[Flag Investors logo omitted]
EQUITY PARTNERS
FUND
Annual Report
May 31, 2000
<PAGE>
REPORT HIGHLIGHTS
--------------------------------------------------------------------------------
o The Fund produced disappointing results for the six- and twelve-month
periods ended May 31, 2000. Market dynamics over the past year favored
momentum investing particularly in technology stocks, at the expense of
value investing, which the fund emphasizes.
o In recent months, a broadening out of the market has begun, benefiting
value-oriented sectors. The Fund has outperformed the stock market in the
past three months and is well positioned to benefit from an ongoing
recovery in the value sector of the market. Lower technology sector
valuations may present us an opportunity to invest in technology companies
at more reasonable values than existed during the technology stock mania.
o We believe the Fund has strong recovery potential. Most of the companies
owned have performed significantly better than their stock prices. Their
ongoing strength and growth should be reflected in rising stock prices over
time.
<PAGE>
FUND PERFORMANCE
--------------------------------------------------------------------------------
Growth of a $10,000 Investment in Class A Shares 1
February 13, 1995 -- May 31, 2000
$10,000 invested in the Equity Partners Fund Class A Shares at inception on
February 13, 1995 was worth $23,459 on May 31, 2000
[graphic omitted]
plot points as follows:
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
11/99 24645
Cumulative Total Return Performance 1
Class A Class B Class C Institutional
Periods ended 5/31/00 Shares Shares Shares Shares
--------------------------------------------------------------------------------
6 Months (4.81)% (5.18)% (5.14)% (4.66)%
--------------------------------------------------------------------------------
12 Months (13.63)% (14.29)% (14.22)% (13.39)%
--------------------------------------------------------------------------------
Since Inception 2/13/95 2/13/95 10/28/98 2/14/96
134.59% 125.74% 14.99% 84.77%
--------------------------------------------------------------------------------
-------
1 PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RESULTS. The Fund's investment
return and principal value will fluctuate so that upon redemption shares may
be worth more or less than their original cost. These figures assume the
reinvestment of dividends and capital gain distributions and exclude the
impact of any sales charge. Please review the Additional Performance
Information on page 6. 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.
1
<PAGE>
LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------
Fellow Shareholders:
We are pleased to report on the progress of your Fund for the fiscal year
ended May 31, 2000.
PERFORMANCE
The Fund's Class A Shares produced a total return of -4.8% and -13.6% for
the six- and twelve-month periods ended May 31, 2000, respectively. This
performance is disappointing.
The Fund had a relatively small position in the technology sector, which
performed so strongly throughout most of the past twelve months. The pricing in
technology stocks was too extreme for us to justify investing in the sector,
given our long-standing emphasis on value. In recent months, growing recognition
of the over-valuation in this sector has led to declines in many of these
stocks.
The Fund's heaviest concentration was in financial stocks. We like these
stocks very much on a long-term basis, but many of them underperformed over the
past year as interest rates rose. They have begun to perform better recently as
value-oriented sectors have begun to recover. A perception that the Federal
Reserve Board may have completed most of its interest rate tightening is helping
the performance of this sector in particular.
One of the well-known sayings in our business is that "change is the
investor's only certainty." We are reminded of that now. One year ago we were
reporting very strong performance that exceeded the market and received a 5-star
rating from Morningstar.1 Market dynamics changed considerably over the past
year to favor momentum investing at the expense of value investing and our
results were disappointing. We believe that as more investors begin to
appreciate the price risk in technology stocks, the pendulum may continue
shifting to more value-oriented sectors. There is evidence this may have begun,
as the Fund has outperformed the stock market in the past three months.
----------------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Morningstar proprietary
ratings reflect historical risk-adjusted performance. The ratings are subject to
change every month. 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 Treasury bill returns. The Flag Investors
Equity Partners Fund received 2 stars and 5 stars as of 5/31/00 and 5/31/99 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, the next 35% receive 3
stars, the next 22.5% receive 2 stars, and the next 10% receive 1 star. Ratings
are for Class A Shares; other classes may vary. In the domestic equity funds
category, the Fund was rated among 3,627 funds as of 5/31/00 and 3,012 funds as
of 5/31/99. As of 6/30/00, the Fund was rated 2 stars out of 3,642 domestic
equity funds and 3 stars out of 2,328 domestic equity funds for the 3 year and 5
year periods, respectively.
2
<PAGE>
--------------------------------------------------------------------------------
The largest positive and negative contributors to net asset value over the
past year are shown in the following table.
Contributions to Net Asset Value Performance
(For the 12 months ended 5/31/00)
Five Best Contributors Gain Per Share Five Worst Contributors Loss Per
Share
--------------------------------------------------------------------------------
Amgen, Inc. 1 $0.57 Conseco, Inc. ($1.08)
--------------------------------------------------------------------------------
TycoInternational Ltd. $0.35 Mattel, Inc. ($0.67)
--------------------------------------------------------------------------------
Citigroup, Inc. $0.26 Champion Enterprises, ($0.41)
Inc.
