[LOGO]
FLAG
INVESTORS
EQUITY
PARTNERS
FUND
SEMI-ANNUAL REPORT
NOVEMBER 30, 1998
<PAGE>
REPORT HIGHLIGHTS
- --------------------------------------------------------------------------------
o The Fund's Class A Shares produced a total return of 1.9% and 17.8% for the
six- and twelve-month periods, respectively. The three-year cumulative return
of 88.7% compares very favorably with other equity funds.
o The largest contributor to the Fund's performance was America Online. A $2.3
million investment in AOL two years ago grew to a recent value of $28
million, illustrating the power of letting good investments grow.
o Recent market volatility demonstrated the difficulty of accurately predicting
economic developments, investor psychology and resulting market movements. We
will base our investment decisions on individual companies that meet our
criteria for long-term investment success and not on how worldwide economic
uncertainties may affect the market.
o Exceptional buying opportunities were created by the recent market
volatility. We introduced one new name to the portfolio and also added to
some existing positions. Our goal is to be 90-100% invested in equities, as
long as we can find good long-term values that meet our criteria.
<PAGE>
FUND PERFORMANCE
- --------------------------------------------------------------------------------
Growth of a $10,000 Investment in Class A Shares*
February 13, 1995--November 30, 1998
[GRAPHIC]
In the printed version of the document, a line graph apears which depicts the
following plot points:
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
Total Return Performance*
Class A Class B Class C Institutional
Periods ended 11/30/98 Shares Shares Shares Shares
- -------------------------------------------------------------------------------
6 Months 1.93% 1.52% -- 2.02%
- -------------------------------------------------------------------------------
12 Months 17.82% 16.93% -- 18.09%
- -------------------------------------------------------------------------------
Since Inception 2/13/95 2/13/95 10/22/98 2/12/96
(Cumulative) 126.36% 120.27% 12.15% 77.57%
- -------------------------------------------------------------------------------
*Past performance is not an indicator of future results. 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. Please review the
Additional Performance Information on page 6.
1
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Fellow Shareholders:
We are pleased to report on the progress of your Fund for the period ended
November 30, 1998.
Performance
The Fund's Class A Shares produced a total return of 1.9% and 17.8% for the
six- and twelve-month periods ended November 30, 1998, respectively. For the
three-year period, the Fund had a cumulative return of 88.7%, ranking it in the
top 16% of Lipper Analytical's General Equity Funds Universe.(1) The Class A
Shares have had a cumulative return of 126.4% since the Fund's inception on
February 13, 1995.
Over the past year, the Class A Shares net asset value grew by $3.28, 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
<TABLE>
<CAPTION>
(for the 12 months ended 11/30/98)
- -----------------------------------------------------------------------------------------------
Five Best Contributors Gain Per Share Five Worst Contributors Loss Per Share
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
America Online, Inc. $1.46 Sunbeam $(0.61)
- -----------------------------------------------------------------------------------------------
Ford Motor* $0.54 Callaway Golf $(0.22)
- -----------------------------------------------------------------------------------------------
The Learning Company, Inc. $0.48 Conseco* $(0.21)
- -----------------------------------------------------------------------------------------------
International Business Machines Corp. $0.33 Olin Corp. $(0.16)
- -----------------------------------------------------------------------------------------------
MCI Worldcom, Inc. $0.27 Hercules $(0.15)
- -----------------------------------------------------------------------------------------------
</TABLE>
* Ford's per share contribution includes the spin out of Associates First
Capital. Conseco's per share contribution includes the acquisition of
Green Tree Financial.
We are fond of pointing out our belief that the biggest investment mistakes
are often made by selling good stocks too early, just because the price has
risen or the stock has grown to a large percentage of the portfolio. America
Online is a great case in point. Two of the best decisions we have made in the
Fund are to have invested $2.3 million in AOL two years ago and to have not sold
any until very recently, when it had grown to a value of $28 million. Many
conventional selling formulas would have forced us to sell or eliminate it at
much lower prices.
