<PAGE>
As Filed With the Securities and Exchange Commission on October 18, 1996
Registration No. 33-21119
811-5320
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 13 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 17 [x]
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
135 East Baltimore Street
Baltimore, Maryland 21202
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
Edward J. Veilleux
135 East Baltimore Street
Baltimore, Maryland 21202
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
_____ on [date] pursuant to paragraph (b)
__X__ 60 days after filing pursuant to paragraph (a)(1)
_____ 75 days after filing pursuant to paragraph (a)(2)
_____ on [date] pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
Registrant has elected to maintain registration of an indefinite number of
shares of Common Stock pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant's Rule 24f-2 Notice for its fiscal year ended October
31, 1995 was filed with the Commission on December 20, 1995.
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Class A and Class B Shares)
Cross Reference Sheet
October 18, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page ..................................... Cover Page
Item 2. Synopsis ................................... Fund Expenses
Item 3. Condensed Financial Information ................ Financial Highlights (Flag Investors
Class A Shares only)
Item 4. General Description of Registrant .............. Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund .......................... Management of the
Fund; Investment
Advisor; Distributor;
Custodian, Transfer Agent,
Accounting Services
Item 5A. Management's Discussion of Fund
Performance...................................... *
Item 6. Capital Stock and Other Securities .............. Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being Offered ............ How to Invest in the Fund;
Distributor
Item 8. Redemption or Repurchase ........................ How to Redeem Shares
Item 9. Pending Legal Proceedings ..................... **
</TABLE>
- ----------------
* Information required by Item 5A is contained in Registrant's 1995 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Part B - Information Required in a Statement of Additional Information
- ------
Item 10. Cover Page ...................................... Cover Page
Item 11. Table of Contents ............................... Table of Contents
Item 12. General Information and History ................. General Information and
History
Item 13. Investment Objectives and Policies ............. Investment Objectives and
Policies
Item 14. Management of the Fund .......................... Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities ................................... Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services ......... Investment Advisory
and Other Services;
Custodian, Transfer Agent,
Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation ............................ Brokerage
Item 18. Capital Stock and Other Securities .............. Capital Shares; Reports
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Valuation of Shares and
Redemption
Item 20. Tax Status ...................................... Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters .................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data ................. Performance Information
Item 23. Financial Statements ........................ Financial Statements (Flag Investors
Class A Shares only)
Part C - Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
<PAGE>
The prospectus dated May 24, 1996 relating to the Flag Investors Class A and
Flag Investors Class B Shares of Flag Investors Emerging Growth Fund, Inc. (the
"Fund"), filed with the Securities and Exchange Commission via EDGAR on March
25, 1996 as part of Post-Effective Amendment No. 12 to the Fund's Registration
Statement on Form N-1A (File No. 33-21119) under Rule 485(a) under the
Securities Act of 1933, as amended (the "1933 Act") (Accession No.
0000950116-96-000161), and in final form under Rule 497(c) under the 1933 Act
via EDGAR on May 30, 1996 (Accession No. 0000950116-96-000470) is incorporated
herein by reference as if set forth in its entirety.
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Institutional Shares)
Cross Reference Sheet
October 18, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page ..................................... Cover Page
Item 2. Synopsis .................................... Fund Expenses
Item 3. Condensed Financial Information ................ Financial Highlights (Flag Investors
Class A Shares only)
Item 4. General Description of Registrant .............. Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund .......................... Management of the Fund;
Investment Advisor;
Distributor; Custodian,
Transfer Agent, Accounting
Services
Item 5A. Management's Discussion of Fund
Performance...................................... *
Item 6. Capital Stock and Other Securities .............. Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being Offered ............ How to Invest in the
Institutional Shares;
Distributor
Item 8. Redemption or Repurchase ........................ How to Redeem Institutional
Shares
Item 9. Pending Legal Proceedings ...................... **
</TABLE>
- ----------------
* Information required by Item 5A is contained in Registrant's 1995 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Part B - Information Required in a Statement of Additional Information
- ------
Item 10. Cover Page ...................................... Cover Page
Item 11. Table of Contents ............................... Table of Contents
Item 12. General Information and History ................. General Information
and History
Item 13. Investment Objectives and Policies ............. Investment Objectives and
Policies
Item 14. Management of the Fund .......................... Management of the
Fund
Item 15. Control Persons and Principal Holders
of Securities ................................... Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services .......... Investment Advisory
and Other Services;
Custodian, Transfer Agent,
Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation ............................ Brokerage
Item 18. Capital Stock and Other Securities .............. Capital Shares; Reports
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Valuation of
Shares and Redemption
Item 20. Tax Status ...................................... Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters .................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data ................. Performance Information
Item 23. Financial Statements ............................ Financial Statements (Flag Investors
Class A Shares only)
Part C - Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
<PAGE>
The prospectus dated March 1, 1996 relating to the Flag Investors Institutional
Shares of Flag Investors Emerging Growth Fund, Inc. (the "Fund"), filed with the
Securities and Exchange Commission via EDGAR on February 28, 1996 as part of
Post-Effective Amendment No. 11 to the Fund's Registration Statement on Form
N-1A (File No. 33-21119) under Rule 485(b) under the Securities Act of 1933, as
amended (the "1933 Act") (Accession No. 0000950116-96-000107), and in final form
under Rule 497(c) under the 1933 Act via EDGAR on March 6, 1996 (Accession No.