--------------------------------------------------------------------------------
Georgia Gulf Corp. 1 $0.17 Novell, Inc. ($0.40)
--------------------------------------------------------------------------------
American Express Co. $0.13 Xerox Corp. ($0.36)
--------------------------------------------------------------------------------
--------------
1 These securities were not held in the portfolio at year end.
The two strongest contributors, Amgen and Tyco International illustrate how
our flexible value investment philosophy works. We attempt to buy well-managed,
strong companies when their stocks are undervalued on a long-term basis due to
short-term problems or concerns. Amgen is a leading growth company in the
biotechnology industry. We purchased it three years ago when the stock was
temporarily out of favor due to concerns about its products and its pipeline of
new drugs. Those concerns have now been replaced by optimism and the stock has
quintupled over the three years. We took advantage of the stock's current
popularity and eliminated our position.
Tyco International is a well-managed conglomerate with leading businesses
in medical supplies, telecommunications and security systems. Last year we
identified the company as one we would like to own but felt the price was too
high to meet our value criteria. Subsequently, an accounting controversy caused
the stock to lose half its value in a matter of weeks. At that time we felt
there was clear long-term value in the stock and we purchased it. Within a few
months, the controversy had subsided and the stock doubled.
In the case of the two worst contributors, Conseco and Mattel, we relearned
a painful lesson, namely the importance of selling a company with deteriorating
business fundamentals. Conseco made an ill-fated acquisition of Green Tree
Financial two years ago. We had concerns about the acquisition at the time. As
problems related to the acquisition began to appear, the stock steadily declined
but appeared to be good value. This "value trap" caused us to hold the stock as
it declined when selling would have clearly been wiser.
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
--------------------------------------------------------------------------------
We became owners of Mattel when it acquired The Learning Company, which had
been a very successful investment for the Fund. Mattel was experiencing some
problems at the time and these problems grew after the acquisition. As in the
case of Conseco, we held the stock because it appeared to be undervalued and
ultimately gave up the gains realized through The Learning Company. We recently
eliminated the stock.
INVESTMENT ENVIRONMENT
The "casino mentality," cited by former and current Federal Reserve
chairmen Paul Volker and Alan Greenspan, drove the equity market for much of the
past year. The dramatic difference in performance by various sectors was so
abnormal that it was impossible to talk in general terms about "the stock
market;" for most of the year, there were two stock markets. Value stocks, or
Old Economy stocks in the language of the financial press, declined. At the same
time, the NASDAQ, heavily weighted in New Economy technology, Internet and
telecommunications stocks, prospered. We believe that it is overly simplistic to
view the financial world in Old Economy/New Economy terms. Many of the Old
Economy companies will continue to thrive and play an important role in the New
Economy, while many of the New Economy stocks will ultimately disappear as
competition intensifies, or will disappoint investors if ambitious expectations
are not met.
In recent months, a broadening out of the market has begun. Money has begun
to flow out of technology towards more value-oriented sectors. Whereas many
technology investors had been chasing growth at any price, more investors are
now focusing on what is a reasonable price to pay. This is resulting in a
burn-off in the excessive valuations that were reached in the technology sector.
Those of us who are more value or price conscious would characterize this as the
beginning of a return to rationality.
The other significant factor affecting the market is the direction of
interest rates and Fed policy. Until recently, the economy has been extremely
strong, to the point where the Fed was sufficiently concerned about inflationary
pressures to keep rates steadily rising. There have recently been indications
that the economy has finally started to slow down. This raises the prospect that
the Fed may be able to stop raising rates sooner than investors were expecting,
which would be a positive for the market.
PORTFOLIO STRATEGY
Our flexible value investment philosophy is geared more to individual stock
selection than broad strategies. We focus on undervalued companies with strong
financial characteristics and shareholder-oriented managements. At the time of
purchase, these stocks are often down in price or out of favor in the market.
4
<PAGE>
--------------------------------------------------------------------------------
As a result of our approach, we believe the portfolio is well positioned to
benefit from a recovery in the value sector of the market, particularly
financial stocks. In addition, the current burn-off in the technology sector's
valuations may present us an opportunity to invest in several technology
companies at much more reasonable prices than existed during the technology
stock mania. We are currently focusing on that possible opportunity and devoting
analytical resources to prepare for it.
We do not practice market timing in the management of the Fund. Our goal is
to have 90-100% of the Fund in equities at most times. The cash percentage was
4.7% at the beginning of the past six-month period and 5.7% at the end.
The five largest holdings are shown in the following table.
Five Largest Equity Holdings
Security Cost Market Value 5/31/00
--------------------------------------------------------------------------------
Blyth Industries, Inc. $22,373,301 $24,084,287
--------------------------------------------------------------------------------
America Online,Inc. $ 720,417 $22,843,000
--------------------------------------------------------------------------------
Ford Motor Co. $13,557,706 $19,425,000
Canadian National Railway Co. $15,280,556 $18,221,775
International Business Machines $ 5,392,676 $17,384,625
Corp.
--------------------------------------------------------------------------------
CLOSING
In the five-year history of the Equity Partners Fund there have been two
periods of negative performance. The first was the bear market in the summer of
1998. The Fund's net asset value declined 27% from the peak to the trough during
those three months. Shareholders who kept a long-term perspective and stayed the
course were rewarded with a recovery of 67% over the next nine months.
The second negative period ran from July of last year through March of this
year. The Fund's net asset value declined 28% during that eight-month period and
has recovered modestly in the past few months. As in 1998, we believe it is wise
to stay the course for the long term. It is important to understand that the
Fund's companies are, with certain exceptions, strong and growing and have
performed significantly better than their stock prices during the eight-month
decline. We believe that their fundamental business strength and growth will
once again be reflected in rising stock prices over the longer term.