- ----------
(1) Past performance is not an indicator of future results. For the three year
period the Fund ranked 308 out of 1,936 Funds. The Fund ranked 819 out of
3,233 or 25.3% in the Lipper Analytical's General Equity Funds Universe for
the year ended November 30, 1998. Performance figures used in these
rankings exclude the impact of any sales change. For the three-year period
ended December 31, 1998, the Fund had a cumulative return of 100.64%. The
Fund ranked 370 out of 3,657 in the Lipper Analytical's General Equity
Funds Universe for the three years ended December 31, 1998. For the one
year period the Fund ranked 834 out of 3,344 Funds. Performance figures
used in these rankings exclude the impact of any sales charge.
2
<PAGE>
The power of letting your winners grow is made clear by AOL having contributed a
significant portion of the increase in NAV over the past twelve months.
The single worst contributor during the period was Sunbeam, which we have
eliminated. We castigated ourselves quite fully over this mistake in our last
shareholder report. In summary, the lessons we learned from the experience are
not to become overly enamored with any CEO, and not to compound a fundamental
mistake by buying more just because the price has dropped.
Investment Environment
An old investment axiom states that "change is the investor's only
certainty." We were all clearly reminded of this truth over the past six months.
When we last reported to shareholders as of May 31, the market had recently
hit an all time high level. In our report we characterized the investment
environment as "As Good As It Gets."
Three months later we were witnessing breathtaking declines for the broad
market, brought about by serious Asian economic problems spreading to Russia and
threatening Latin America and ultimately the U.S. economy. By August 31, the
average New York Stock Exchange stock was 38% below its 52-week high, and the
average NASDAQ stock was 49% lower, comparable to the declines recorded in the
1987 and 1990 bear markets.
In September, a leading economist published a report entitled "Great
Depression II." In early October, the cover of Newsweek read "The Crash of
`99?". Also in early October, Alan Greenspan told the National Association for
Business Economics, "I have been effectively looking at the American economy on
a day-by-day basis for almost a half-century, [and] I've never seen anything
like this." Just as most investors were accepting the fact that the environment
had changed to "As Bad As It Gets", the market began an upward move that
incredibly had reached a new all time high by late November. As a recent Wall
Street Journal article commented, "Rarely has greed so quickly and completely
replaced fear in the stock market."
There is a lesson in this for all of us to learn or re-learn as the case
may be. It is extremely difficult to accurately predict economic developments,
investor psychology and resulting market movements. In the recent example, a
clear intent by the Federal Reserve to provide liquidity through lower interest
rates dramatically changed psychology and triggered an unexpected reversal in
the market. Though many observers felt the Fed would lower rates, few if any
predicted the dramatic impact it would have on psychology and the market.
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
Looking forward, worldwide economic uncertainties continue to exist, and a
number of serious problems remain to be resolved. How it all plays out for the
market in the months ahead is anybody's guess. Rather than basing our investment
decisions on how the economic uncertainties may affect the market, we will
continue to focus on buying individual companies that meet our criteria for
long-term investment success.
Portfolio Strategy
Throughout all the volatility of the past six months, we remained heavily
invested in stocks. The cash percentage was 4.5% at the beginning of the period
and 8.7% at the end. We view the Fund as an equity investment for shareholders.
Our goal is to be 90-100% invested, as long as we can find good long-term values
that meet our criteria.
On the sell side, we reduced some holdings such as Johnson and Johnson and
America Online (modestly) on the basis of valuation. We also eliminated several
smaller holdings where our fundamental confidence was lacking.
We added one new name to the portfolio, Wellpoint Health Networks, Inc., a
well run growing managed care company. The rest of our buying was in names we
already owned, the largest investment being Cendant. The sort of fear investors
experienced during the sharp decline created some exceptional buying
opportunities, as emotion overwhelmed fundamental analysis. We believe Cendant
was a case in point, and we made a large investment at around $12 per share,
which we think will prove to have been an exceptional value.