0000950116-96-000128) is incorporated herein by reference as if set forth in its
entirety.
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(ABCAT Shares)
Cross Reference Sheet
October 18, 1996
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- -----------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page ..................................... Cover Page
Item 2. Synopsis .................................... Fund Expenses
Item 3. Condensed Financial Information ................ Financial Highlights (with
respect to Flag Investors
Class A Shares and Flag
Investors Institutional Shares
only)
Item 4. General Description of Registrant .............. Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund .......................... Management of the Fund;
Investment Advisor;
Distributor; Custodian,
Transfer Agent and
Accounting Services
Item 5A. Management's Discussion of Fund
Performance...................................... *
Item 6. Capital Stock and Other Securities .............. Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being Offered ............ How to Invest in the ABCAT
Shares; Distributor
Item 8. Redemption or Repurchase ........................ How to Redeem ABCAT
Shares
Item 9. Pending Legal Proceedings ...................... **
</TABLE>
- -------------
* Information required by Item 5A will be contained in Registrant's Annual
Report to Shareholders containing results of operations of the ABCAT
Shares, when available.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Part B - Information Required in a Statement of Additional Information
- ------
Item 10. Cover Page ...................................... Cover Page
Item 11. Table of Contents ............................... Table of Contents
Item 12. General Information and History ................. General Information
and History
Item 13. Investment Objectives and Policies ............. Investment Objectives and
Policies
Item 14. Management of the Fund .......................... Management of the
Fund
Item 15. Control Persons and Principal Holders
of Securities ................................... Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services .......... Investment Advisory
and Other Services;
Custodian, Transfer Agent
and Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation ............................ Brokerage
Item 18. Capital Stock and Other Securities .............. Capital Shares; Reports
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Valuation of
Shares and Redemption
Item 20. Tax Status ...................................... Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters .................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data ................. Performance Information
Item 23. Financial Statements ............................ Financial Statements (relating
to the Fund's other classes)
Part C - Other Information
Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>
<PAGE>
LOGO
ALEX. BROWN
CAPITAL ADVISORY
& TRUST
EMERGING GROWTH SHARES
(A Class of Flag Investors Emerging Growth Fund, Inc.)
This mutual fund (the "Fund") is an open-end diversified mutual fund seeking
long-term capital appreciation. The Fund will invest primarily in a diversified
portfolio of small and mid-sized emerging growth companies.
Alex. Brown Capital Advisory & Trust Shares of the Fund ("ABCAT Shares")
are available solely for the discretionary accounts of Alex. Brown Capital
Advisory & Trust Company and its affiliates. (See "How to Invest in ABCAT
Shares.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated March 1, 1996, as amended through
______, has been filed with the Securities and Exchange Commission (the "SEC")
and is hereby incorporated by reference. It is available upon request and
without charge by calling the Fund at (800) 767-5324.
- -------------------------------------------------------------------------------
THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is ________, 1996
<PAGE>
ALEX. BROWN
CAPITAL ADVISORY
& TRUST
EMERGING GROWTH SHARES
(A Class of Flag Investors Emerging Growth Fund, Inc.)
135 East Baltimore Street
Baltimore, Maryland 21202
TABLE OF CONTENTS
-----------------
Page
1. Fund Expenses ..................................... 2
2. Financial Highlights .............................. 2
3. Investment Program ................................ 6
4. Investment Restrictions ........................... 9
5. How to Invest in ABCAT Shares ..................... 10
6. How to Redeem ABCAT Shares ........................ 11
7. Dividends and Taxes ............................... 12
8. Management of the Fund ............................ 13
9. Investment Advisor ................................ 14
10. Distributor ....................................... 15
11. Custodian, Transfer Agent and Accounting Services . 15
12. Performance Information ........................... 16
13. General Information ............................... 17
- -------------------------------------------------------------------------------
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund or its distributor.
This Prospectus does not constitute an offering by the Fund or by its
distributor in any jurisdiction in which such offering may not lawfully be
made. Shares may be offered only to residents of those states in which such
shares are eligible for purchase.