We always like to remind shareholders that 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
June 30, 2000
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. 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 fiscal year.
Both the line graph and the SEC standardized total return figures include
the impact of the 5.50% maximum initial sales charge for the Class A Shares and
the 5.00% and 1.00% contingent deferred sales charge applicable to the specified
time period for the Class B and Class C Shares, respectively. 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 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.
6
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONTINUED)
Change in Value of a $10,000 Investment in Class A Shares 1
February 13, 1995-May 31, 2000
[graphic omitted]
plot points as follows
Flag S&P 91-Day
Investor A
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
5/00 22169 32012 13170
Average Annual Total Return 1
Periods Ended 5/31/00 1 Year 5 Years Since Inception 2
--------------------------------------------------------------------------------
Class A Shares (18.38)% 15.53% 16.22%
--------------------------------------------------------------------------------
--------------
1 PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RESULTS. These figures assume
the reinvestment of dividends and capital gain distributions and include the
Fund's applicable sales charge. Investment return and principal value will
fluctuate so that upon redemption an investor's shares may be worth more or
less than their original cost. The indices listed above are unmanaged and are
widely recognized as indicators of the performance in their respective
sectors. The S&P 500 Index 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.
3 The 90-Day U.S. Treasury Bill performance figures are based on the Merrill
Lynch 3 Month Treasury Index.
7
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONTINUED)
Change in Value of a $10,000 Investment in Class B Shares 1
February 13, 1995-May 31, 2000
Flag Investor S&P 91-Day
2/95 9550 10000 10000
5/95 10285 11022 10150
5/96 12656 14156 10721
5/97 16601 18320 11308
5/98 21209 23941 11899
5/99 27938 28974 12448
5/00 22348 32012 13170
Average Annual Total Return 1
Periods Ended 5/31/00 1 Year 5 Years Since Inception 2
--------------------------------------------------------------------------------
Class B Shares (18.58)% 15.53% 16.40%
--------------------------------------------------------------------------------
------------------
1 PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RESULTS. These figures assume
the reinvestment of dividends and capital gain distributions and include the
Fund's applicable sales charge. Investment return and principal value will
fluctuate so that upon redemption an investor's shares may be worth more or
less than their original cost. The indices listed above are unmanaged and are
widely recognized as indicators of the performance in their respective
sectors. The S&P 500 Index 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.
3 The 90-Day U.S. Treasury Bill performance figures are based on the Merrill
Lynch 3 Month Treasury Index.
8
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONTINUED)
Change in Value of a $10,000 Investment in Class C Shares 1
October 28, 1998-May 31, 2000
[graphic omitted]
plot points as follows:
Flag Investor S&P 91-Day
10/98 10000 10000 10000
11/98 11215 10607 10037
5/99 13406 11943 10260
Average Annual Total Return 1
Periods Ended 5/31/00 1 Year 5 Years Since Inception 2
--------------------------------------------------------------------------------
Class C Shares (15.08)% N/A 9.17%
--------------------------------------------------------------------------------
------------------------
1 PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RESULTS. These figures assume
the reinvestment of dividends and capital gain distributions and include the
Fund's applicable sales charge. Investment return and principal value will
fluctuate so that upon redemption an investor's shares may be worth more or
less than their original cost. The indices listed above are unmanaged and are
widely recognized as indicators of the performance in their respective
sectors. The S&P 500 Index is an indicator of general market performance and
the 90-Day U.S. Treasury Bill is a measure of short-term interest rates.
2 October 28, 1998.
3 The 90-Day U.S. Treasury Bill performance figures are based on the Merrill
Lynch 3 Month Treasury Index.
9
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
ADDITIONAL PERFORMANCE INFORMATION (CONCLUDED)
Change in Value of a $10,000 Investment in Institutional Shares 1
February 14, 1996-May 31, 2000
[graphic omitted]
plot points as follows:
Flag Class B S&P 500
Equity 90-Day
2/96 9900 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 21335 21510 11756
11/99 19380 23099 12081
5/00 18447 23765 12437
Average Annual Total Return 1
Periods Ended 5/31/00 1 Year 5 Years Since Inception 2
--------------------------------------------------------------------------------
Institutional Shares (13.39)% N/A 15.37%
--------------------------------------------------------------------------------
-----------------
1 PAST PERFORMANCE IS NOT AN INDICATOR OF FUTURE RESULTS. These figures assume
the reinvestment of dividends and capital gain distributions. Investment
return and principal value will fluctuate so that upon redemption an
investor's shares may be worth more or less than their original cost. The
indices listed above are unmanaged and are widely recognized as indicators of
the performance in their respective sectors. The S&P 500 Index 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 14, 1996.
3 The 90-Day U.S. Treasury Bill performance figures are based on the Merrill
Lynch 3 Month Treasury Index.