The five largest holdings are shown in the following table. All five of the
businesses are performing well fundamentally, some exceptionally well, despite
the economic dislocations around the world.
4
<PAGE>
Five Largest Equity Holdings
Security Cost Market Value on 11/30/98
- --------------------------------------------------------------------------------
America Online, Inc. $ 1,884,380 $23,817,000
- --------------------------------------------------------------------------------
The Learning Company, Inc. $ 8,455,062 $17,780,438
- --------------------------------------------------------------------------------
Blyth Industries $12,417,616 $16,320,544
- --------------------------------------------------------------------------------
International Business Machines Corp. $ 5,915,820 $14,190,000
- --------------------------------------------------------------------------------
Conseco, Inc. $12,451,428 $13,925,319
- --------------------------------------------------------------------------------
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. The recent period has been highly unusual in its volatility, both down
and up. To date you have been rewarded for your discipline to stay the course
with this Fund as a long-term investment throughout this volatile period. Though
we do not pretend to know how the market will treat us in the next several
months, we strongly believe that over the next several years your discipline and
long-term time horizon will continue to be well rewarded.
Sincerely,
/s/ Les S. Owen
- -----------------
Lee S. Owen
Portfolio Manager
5
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management.The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares,
4.00% maximum contingent deferred sales charge for the Fund's Class B Shares and
1.00% maximum contingent deferred sales charge for the Fund's Class C shares.
Average Annual Total Return
For the periods ended 12/31/98 1 Year Since Inception*
- --------------------------------------------------------------------------------
Class A Shares 19.7% 23.9%
- --------------------------------------------------------------------------------
Class B Shares 20.4% 24.3%
- --------------------------------------------------------------------------------
Class C Shares -- 19.1%**
- --------------------------------------------------------------------------------
Institutional Shares 25.6% 25.0%
- --------------------------------------------------------------------------------
- ----------
* Inception dates:Class A 2/13/95, Class B 2/13/95, Class C 10/22/98,
Institutional 2/12/96.
** Cumulative return.
The Fund's total return corresponds 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 share may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets November 30, 1998
(Unaudited)
Shares Market Value
- --------------------------------------------------------------------------------
Common Stock - 91.2%
Banking - 2.0%
195,000 Wells Fargo & Co. ............................... $ 7,020,000
------------
Basic Industry - 4.9%
399,000 Airgas, Inc.* ................................... 4,039,875
216,000 Georgia Gulf Corp. .............................. 4,050,000
144,100 Hercules, Inc. .................................. 4,737,288
146,000 Olin Corporation ................................ 4,462,125
------------
17,289,288
------------
Business Services - 0.7%
90,000 First Data Corp. ................................ 2,401,875
------------
Capital Goods - 1.3%
48,400 Caterpillar, Inc. ............................... 2,392,775
32,500 Eaton Corp. ..................................... 2,220,156
------------
4,612,931
------------
Consumer Durables/Non-Durables - 13.5%
480,900 Blyth Industries* ............................... 16,320,544
240,500 Callaway Golf Co. ............................... 3,216,687
250,000 Ford Motor ...................................... 13,812,500
207,500 Philip Morris Companies ......................... 11,607,031
115,000 Richfood Holdings, Inc. ......................... 2,134,687
------------
47,091,449
------------
Consumer Services - 17.3%
272,000 America Online, Inc.* ........................... 23,817,000
723,950 Cendant Corp.* .................................. 13,755,050
50,000 Gannett Company, Inc. ........................... 3,228,125
611,800 The Learning Co., Inc.* ......................... 17,780,438
36,000 Times Mirror Co. Cl-A ........................... 2,110,500
------------
60,691,113
------------
Defense and Aerospace - 1.8%
