at the end of the period.
ICC also provides transfer agent services to the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the year
ended May 31, 1999, ICC's fee was $145,421 of which $35,747 was payable at the
end of the period.
Bankers Trust Company, an affiliate of ICC, provides custody services to
the Fund for which the Fund pays Bankers Trust an annual fee. For the year ended
May 31, 1999, Bankers Trust's fee was $55,913 of which $8,518 was payable at the
end of the period.
Certain officers and directors of the Fund are also officers or directors
of ICC.
26
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 2 -- concluded
Alex. Brown Investment Management ("ABIM") is the Fund's sub-advisor. 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.
The Fund did not pay BT Alex. Brown any commissions for the year ended May
31, 1999.
ICC Distributors, Inc., a member of the Forum Group of companies, provides
distribution services to the Fund for which the Fund pays ICC Distributors an
annual fee that is calculated daily and paid monthly at the following annual
rates; 0.25% of the Class A Shares' average daily net assets and 1.00% of the
Class B and Class C Shares' average daily net assets. The fees for the Class B
and Class C Shares include a 0.25% shareholder servicing fee. Distribution fee
expenses for the year ended May 31, 1999 amounted to $562,203, $406,522, and
$5,294 for Class A, Class B, and Class C Shares, respectively, of which $60,769,
$44,523 and $2,291 was payable at the end of the period.
The Fund complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
May 31, 1999 was $1,675, and the accrued liability was $6,932.
27
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 3 -- Capital Share Transactions
The Fund is authorized to issue up to 90 million shares of $.001 par value
capital stock (40 million Class A, 15 million Class B, 15 million Class C, 15
million Institutional and 5 million undesignated). Transactions in shares of the
Fund as follows:
Class A Shares
-----------------------------
For the For the
Year Ended Year Ended
May 31, 1999 May 31, 1998
------------- ------------
Shares sold ............................ 3,166,847 3,375,853
Shares issued to shareholders on
reinvestment of dividends ........... 132,532 117,061
Shares redeemed ........................ (1,557,812) (852,542)
------------ ------------
Net increase in shares outstanding ..... 1,741,567 2,640,372
============ ============
Proceeds from sale of shares ........... $ 67,677,756 $ 66,318,519
Value of reinvested dividends .......... 2,838,498 2,136,952
Cost of shares redeemed ................ (33,714,414) (16,794,448)
------------ ------------
Net increase from capital share
transactions ........................ $ 36,801,840 $ 51,661,023
============ ============
Class B Shares
-----------------------------
For the For the
Year Ended Year Ended
May 31, 1999 May 31, 1998
------------- ------------
Shares sold ............................ 563,765 860,902
Shares issued to shareholders on
reinvestment of dividends ........... 22,835 16,617
Shares redeemed ........................ (261,968) (52,451)
------------ ------------
Net increase in shares outstanding ..... 324,632 825,068
============ ============
Proceeds from sale of shares ........... $ 12,547,072 $ 16,336,267
Value of reinvested dividends .......... 482,952 302,586
Cost of shares redeemed ................ (5,608,819) (1,036,796)
------------ ------------
Net increase from capital share
transactions ........................ $ 7,421,205 $ 15,602,057
============ ============
28
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 3 -- continued
Class C Shares
----------------
For the Period
Oct. 28, 1998(1)
through
May 31, 1999
----------------
Shares sold ......................................... 137,892
Shares issued to shareholders on
reinvestment of dividends ........................ 16
Shares redeemed ..................................... (1,763)
-----------
Net increase in shares
outstanding ...................................... 136,145
===========
Proceeds from sale of shares ........................ $ 3,342,768
Value of reinvested dividends ....................... 336
Cost of shares redeemed ............................. (39,485)
-----------
Net increase from capital share
transactions ..................................... $ 3,303,619
===========
Institutional Shares
-----------------------------
For the For the
Year Ended Year Ended
May 31, 1999 May 31, 1998
------------ ------------
Shares sold ............................ 1,542,660 2,238,106
Shares issued to shareholders on
reinvestment of dividends ........... 56,796 56,263
Shares redeemed ........................ (1,157,545) (353,873)
------------ ------------
Net increase in shares outstanding ..... 441,911 1,940,496
============ ============
Proceeds from sale of shares ........... $ 33,127,165 $ 40,882,033
Value of reinvested dividends .......... 1,218,275 1,028,533
Cost of shares redeemed ................ (22,580,427) (6,777,701)
------------ ------------
Net increase from capital
share transactions .................. $ 11,765,013 $ 35,132,865
============ ============
- -----------
(1) Commencement of operations.
29
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3 -- concluded
At May 31, 1999, the amounts payable for fund shares redeemed amounted to
$145,009, of which $75,187 were attributable to the Class A Shares and $69,822
were attributable to the Class B Shares.
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $96,050,023 and sales of investment securities aggregated $72,089,080
for the year ended May 31, 1999. At May 31, 1999, the payable for securities
purchased was $7,042,157.
On May 31, 1999, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $169,352,861
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $9,396,670.
NOTE 5 -- Net Assets
On May 31, 1999, net assets consisted of:
Paid-in capital:
Class A Shares................................................ $168,607,833
Class B Shares................................................ 35,448,850
Class C Shares................................................ 3,302,028
Institutional Shares.......................................... 83,482,159
Accumulated net realized gain from security transactions......... 14,602,873
Unrealized appreciation of investments........................... 159,956,191
Distributions in excess of net investment income................. (17,473)
------------
$465,382,461
============
NOTE 6 -- Subsequent Event
On June 4, 1999, Bankers Trust Corporation merged with Deutsche Bank AG.
As a result, Deutsche Bank AG became the parent company to ICC, investment
advisor to the Fund, and a control person of ABIM, subadvisor to the Fund.
Deutsche Bank AG, as ICC's new parent company, controls its operations as
investment advisor. ICC believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level. Shareholders
will be asked to vote whether to approve new advisory and subadvisory contracts
at a shareholder's meeting to be held October 8, 1999.
30
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Equity Partners Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Flag Investors Equity Partners Fund, Inc. (the "Fund") at May 31, 1999, and the
results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
July 14, 1999
================================================================================
Tax Information (Unaudited)
For the Tax Year Ended May 31, 1999
We are providing this information as required by the Internal Revenue
Code. The amounts shown may differ from those elsewhere in this report because
of differences between tax and financial reporting requirements.
The fund's distributions to shareholders included $4,700,765 from
long-term capital gains.
Of ordinary distributions made during the fiscal year ended May 31, 1999,
100% qualifies for the dividends received deduction available to corporate
shareholders.
31
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Directors and Officers
Truman T. Semans
Chairman
James J. Cunnane Rebecca W. Rimmel
Director Director
Richard T. Hale Carl W. Vogt, Esq.
Director Director
Joseph R. Hardiman Harry Woolf
Director Director
Louis E. Levy Amy M. Olmert
Director Secretary
Eugene J. McDonald Joseph A. Finelli
Director Treasurer
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.
<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>
- --------------------------------------------------------------------------------
[LOGO]
FLAG INVESTORS
Investing With A Difference
GROWTH
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Specialty
Flag Investors Communications Fund
Flag Investors Real Estate Securities Fund
Balanced
Flag Investors Value Builder Fund
Fixed Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Managed Municipal Fund Shares
Money Market
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC Distributors, Inc.
EPANN
(5/99)
- --------------------------------------------------------------------------------