10
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS MAY 31, 2000
Shares Market Value
--------------------------------------------------------------------------------
Common Stock -- 94.3%
BANKING -- 2.4%
195,000 Wells Fargo Co. ................................. $ 8,823,750
-----------
BASIC MATERIALS -- 1.5%
148,300 USG Corp. ....................................... 5,589,056
-----------
CAPITAL GOODS & INDUSTRIAL -- 10.3%
739,000 Allied Waste Industries, Inc. 1 ................. 7,528,562
289,000 American Standard Companies, Inc. 1 ............. 13,348,188
314,900 Tyco International Ltd. ......................... 14,819,981
35,600 United Technologies Corp. ....................... 2,151,575
-----------
37,848,306
-----------
COMMUNICATIONS SERVICES -- 4.7%
16,600 ALLTEL Corp. .................................... 1,086,263
150,000 Qwest Communications International, Inc. 1 ...... 6,346,875
261,219 Worldcom, Inc. 1 ................................ 9,828,365
-----------
17,261,503
-----------
CONSUMER STAPLES -- 11.6%
887,900 Blyth Industries, Inc. .......................... 24,084,287
177,000 Cardinal Health, Inc. ........................... 11,482,875
97,500 Philip Morris Companies, Inc. ................... 2,547,187
429,300 WestPoint Stevens, Inc. ......................... 4,373,494
-----------
42,487,843
-----------
CONSUMER CYCLICAL -- 13.8%
853,950 Cendant Corp. 1 ................................. 11,314,837
400,000 Ford Motor Co. .................................. 19,425,000
50,000 Gannett Company, Inc. ........................... 3,237,500
530,000 Harrah's Entertainment, Inc. 1 .................. 10,467,500
452,160 Mattel, Inc. .................................... 6,132,420
-----------
50,577,257
-----------
CONSUMER HEALTHCARE -- 3.0%
150,000 Wellpoint Health Networks, Inc. 1 ............... 10,893,750
11
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 2000
Shares Market Value
--------------------------------------------------------------------------------
Common Stock (concluded)
FINANCIAL SERVICES -- 16.3%
144,600 American Express Co. ............................ $ 7,781,288
131,042 Associates First Capital Corp. -- Class A ....... 3,595,465
272,250 Citigroup, Inc. ................................. 16,930,547
396,800 Countrywide Credit Industries, Inc. ............. 12,201,600
217,000 Freddie Mac ..................................... 9,656,500
1,000,000 Host Marriott Corp. ............................. 9,625,000
------------
59,790,400
------------
INSURANCE -- 10.4%
6,800 Berkshire Hathaway -- Class B 1 ................. 12,824,800
846,387 Conseco, Inc. ................................... 5,289,919
57,000 Loews Corp. ..................................... 3,754,875
273,908 XL Capital Limited -- Class A ................... 16,297,526
------------
38,167,120
------------
TECHNOLOGY -- 15.3%
431,000 America Online, Inc.1 ........................... 22,843,000
90,000 First Data Corp.................................. 5,045,625
162,000 International Business Machines Corp. ........... 17,384,625
490,300 Novell, Inc.1 ................................... 4,075,619
106,000 Sabre Group Holdings, Inc. 1 .................... 3,047,500
139,600 Xerox Corp. ..................................... 3,786,650
------------
56,183,019
------------
TRANSPORTATION -- 5.0%
679,600 Canadian National Railway Co. ................... 18,221,775
------------
Total Common Stock
(Cost $274,439,223) ........................... 345,843,779
------------
12
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONCLUDED) MAY 31, 2000
Par (000) Market Value
--------------------------------------------------------------------------------
------------------------------
REPURCHASE AGREEMENT -- 2.4%
------------------------------
$8,874 Goldman Sachs & Co., Dated 5/31/00, 6.3% principal
and interest in the amount of $8,875,553 due 6/1/00,
collateralized by U.S. Treasury Bond with a par value
of $703,000, coupon rate of 12.0%, due 8/15/13, with
a market value of $956,945 and U.S. Treasury Bill
with a par value of $8,324,000,coupon rate of 0.0%,
due 11/9/00, with a market value of $8,095,508...... $ 8,874,000
------------
TOTAL INVESTMENTS
(Cost $283,313,223) 2 96.7% $354,717,779
OTHER ASSETS IN EXCESS OF LIABILITIES............... 3.3 12,104,315
----- ------------
NET ASSETS.......................................... 100.0% $366,822,094
===== ============
-----------
1 Non-income producing security.
2 Also aggregate cost for federal tax purposes.
13
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
May 31,
--------------------------------------------------------------------------------
2000
ASSETS
Investments, at Value (Cost $283,313,223) .................. $354,717,779
Cash ....................................................... 699
Collateral Under Security Loan Agreements .................. 15,505,348
Receivable for Shares of Beneficial Interest Subscribed .... 1,064,368
Receivable for Securities Sold ............................. 10,654,115
Dividend, Interest and Income Receivable ................... 1,338,889
Prepaid Expenses and Other ................................. 35,135
------------
TOTAL ASSETS .................................................. 383,316,333
------------
LIABILITIES
Payable for Collateral Under Security Loan Agreements ...... 15,505,348
Payable for Shares of Beneficial Interest Redeemed ......... 427,490
Accrued Expenses and Other ................................. 561,401
------------
TOTAL LIABILITIES ............................................. 16,494,239
------------
NET ASSETS .................................................... $366,822,094
============
COMPOSITION OF NET ASSETS
Paid-in Capital
Class A Shares ........................................... 150,461,616
Class B Shares ........................................... 33,158,492
Class C Shares ........................................... 7,785,240
Institutional Shares ..................................... 85,920,183
Accumulated Net Realized Gain from Investment Transactions . 16,706,148
Net Unrealized Appreciation on Investments ................. 71,404,556
Undistributed Net Investment Income ........................ 1,385,859
------------
NET ASSETS .................................................... $366,822,094
============
NET ASSET VALUE PER SHARE
Class A Share ($214,677,092 / 10,114,713 shares) ........... $ 21.22
============
Class B Share ($40,184,528 / 1,939,215 shares) ............. $ 20.72 1
============
CLASS C SHARE ($6,455,391 / 311,545 shares) ................ $ 20.72 2
============
Institutional Share ($105,505,083 / 4,941,710 shares) ...... $ 21.35
============
MAXIMUM OFFERING PRICE PER:
Class A Share ($21.22 / .945) 3 ............................ $ 22.46
============
Class B Share .............................................. $ 20.72
============
Class C Share .............................................. $ 20.72
============
Insitutional Share ......................................... $ 21.35
============
-----------
1 Redemption value is $19.68 following a 5% maximum contingent deferred sales
charge.