- -------------------------------------------------------------------------------
1
<PAGE>
1. FUND EXPENSES
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)
- -------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases .............. None
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None
- -------------------------------------------------------------------------------
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
- -------------------------------------------------------------------------------
Management Fees ........................................ .67%
12b-1 Fees ............................................. None
Other Expenses ......................................... .58%
-----
Total Fund Operating Expenses .......................... 1.25%*
=====
- ------
* Alex. Brown Capital Advisory & Trust Company intends to waive its advisory
fee at the account level for client assets invested in ABCAT Shares.
- -------------------------------------------------------------------------------
EXAMPLE:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each time period: 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------
$13 $40 $71 $161
- --------------------------------------------------------------------------------------------------
</TABLE>
The Example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.
The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly or indirectly. (For
more complete descriptions of the various costs and expenses, see "How to Invest
in ABCAT Shares", "Investment Advisor" and "Distributor.") The ABCAT Shares were
not offered prior to the date of this Prospectus. Accordingly, the Expenses and
Example appearing in the table above are based on the Fund's expenses for the
Flag Investors Class A Shares, another class of shares offered by the Fund, for
the fiscal year ended October 31, 1995, less 12b-1 fees of .25%.
- -------------------------------------------------------------------------------
2. Financial Highlights
The Fund has not offered the ABCAT Shares prior to the date of this
Prospectus. However, the Fund has offered Flag Investors Class A Shares
2
<PAGE>
since December 30, 1987 and Flag Investors Institutional Shares since November
2, 1995. Historical financial information about the Fund is not fully applicable
to the ABCAT Shares because the expenses paid by the Fund in the past differ
from those the ABCAT Shares will incur. (See "Fund Expenses.") Nevertheless,
historical information about the Fund may be useful to investors if they take
into account the differences in expenses. Accordingly, the financial highlights
included in this table are a part of the Fund's financial statements for the
Flag Investors Class A Shares and the Flag Investors Institutional Shares for
the periods indicated and, except for the financial statements for the periods
ended April 30, 1996, which are unaudited, have been audited by Coopers &
Lybrand L.L.P., independent accountants. The financial statements and financial
highlights for the Flag Investors Class A Shares for the fiscal year ended
October 31, 1995 and the report thereon of Coopers & Lybrand L.L.P., and the
unaudited financial statements for the Flag Investors Class A Shares and the
Flag Investors Institutional Shares for the periods ended April 30, 1996, are
included in the Statement of Additional Information. Additional performance
information for the Flag Investors Class A Shares is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1995 and for the Flag
Investors Class A Shares and the Flag Investors Institutional Shares is
contained in the Fund's Semi-Annual Report for the six-month period ended April
30, 1996, each of which can be obtained at no charge by calling the Fund at
(800) 767-3524.
3
<PAGE>
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)*
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Flag Investors
Institutional Shares Flag Investors Class A Shares
-------------------- -----------------------------
For the period For the six
November 2, 1995+ months ended
through April 30, 1996 April 30, 1996
(Unaudited) (Unaudited)
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period $17.12 $17.09
------ ------
Income from Investment Operations:
Net investment income (0.03) (0.07)
Net realized and unrealized
gain/(loss) on investments 3.45 3.55
Effect of other capital share
activity -- --
------ ------
Total from Investment Operations 3.42 3.48
------ ------
Less Distributions:
Dividends from net investment
income and short-term gains (0.30) (0.30)
Distributions from net realized
long-term gains (0.60) (0.60)
------ ------
Total distributions (0.90) (0.90)
------ ------
Net asset value at end of period $19.64 $19.67
====== ======
Total Return** 19.31% 21.46%
Ratios to Average Net Assets:
Expenses 1.24(1) 1.50%(1)
Net investment income (0.58)%(1) (0.84)%(1)
Supplemental Data:
Net assets at end of period
(000) $11,992 $41,822
Portfolio turnover rate 33%(1) 33%(1)
</TABLE>
4
<PAGE>
(RESTUBBED TABLE)
<TABLE>
<CAPTION>
For the period
December 30, 1987
For the Year Ended October 31, (commencment of
---------------------------------------------------------------------- operations) through
1995 1994 1993 1992 1991 1990 1989 October 31, 1988
---- ---- ---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period $12.90 $14.02 $13.53 $15.23 $ 8.93 $14.90 $10.87 $10.00
------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income (0.09) (0.08) (0.08) (0.16) (0.10) (0.11) (0.05) 0.10
Net realized and unrealized
gain/(loss) on investments 4.32 0.47 1.20 (1.54) 6.40 (4.00) 4.13 (0.88)
Effect of other capital share
activity -- -- -- -- -- -- -- 1.65
------ ------ ------ ------ ------ ------ ------ ------
Total from Investment Operations 4.23 0.39 1.12 (1.70) 6.30 (4.11) 4.08 0.87
------ ------ ------ ------ ------ ------ ------ ------
Less Distributions:
Dividends from net investment
income and short-term gains -- -- -- -- -- (1.86) (0.05) --
Distributions from net realized
long-term gains (0.04) (1.51) (0.63) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.04) (1.51) (0.63) -- -- (1.86) (0.05) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value at end of period $17.09 $12.90 $14.02 $13.53 $15.23 $ 8.93 $14.90 $10.87
====== ====== ====== ====== ====== ====== ====== ======
Total Return** 32.92% 3.75% 8.33% (11.16)% 70.55% (31.63)% 37.64% 8.80%
Ratios to Average Net Assets:
Expenses 1.50% 1.50% 1.50% 1.46% 1.50% 1.50% 1.49% 1.47%(1)
Net investment income (0.64)% (0.73)% (0.52)% (0.92)% (0.76)% (0.92)% (0.42)% 1.02%(1)
Supplemental Data:
Net assets at end of period
(000) $38,127 $23,302 $28,867 $38,924 $48,656 $31,678 $44,396 $26,159
Portfolio turnover rate 39% 86% 133% 69% 79% 82% 108% 110%
</TABLE>
- ----------
+ Commencement of operations.