58,700 Lockheed Martin ................................. 6,090,125
------------
7
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (continued) November 30, 1998
(Unaudited)
Shares Market Value
- --------------------------------------------------------------------------------
COMMON STOCK (continued)
Energy - 1.8%
120,000 CalEnergy Co., Inc.* ............................ $ 3,757,500
100,500 Noble Affiliates, Inc. .......................... 2,543,906
------------
6,301,406
------------
Financial Services - 8.7%
60,200 American Express Co. ............................ 6,023,763
65,521 Associates First Capital Corp. .................. 5,102,448
181,500 Citigroup ....................................... 9,109,031
108,000 Freddie Mac ..................................... 6,534,000
36,000 Transamerica Corp. .............................. 3,825,000
------------
30,594,242
------------
Health Care Services - 7.0%
127,000 Amgen, Inc.* .................................... 9,556,750
100,000 Columbia/HCA Healthcare ......................... 2,462,500
41,000 Johnson & Johnson ............................... 3,331,250
110,000 Wellpoint Health Networks, Inc.* ................ 9,026,875
------------
24,377,375
------------
Hotels/Gaming - 0.6%
130,000 Harrah's Entertainment* ......................... 2,023,125
------------
Housing - 4.2%
327,500 Champion Enterprises, Inc.* ..................... 7,307,344
148,300 USG Corp. ....................................... 7,331,581
------------
14,638,925
------------
Insurance - 6.0%
420,387 Conseco, Inc. ................................... 13,925,319
95,408 Exel Limited - Class A .......................... 7,167,526
------------
21,092,845
------------
8
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets November 30, 1998
(Unaudited)
Shares Market Value
- --------------------------------------------------------------------------------
COMMON STOCK (concluded)
Multi-Industry - 3.8%
164,000 American Standard Co, Inc.* ..................... $ 5,617,000
57,000 Loews Corporation ............................... 5,700,000
17,800 United Technologies Corp. ....................... 1,907,938
------------
13,224,938
------------
Retail - 1.9%
425,000 Kmart Corp.* .................................... 6,481,250
------------
Technology - 9.8%
257,500 Cognex Corp.* ................................... 4,264,844
86,000 International Business Machines Corp. ........... 14,190,000
490,300 Novell, Inc.* ................................... 8,120,594
34,000 Varian Associates, Inc. ......................... 1,345,125
59,500 Xerox Corp. ..................................... 6,396,250
------------
34,316,813
------------
Transportation - 3.0%
195,600 Canadian National Railway Company ............... 10,562,400
------------
Utilities - Telephone - 2.9%
174,146 MCI Worldcom, Inc.* ............................. 10,274,614
------------
Total Common Stock
(Cost $215,718,188)........................................... 319,084,714
------------
9
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) November 30, 1998
(Unaudited)
Shares Market Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 8.4%
29,507,000 Goldman Sachs & Co.,
Dated 11/30/98, to be repurchased on
12/01/98, collateralized by
U.S. Treasury Bonds with a
market value of $30,097,398.57
(Cost $29,507,000) .......................... $ 29,507,000
------------
Total Investments--99.6%
(Cost $245,225,188)** ..................................... 348,591,714
Other Assets in Excess of Liabilities--0.4% .................. 1,505,513
------------
Net Assets--100.0% ........................................... $350,097,227
============
Net Asset Value and Redemption Price Per:
Class A Share
($217,737,793 divided by 10,047,277 shares)............. $21.67
======
Class B Share
($39,633,276 divided by 1,849,979 shares)............... $21.42***
======
Class C Share
($18,868 divided by 881 shares)......................... $21.41****
======
Institutional Share
($92,707,289 divided by 4,269,695 shares)............... $21.71
======
Maximum Offering Price Per:
Class A Share
($21.67 divided by 0.955) .............................. $22.69
======
Class B Share.............................................. $21.42
======
Class C Share.............................................. $21.41
======
Institutional Share........................................ $21.71
======
- ----------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
*** Redemption value is $20.56 following a 4% maximum contingent deferred sales
charge.