2 Redemption value is $20.51 following a 1% maximum contingent deferred sales
charge.
3 Maximum offering price for Class A represents the effect of the 5.5% front end
sales charge.
14
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
For the
Year Ended
May 31,
--------------------------------------------------------------------------------
2000
Investment Income:
Dividends .................................................. $ 5,651,546
Interest ................................................... 1,143,801
Less: Foreign taxes withheld ............................... (41,583)
------------
Total income ........................................ 6,753,764
------------
Expenses:
Investment advisory fee .................................... 3,363,312
Distribution fees
Class A .................................................. 650,333
Class B .................................................. 488,000
Class C .................................................. 68,239
Transfer agent fee ......................................... 173,404
Accounting fee ............................................. 105,155
Professional fees .......................................... 92,701
Printing and Shareholder Report fees ....................... 78,572
Registration fees .......................................... 64,001
Custodian fee .............................................. 57,981
Directors' fees ............................................ 11,479
Miscellaneous .............................................. 51,130
------------
Total expenses ...................................... 5,204,307
------------
Net investment income ...................................... 1,549,457
------------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions ............... 21,633,214
Net change in unrealized appreciation/(depreciation)
of investments ........................................... (88,551,635)
------------
Net loss on investments ............................. (66,918,421)
------------
Net decrease in net assets resulting from operations .......... $(65,368,964)
============
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
For the Years Ended May 31,
--------------------------------------------------------------------------------
2000 1999
Increase in Net Assets:
Operations:
Net investment income/(expenses
in excess of income) ...................... $ 1,549,457 $ (148,441)
Net realized gain from security transactions 21,633,214 14,945,270
Change in unrealized appreciation/
(depreciation) of investments ............. (88,551,635) 66,359,649
------------ ------------
Net increase/(decrease) in net assets
resulting from operations ................. (65,368,964) 81,156,478
------------ ------------
Distributions to Shareholders from:
Net investment income and net realized
short-term gains:
Class A Shares ............................ (349,896) (93,263)
Class B Shares ............................ (66,099) --
Class C Shares ............................ (10,359) --
Institutional Shares ...................... (152,038) (58,366)
Net realized long-term gains:
Class A Shares ............................ (11,546,564) (2,930,694)
Class B Shares ............................ (2,181,278) (498,363)
Class C Shares ............................ (352,597) (394)
Institutional Shares ...................... (5,017,234) (1,271,314)
------------ ------------
Total distributions .................... (19,676,065) (4,852,394)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares ................ 87,434,816 116,694,761
Value of shares issued in
reinvestment of dividends ................. 18,346,252 4,540,061
Cost of shares repurchased .................. (119,296,406) (61,943,145)
------------ ------------
Increase/(decrease) in net assets derived
from capital share transactions ........... (13,515,338) 59,291,677
------------ ------------
Total increase/(decrease) in net assets (98,560,367) 135,595,761
Net Assets:
Beginning of year ........................... 465,382,461 329,786,700
------------ ------------
End of year (including undistributed net
investment income of $1,385,859 and
distributions in excess of net investment
income of $(17,473), respectively) ........ $366,822,094 $465,382,461
============ ============
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
[This page intentionally left blank]
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the
Year Ended
May 31,
--------------------------------------------------------------------------------
2000
Per Share Operating Performance:
Net asset value at beginning of year ........................... $ 25.68
--------
Income from Investment Operations:
Net investment income/(expenses in excess of income) ........... 0.10
Net realized and unrealized gain/(loss) on investments ......... (3.54)
--------
Total from Investment Operations ............................... (3.44)
Less Distributions:
Net investment income and net realized short-term gains ........ (0.03)
Net realized long-term gains ................................... (0.99)
--------
Total distributions ............................................ (1.02)
--------
Net asset value at end of year ................................. $ 21.22
========
Total Return 1 .................................................... (13.63)%
Ratios to Average Daily Net Assets:
Expenses ....................................................... 1.18%
Net investment income/(expenses in excess of income) ........... 0.38%
Supplemental Data:
Net assets at end of year (000's) .............................. $214,677
Portfolio turnover rate ........................................ 32.37%
------------
1 Total return excludes the effect of sales charge.
2 Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 1.48% and 1.77% for the years ended May 31, 1997
and 1996, respectively.
3 Without the waiver of advisory fees, the ratio of net investment income to
average daily net assets would have been 0.48% and 1.10% for the years ended
May 31, 1997 and 1996, respectively.
18
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended May 31,
--------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year .................. $ 21.29 $ 16.93 $ 13.09 $ 10.77
------- -------- -------- -------
Income from Investment Operations:
Net investment income/(expenses in excess of income) .. (0.01) 0.05 0.08 0.17
Net realized and unrealized gain/(loss) on investments 4.70 4.60 3.96 2.29
------- -------- -------- -------
Total from Investment Operations ...................... 4.69 4.65 4.04 2.46
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 year ........................ $ 25.68 $ 21.29 $ 16.93 $ 13.09
======= ======== ======== =======
Total Return 1 ........................................... 22.31% 27.76% 31.17% 23.05%
Ratios to Average Daily Net Assets:
Expenses .............................................. 1.20% 1.24% 1.35% 2 1.35% 2
Net investment income/(expenses in excess of income) .. (0.02)% 0.29% 0.61% 3 1.52% 3
Supplemental Data:
Net assets at end of year (000's) ..................... $283,950 $198,387 $113,030 $64,230
Portfolio turnover rate ............................... 21.21% 7.94% 17.60% 0.73%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the
Year Ended
May 31,
--------------------------------------------------------------------------------
2000
Per Share Operating Performance:
Net asset value at beginning of year ........................... $ 25.29
-------
Income from Investment Operations:
Net investment income/(expenses in excess of income) ........... (0.09)
Net realized and unrealized gain/(loss) on
investments ................................................. (3.46)
-------
Total from Investment Operations ............................... (3.55)
Less Distributions:
Net investment income and net realized short-term gains ........ (0.03)
Net realized long-term gains ................................... (0.99)
-------
Total distributions ............................................ (1.02)
-------
Net asset value end of year .................................... $ 20.72
=======
Total Return 1 .................................................... (14.29)%
Ratios to Average Daily Net Assets:
Expenses ....................................................... 1.93%
Net investment income/(expenses in excess of income) ........... (0.37)%
Supplemental Data:
Net assets at end of year (000's) .............................. $40,185
Portfolio turnover rate ........................................ 32.37%
------------
1 Total return excludes the effect of sales charge.
2 Without the waiver of advisory fees, the ratio of expenses to average daily
net assets would have been 2.23% and 2.52% for the years ended May 31, 1997
and 1996, respectively.
3 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)% and 0.29% for the years ended May 31, 1997 and 1996,
respectively.
20
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended May 31,
--------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year ...................... $ 21.10 $ 16.84 $ 13.03 $10.75
------- ------- ------- ------
Income from Investment Operations:
Net investment income/(expenses in excess of income) ...... (0.14) (0.06) (0.04) 0.07
Net realized and unrealized gain/(loss) on
investments ............................................ 4.60 4.54 3.96 2.31
------- ------- ------- ------
Total from Investment Operations .......................... 4.46 4.48 3.92 2.38
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 year ............................... $ 25.29 $ 21.10 $ 16.84 $13.03
======= ======= ======= ======
Total Return 1 ............................................... 21.39% 26.81% 30.28% 22.17%
Ratios to Average Daily Net Assets:
Expenses .................................................. 1.95% 1.98% 2.10% 2 2.10% 2
Net investment income/(expenses in excess of income) ...... (0.77)% (0.47)% (0.16)% 3 0.71% 3
Supplemental Data:
Net assets at end of year (000's) ......................... $52,603 $37,046 $15,670 $5,302
Portfolio turnover rate ................................... 21.21% 7.94% 17.60% 0.73%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the Period
For the Oct. 28, 1998 1
Year Ended through
May 31, May 31,
--------------------------------------------------------------------------------
2000 1999
Per Share Operating Performance:
Net asset value at beginning of period .......... $25.27 $19.09
------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income/(expenses in excess
of income) .................................... (0.08) (0.03)
Net realized and unrealized gain/(loss) on
investments ............................... (3.45) 6.48
------ ------
Total from Investment Operations ................ (3.53) 6.45
Less Distributions:
Net investment income and net realized
short-term gains .............................. (0.03) --
Net realized long-term gains .................... (0.99) (0.27)
------ ------
Total distributions ............................. (1.02) (0.27)
------ ------
Net asset value at end of period ................ $20.72 $25.27
====== ======
Total Return 2 .................................. (14.22)% 34.06%
Ratios to Average Daily Net Assets:
Expenses ........................................ 1.93% 1.85% 3
Expenses in excess of income .................... (0.39)% (0.73)% 3
Supplemental Data:
Net assets at end of period (000's) ............. $6,455 $3,441
Portfolio turnover rate ......................... 32.37% 21.21%
------------
1 Commencement of operations.
2 Total return excludes the effect of sales charge.
3 Annualized.
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
For the
Year Ended
May 31,
--------------------------------------------------------------------------------
2000
Per Share Operating Performance:
Net asset value at beginning of period ........................ $ 25.75
--------
Income from Investment Operations:
Net investment income ......................................... 0.15
Net realized and unrealized gain/(loss) on investments ........ (3.53)
--------
Total from Investment Operations .............................. (3.38)
LESS DISTRIBUTIONS:
Net investment income and net realized short-term gains ....... (0.03)
Net realized long-term gains .................................. (0.99)
--------
Total Distributions ........................................... (1.02)
--------
Net asset value at end of period .............................. $ 21.35
========
Total Return ..................................................... (13.39)%
Ratios to Average Daily Net Assets:
Expenses ...................................................... 0.93%
Net investment income ......................................... 0.65%
Supplemental Data:
Net assets at end of period (000's) ........................... $105,505
Portfolio turnover rate ....................................... 32.37%
------------
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.