**** Redemption value is $21.20 following a 1% maximum contingent
deferred sales charge.
See Notes to Financial Statements.
10
<PAGE>
This page intentionally left blank.
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
six months Ended
November 30,
- --------------------------------------------------------------------------------
1998(1)
----------
Investment Income:
Dividends (less foreign tax expense of $9,069) $ 1,510,108
Interest 400,833
----------
Total income 1,910,941
----------
Expenses:
Investment advisory fee 1,263,576
Distribution fee 420,669
Transfer agent fee 80,133
Professional fees 48,549
Accounting fee 43,641
Registration fees 20,240
Custodian fee 19,316
Directors' fees 5,494
Miscellaneous 754
----------
Total expenses 1,902,372
----------
Net investment income 8,569
----------
Realized and unrealized gain/(loss) on investments:
Net realized loss from security transactions (3,310,288)
Change in unrealized appreciation/depreciation
of investments 9,769,983
----------
Net gain on investments 6,459,695
----------
Net increase in net assets resulting from operations $ 6,468,264
==========
- ----------
(1) Unaudited.
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the six For the
months Ended Year Ended
November 30, May 31,
- --------------------------------------------------------------------------------
1998(1) 1998
----------- ------------
Increase in Net Assets:
Operations:
Net investment income $ 8,569 $ 713,905
Net realized gain/(loss) from security
transactions (3,310,288) 5,232,557
Change in unrealized appreciation/
depreciation of investments 9,769,983 54,454,890
----------- ------------
Net increase in net assets resulting
from operations 6,468,264 60,401,352
----------- ------------
Distributions to Shareholders from:
Net investment income and short-term gains:
Class A Shares (283,680) (752,668)
Class B Shares -- (42,361)
Institutional Shares (177,565) (517,867)
Net realized long-term and mid-term gains:
Class A Shares -- (1,489,329)
Class B Shares -- (268,284)
Institutional Shares -- (755,157)
----------- ------------
Total distributions (461,245) (3,825,666)
----------- ------------
Capital Share Transactions:
Proceeds from sale of shares 48,080,461 123,536,819
Value of shares issued in
reinvestment of dividends 305,121 3,468,071
Cost of shares repurchased (34,082,074) (24,608,945)
----------- ------------
Increase in net assets derived from
capital share transactions 14,303,508 102,395,945
----------- ------------
Total increase in net assets 20,310,527 158,971,631
Net Assets:
Beginning of period 329,786,700 170,815,069
----------- ------------
End of period (including undistributed
net investment (loss)/income of
($396,951) and $55,727, respectively) $350,097,227 $329,786,700
============ ============
- ----------
(1) Unaudited.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
November 30,
- --------------------------------------------------------------------------------
1998(1)
----------
Per Share Operating Performance:
Net asset value at beginning of period $ 21.29
--------
Income from Investment Operations:
Net investment income --
Net realized and unrealized gain on investments 0.41
--------
Total from Investment Operations 0.41
Less Distributions:
Net investment income and short-term gains (0.03)
Net realized mid-term and long-term gains --
--------
Total distributions (0.03)
--------
Net asset value at end of period $ 21.67
========
Total Return(3) 1.93%
Ratios to Average Daily Net Assets:
Expenses(4) 1.20%(6)
Net investment income(5) 0.02%(6)
Supplemental Data:
Net assets at end of period (000) $217,738
Portfolio turnover rate 8.64%
- ------------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) 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.
(5) 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.
(6) Annualized.