24
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
Feb. 14, 1996 1
through
For the Years Ended May 31, May 31,
------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
<S> <C> <C> <C> <C>
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/(loss) 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 .................................................. 0.95% 0.98% 1.10% 2 1.10% 2,4
Net investment income ..................................... 0.23% 0.54% 0.81% 3 1.20% 3,4
Supplemental Data:
Net assets at end of period (000's) ....................... $125,388 $94,354 $42,115 $4,235
Portfolio turnover rate ................................... 21.21% 7.94% 17.60% 0.73%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<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 in a diversified
portfolio of common stocks.
The Fund consists of four share classes: Class A Shares and Class B Shares,
both of which began operations February 13, 1995, Class C Shares which began
operations October 28, 1998 and Institutional Shares, which began operations
February 14, 1996.
The Class A, Class B, and Class C Shares are subject to different sales
charges. The Class A Shares have a 5.50% maximum front-end sales charge, the
Class B Shares have a 5.00% 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 have neither a front-end sales charge, a contingent deferred sales charge
nor a distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with accounting principles generally accepted in the
United States. 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 sales price
reported for the day. If there are no sales or the security is not
traded on an 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. At May 31, 2000 there were no securities
valued using fair valued procedures. The Fund values short-term
obligations with maturities of 60 days or less at amortized cost.
26
<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 seller agrees to repurchase at a set time and price.
The third party, which is the seller'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 seller defaults.
The Fund's access to the collateral may be delayed or limited if the
seller defaults and the value of the collateral declines or if the
seller enters into an insolvency proceeding.
C. FEDERAL INCOME TAXES -- The Fund determines its distributions according
to income tax regulations, which may be different from accounting
principles generally accepted in the United States. 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 securities 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. Income, gains 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, less foreign taxes withheld, if any, 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.
27
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
E. SECURITY LOANS -- The Fund receives compensation in the form of fees or
it retains a portion of interest on the investment of any cash received
as collateral. The Fund also continues to receive interest or dividends
on these securities loaned. The loans are secured by collateral at
least equal, at all times, to the fair value of the securities loaned
plus accrued interest. Gain or loss in the fair value of the securities
loaned that may occur during the term of the loan will be for the
accounts of the Fund.
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICCC"), a subsidiary of Deutsche Bank
AG, is the Fund's investment advisor. As compensation for its advisory services,
the Fund pays ICCCan 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, 2000, ICCC 's advisory fee was $3,363,312, of
which $247,578 was payable at May 31, 2000.
Alex.Brown Investment Management ("ABIM") is the Fund's sub-advisor. As
compensation for its subadvisory services, ICCCpays 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.
ICCC also provides accounting services to the Fund for which the Fund pays
ICCC 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, 2000, ICCC's fee was
$105,155, of which $8,111 was payable at May 31, 2000.
ICCC also provides transfer agent services to the Fund for which the Fund
pays ICCC a per account fee that is calculated and paid monthly. For the year
ended May 31, 2000, ICCC's fee was $173,404, of which $11,741 was payable at May
31, 2000.
28
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
NOTE 2 -- concluded
Bankers Trust Company, an affiliate of ICCC, provides custody services to
the Fund for which the Fund pays Bankers Trust an annual fee. For the year ended
May 31, 2000, Bankers Trust's fee was $57,981, of which $23,227 was payable at
May 31, 2000.
Certain officers and directors of the Fund are also officers or directors
of ICCC. These persons are not paid by the Portfolio for serving in these
capacities.
ICC Distributors, Inc. provides distribution services to the Fund for which
the Fund pays ICC Distributors an annual fee, pursuant to rule 12b-1, 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 fees for the year ended
May 31, 2000 amounted to $650,333, $488,000, and $68,239 for Class A, Class B,
and Class C Shares, respectively, of which $45,817, $34,591 and $5,607,
respectively, was payable at May 31, 2000.
The Fund used cash collateral from its securities lending transactions
described in Note 1,E, to purchase shares of an affiliated fund and may pay fees
generated from those transactions to Bankers Trust.
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, 2000 was $18,141, and the accrued liability was $24,620.
29
<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 were as follows:
Class A Shares
------------------------------------
For the For the
Year Ended Year Ended
May 31, 2000 May 31, 1999
-------------- --------------
Shares sold ....................... 2,153,444 3,166,847
Shares issued to shareholders on
reinvestment of dividends ...... 478,443 132,532
Shares redeemed ................... (3,576,528) (1,557,812)
------------ -----------
Net increase/(decrease) in shares
outstanding .................... (944,641) 1,741,567
============ ===========
Proceeds from sale of shares ...... $ 50,933,672 $67,677,756
Value of reinvested dividends ..... 10,803,234 2,838,498
Cost of shares redeemed ........... (79,883,122) (33,714,414)
------------ -----------
Net increase/(decrease) from capital
share transactions ............. $(18,146,216) $36,801,840
============ ===========
Class B Shares
------------------------------------
For the For the
Year Ended Year Ended
May 31, 2000 May 31, 1999
-------------- --------------
Shares sold ....................... 328,694 563,765
Shares issued to shareholders on
reinvestment of dividends ...... 99,337 22,835
Shares redeemed ................... (569,219) (261,968)
------------ -----------
Net increase/(decrease) in shares
outstanding .................... (141,188) 324,632
============ ===========
Proceeds from sale of shares ...... $ 7,728,452 $12,547,072
Value of reinvested dividends ..... 2,198,326 482,952
Cost of shares redeemed ........... (12,217,136) (5,608,819)
------------ -----------
Net increase/(decrease) from capital
share transactions ............. $ (2,290,358) $ 7,421,205
============ ===========
30
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
NOTE 3 -- continued
Class C Shares
------------------------------------
For the Period
For the Oct. 28, 19981
Year Ended through
May 31, 2000 May 31, 1999
-------------- --------------
Shares sold ....................... 271,969 137,892
Shares issued to shareholders on
reinvestment of dividends ...... 15,373 16
Shares redeemed ................... (111,942) (1,763)
----------- -----------
Net increase in shares
outstanding .................... 175,400 136,145
=========== ===========
Proceeds from sale of shares ...... $ 6,524,293 $ 3,342,768
Value of reinvested dividends ..... 340,049 336
Cost of shares redeemed ........... (2,381,130) (39,485)
----------- -----------
Net increase from capital share
transactions ................... $ 4,483,212 $ 3,303,619
=========== ===========
Institutional Shares
------------------------------------
For the For the
Year Ended Year Ended
May 31, 2000 May 31, 1999
-------------- --------------
Shares sold ...................... 984,817 1,542,660
Shares issued to shareholders on
reinvestment of dividends ..... 220,566 56,796
Shares redeemed .................. (1,132,184) (1,157,545)
------------ -----------
Net increase in shares outstanding 73,199 441,911
============ ===========
Proceeds from sale of shares ..... $ 22,248,399 $33,127,165
Value of reinvested dividends .... 5,004,643 1,218,275
Cost of shares redeemed .......... (24,815,018) (22,580,427)
------------ -----------
Net increase from capital
share transactions ............ $ 2,438,024 $11,765,013
============ ===========
------------
1 Commencement of operations.
31
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
NOTE 3 -- concluded
On May 31, 2000, the amounts payable for fund shares redeemed amounted to
$427,490, of which $183,267 were attributable to the Class A Shares, $124,628
were attributable to the Class B Shares, and $119,595 were attributable to the
Class C Shares.
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $131,857,210 and sales of investment securities aggregated
$139,173,379 for the year ended May 31, 2000.
On May 31, 2000, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost was $104,141,059 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value was $32,736,503.
NOTE 5 -- Lending of Securities
The Fund has the ability to lend its securities to brokers, dealers and
other financial organizations. Loans of the Fund's securities are collateralized
by cash and/or government securities that are maintained at all times in an
amount equal to 102% of the current market value of the loaned securities for
domestic securities.
At May 31, 2000
Market Value Market Value % of Portfolio
of Loaned Securites of Collateral on Loan
------------------- ------------------- -------------------
$14,561,555 $15,505,348 4.11
32
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Flag Investors Equity Partners Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, 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, 2000, 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 accounting principles generally accepted
in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
June 28, 2000
--------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
FOR THE TAX YEAR ENDED MAY 31, 2000
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 $19,097,673 from long-term capital gains,
all of which is taxable at the 20% capital gains rate. Of ordinary distributions
made during the fiscal year ended May 31, 2000, 100.00% qualifies for the
dividends received deduction available to corporate shareholders.
33
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND
--------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Truman T. Semans
CHAIRMAN
Carl W. Vogt, Esq. Rebecca W. Rimel
PRESIDENT DIRECTOR
Richard R. Burt Robert H. Wadsworth
DIRECTOR DIRECTOR
Richard T. Hale Charles A. Rizzo
DIRECTOR TREASURER
Joseph R. Hardiman Amy M. Olmert
DIRECTOR SECRETARY
Louis E. Levy Daniel O. Hirsch
DIRECTOR ASSISTANT SECRETARY
Eugene J. McDonald
DIRECTOR
INVESTMENT OBJECTIVE
A mutual fund designed to seek long-term growth of capital and, secondarily,
current income primarily in a diversified portfolio of common stocks.
------------------------------------------------------------------
This report is prepared for the general information of
shareholders. It is authorized for distribution to prospective
investors only when preceded or accompanied by an effective
prospectus.
For more complete information regarding any of the Flag
Investors Funds, including charges and expenses, obtain a
prospectus from your investment representative or directly from
the Fund at 1-800-767-FLAG. Read it carefully before you invest.
------------------------------------------------------------------
<PAGE>
[Flag Investors logo omitted]
DOMESTIC EQUITY
Communications Fund
Emerging Growth Fund
Equity Partners Fund
Real Estate Securities Fund
Top 50 U.S.
Value Builder Fund
INTERNATIONAL EQUITY
European Mid-Cap Fund
International Equity Fund
Japanese Equity Fund
Top 50 Asia
Top 50 Europe
Top 50 World
FIXED INCOME
Managed Municipal Fund Shares
Short-Intermediate Income Fund
Total Return U.S. Treasury Fund Shares
MONEY MARKET
Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
WWW.FLAGINVESTORS.COM
Distributed by:
ICC DISTRIBUTORS, INC.
EPANN (7/00)