14
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------------------------------------------------
For the Period
Feb. 13, 1995(2)
For the Year Ended May 31, through May 31,
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997 1996 1995
-------- -------- ------- -------
Per Share Operating Performance:
Net asset value at beginning of period $ 16.93 $ 13.09 $ 10.77 $ 10.00
-------- -------- ------- -------
Income from Investment Operations:
Net investment income 0.05 0.08 0.17 0.12
Net realized and unrealized gain on investments 4.60 3.96 2.29 0.65
-------- -------- ------- -------
Total from Investment Operations 4.65 4.04 2.46 0.77
Less Distributions:
Net investment income and short-term gains (0.10) (0.13) (0.14) --
Net realized mid-term and long-term gains (0.19) (0.07) -- --
-------- -------- ------- -------
Total distributions (0.29) (0.20) (0.14) --
-------- -------- ------- -------
Net asset value at end of period $ 21.29 $ 16.93 $ 13.09 $ 10.77
======== ======== ======= =======
Total Return(3) 27.76% 31.17% 23.05% 7.70%
Ratios to Average Daily Net Assets:
Expenses(4) 1.24% 1.35% 1.35% 1.35%(6)
Net investment income(5) 0.29% 0.61% 1.52% 3.74%(6)
Supplemental Data:
Net assets at end of period (000) $198,387 $113,030 $64,230 $38,612
Portfolio turnover rate 7.94% 17.60% 0.73% --
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
For the Six
Months Ended
November 30,
- --------------------------------------------------------------------------------
1998(1)
--------
Per Share Operating Performance:
Net asset value at beginning of period $ 21.10
-------
Income from Investment Operations:
Net investment income/
(expenses in excess of income) (0.07)
Net realized and unrealized gain on
investments 0.39
-------
Total from Investment Operations 0.32
Less Distributions:
Net investment income and
net realized short-term gains --
Net realized mid-term and
long-term gains --
-------
Total distributions --
-------
Net asset value end of period $ 21.42
=======
Total Return(3) 1.52%
Ratios to Average Daily Net Assets:
Expenses(4) 1.95 (6)
Net investment income/(expenses in excess of income)(5) (0.73)(6)
Supplemental Data:
Net assets at end of period (000) $39,633
Portfolio turnover rate 8.64%
- ---------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) 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.
(5) Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been (0.28)%, 0.29% and (0.15%)
(annualized) for the years ended May 31, 1997 and 1996, and for the period
ended May 31, 1995, respectively.
(6) Annualized.
16
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS EQUITY PARTNERS FUND
- -------------------------------------------------------------------------------------------------------------------
For the Period
Feb. 13, 1995(2)
For the Year Ended May 31, through May 31,
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 1997 1996 1995
------- ------- ------ ------
Per Share Operating Performance:
Net asset value at beginning of period $ 16.84 $ 13.03 $10.75 $10.00
------- ------- ------ ------
Income from Investment Operations:
Net investment income/
(expenses in excess of income) (0.06) (0.04) 0.07 0.07
Net realized and unrealized gain on
investments 4.54 3.96 2.31 0.68
------- ------ ----- ------
Total from Investment Operations 4.48 3.92 2.38 0.75
Less Distributions:
Net investment income and
net realized short-term gains (0.03) (0.04) (0.10) --
Net realized mid-term and
long-term gains (0.19) (0.07) -- --
------- ------ ----- ------
Total distributions (0.22) (0.11) (0.10) --
------- ------ ----- ------
Net asset value end of period $ 21.10 $ 16.84 $13.03 $10.75
======= ======= ====== ======
Total Return(3) 26.81% 30.28% 22.17% 7.50%
Ratios to Average Daily Net Assets:
Expenses(4) 1.98% 2.10% 2.10% 2.10%(6)
Net investment income/(expenses in excess of income)(5) (0.47)% (0.16)% 0.71% 1.97%(6)
Supplemental Data:
Net assets at end of period (000) $37,046 $15,670 $5,302 $2,159
Portfolio turnover rate 7.94% 17.60% 0.73% --
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
FLAG INVESTORS PARTNERS FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class C Shares
(For a share outstanding throughout each period)
For the Period
Oct. 28, 1998(1)
through
November 30,
- --------------------------------------------------------------------------------
1998(2)
-------
Per Share Operating Performance:
Net asset value at beginning of period $ 19.09
-------
Income from Investment Operations:
Net investment loss (0.01)
Net realized and unrealized gain on investments 2.33
-------
Total from Investment Operations 2.32
Less Distributions:
Net investment income and short-term gains --
Net realized mid-term and long-term gains --
-------
Total distributions --
-------
Net asset value at end of period $ 21.41
=======
Total Return 12.15%
Ratios to Average Daily Net Assets:
Expenses 1.95%(3)
Net investment income (0.74)%(3)
Supplemental Data:
Net assets at end of period (000) $ 19
Portfolio turnover rate 8.64%
- ------------
(1) Commencement of operations.
(2) Unaudited.
(3) Annualized.
See Notes to Financial Statements.
18
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS EQUITY PARTNERS FUND
- ----------------------------------------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
For the Period
For the Six For the Feb. 12, 1996(2)
Months Ended Year Ended through
November 30, May 31, May 31,
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998(1) 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 0.03 0.10 0.14 0.04
Net realized and unrealized
gain on investments 0.40 4.59 3.95 0.34
------ ------ ------- ------
Total from Investment Operations 0.43 4.69 4.09 0.38
Less Distributions:
Net investment income and short-term gains (0.04) (0.14) (0.18) --
Net realized mid-term and long-term gains -- (0.19) (0.07) --
------ ------ ------- ------
Total Distributions (0.04) (0.33) (0.25) --
------ ------ ------- ------
Net asset value at end of period $ 21.71 $ 21.32 $ 16.94 $13.10
====== ====== ======= ======
Total Return 2.02% 28.14% 31.58% 3.23%
Ratios to Average Daily Net Assets:
Expenses(3) 0.95%(5) 0.98% 1.10% 1.10%(5)
Net investment income(4) 0.27%(5) 0.54% 0.81% 1.20%(5)
Supplemental Data:
Net assets at end of period (000) $92,707 $94,354 $42,115 $4,235
Portfolio turnover rate 8.64% 7.94% 17.60% 0.73%
</TABLE>
- ------------
(1) Unaudited
(2) Commencement of operations.
(3) 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.
(4) 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.
(5) Annualized.
See Notes to Financial Statements.
19
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
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 four share classes: Class A Shares and Class B Shares,
which both commenced February 13, 1995, Class C Shares which commenced October
22, 1998 and Institutional Shares, which commenced 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. The
Institutional Shares have neither a front-end sales charge nor a contingent
deferred sales charge. 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 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.
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
20
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 1 -- concluded
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.
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 ICCan 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.
21
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 2 -- continued
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 and Class
C 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, 1998.
For the six-month period ended November 30, 1998 ICC's advisory fee was
$1,263,576 of which $219,845 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 six-month period ended November 30, 1998,
ICC's fee was $43,641 of which $7,426 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
six-month period ended November 30, 1998, ICC's fee was $80,133 of which $22,500
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 that is calculated
daily and paid monthly based on the Fund's average daily net assets. For the
six-month period ended November 30, 1998, Bankers Trust's fee was $19,316 of
which $7,525 was payable at the end of the period. Prior to September 22, 1997
PNC Bank was the Fund's custodian.
Certain officers and directors of the Fund are also officers or directors
of ICC.
Alex.Brown Investment Management ("ABIM") is the Fund's sub-advisor. As
compensation for its subadvisory services, ICCpays 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 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
expense for the six-month period ended November 30, 1998 amounted to $240,485,
$180,165, and $19 for Class A, Class B, and Class C Shares, respectively. Prior
to September 1,
22
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 2 -- concluded
1997, Alex. Brown & Sons Incorporated served as the Fund's distributor for the
same compensation and on substantially the same terms as ICC Distributors.
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, 1998 was $840, and the accrued liability was $7,307.
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 Six For the
Months Ended Year Ended
Nov. 30, 1998(1) May 31, 1998
---------------- ------------
Shares sold 1,340,316 3,375,853
Shares issued to shareholders on
reinvestment of dividends 10,993 117,061
Shares redeemed (657,279) (852,542)
------------ ------------
Net increase in shares outstanding 694,030 2,640,372
============ ============
Proceeds from sale of shares $ 27,548,305 $ 66,318,519
Value of reinvested dividends 237,556 2,136,952
Cost of shares redeemed (12,797,799) (16,794,448)
------------ ------------
Net increase from capital share
transactions $ 14,988,062 $ 51,661,023
============ ============
Class B Shares
---------------------------------
For the Six For the
Months Ended Year Ended
Nov. 30, 1998(1) May 31, 1998
---------------- ------------
Shares sold 224,570 860,902
Shares issued to shareholders on
reinvestment of dividends -- 16,617
Shares redeemed (130,033) (52,451)
----------- ------------
Net increase in shares outstanding 94,537 825,068
=========== ============
Proceeds from sale of shares $ 4,463,906 $ 16,336,267
Value of reinvested dividends -- 302,586
Cost of shares redeemed (2,507,918) (1,036,796)
----------- ------------
Net increase from capital share
transactions $ 1,955,988 $ 15,602,057
============ ============
- ----------
(1) Unaudited.
23
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 3 -- concluded
Class C Shares
----------------
For the Period
Oct. 28, 1998(1)
through
Nov. 30, 1998(2)
----------------
Shares sold 881
Shares issued to shareholders on
reinvestment of dividends --
Shares redeemed --
-------
Net increase in shares
outstanding 881
=======
Proceeds from sale of shares $17,000
Value of reinvested dividends --
Cost of shares redeemed --
-------
Net increase from capital share
transactions $17,000
=======
Institutional Shares
---------------------------------
For the Six For the
Months Ended Year Ended
Nov. 30, 1998(2) May 31, 1998
---------------- ------------
Shares sold 833,224 2,238,106
Shares issued to shareholders on
reinvestment of dividends 3,125 56,263
Shares redeemed (991,634) (353,873)
------------ ------------
Net increase/(decrease) in shares
outstanding (155,285) 1,940,496
============ ============
Proceeds from sale of shares $ 16,051,250 $ 40,882,033
Value of reinvested dividends 67,565 1,028,533
Cost of shares redeemed (18,776,357) (6,777,701)
------------ ------------
Net increase/(decrease) from capital
share transactions $ (2,657,542) $ 35,132,865
============ ============
- -----------
(1) Commencement of operations.
(2) Unaudited
24
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
At November 30, 1998, the amounts payable for fund shares redeemed amounted
to $311,565, of which $262,665 were attributable to the Class A Shares, $13,714
were attributable to the Class B Shares and $35,186 were attributable to the
Institutional Class Shares.
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $25,689,131 and sales of investment securities aggregated $27,876,619
for the six months ended November 30, 1998.
On November 30, 1998, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $118,758,384
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $15,391,858.
NOTE 5 -- Net Assets
On November 30, 1998, net assets consisted of:
Paid-in capital:
Class A Shares ......................................... $146,875,231
Class B Shares ......................................... 30,000,700
Class C Shares ......................................... 17,000
Institutional Shares ................................... 69,099,798
Accumulated net realized gain from security transactions .. 1,134,923
Unrealized appreciation of investments .................... 103,366,526
Undistributed net investment income ....................... (396,951)
------------
$350,097,227
============
25
<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
JOSEPH R. HARDIMAN AMY M. OLMERT
Director Secretary
LOUIS E. LEVY JOSEPH A. FINELLI
Director Treasurer
EUGENE J. MCDONALD SCOTT J. LIOTTA
Director Assistant Secretary
REBECCA W. RIMMEL
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.
26
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<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
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Specialty
Flag Investors Real Estate Securities Fund
Flag Investors Communications 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
Flag Investors Managed Municipal Fund Shares
Money Market
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
EPSA