* Computed based upon average shares outstanding.
** Total return excludes the effect of sales charge.
(1) Annualized.
5
<PAGE>
3. INVESTMENT PROGRAM
..............................................................................
INVESTMENT OBJECTIVES, POLICIES
AND RISK CONSIDERATIONS
The Fund's investment objective is long-term capital appreciation. The Fund
will seek to accomplish its objective through investments in small and mid-sized
emerging growth companies. This investment objective is a fundamental policy of
the Fund and may not be changed without shareholder approval. There can be no
assurance, however, that the Fund will achieve its investment objective.
In general, an emerging growth company with approximately $250 million or
less in annual sales would be considered to be a small company, while an
emerging growth company with approximately $250 million to $1 billion in annual
sales would be considered to be a mid-sized company. While the Fund intends to
invest in emerging growth companies that are small to mid-sized at the time of
investment, it may retain the securities of these companies even after they
reach a larger size if the Fund's investment advisor believes they continue to
have growth potential. Investments in such emerging growth companies involve
certain risks. (See "Special Risk Considerations.")
The Fund will attempt to reduce the volatility inherent in the price of
individual investments in this sector of the market by investing in a
diversified portfolio of securities of companies that the Fund's investment
advisor believes are well managed and have experienced or have the potential to
experience rapid growth in revenues, earnings, assets and cash flow. As an
additional attempt to limit volatility, the Fund will invest in a broad cross-
section of industries. While the Fund's investments in particular industries
will change from time to time as investment opportunities change, it will invest
primarily, but not exclusively, in companies in the businesses of technology,
health care, business services, energy, transportation, financial services,
consumer products and services and capital goods.
The Fund's investment advisor (the "Advisor") will seek to identify companies
which, in its opinion, have the ability to sustain a relatively high level of
growth and profitability. In selecting such companies, the Advisor will focus on
a number of key criteria including: industry position, management quality and
experience, accounting and financial policies, marketing and service
capabilities and the productivity of the product development effort.
6
<PAGE>
Under normal circumstances Fund assets will be invested as fully as possible
in the common stocks and securities convertible into common stocks of small and
mid-sized emerging growth companies (and at least 65% of the Fund's assets will
be so invested). However, up to 25% of the Fund's assets may from time to time
be invested in "other investments" which do not otherwise meet the criteria set
forth above, but which the Advisor believes offer improved opportunities for
growth not yet fully appreciated by investors. Such investments may arise, for
example, because of a new product developed by a mature company or a new
opportunity in an established business line of a mature company that shows
growth potential similar to that of emerging growth companies.
The Fund may invest up to 20% of its assets in convertible securities which
are fixed-income securities which may be converted at a stated price, within a
specified period of time, into a specified number of shares of common stock of
the same or a different issuer. While providing a fixed income stream (generally
higher in yield than the income derivable from a common stock but lower than
that afforded by a non-convertible debt security), a convertible security also
affords an investor the opportunity, through its conversion feature, to
participate in the capital appreciation of the common stock into which it is
convertible.
In addition to the above, even under normal circumstances, up to 35% of the
Fund's assets may be invested in U.S. Government securities, corporate bonds and
debentures, preferred stocks or money market instruments when the Advisor
believes doing so is appropriate in light of the Fund's investment objective and
market conditions. Such investments might be appropriate if, for example, the
Advisor believes there are not sufficient quantities of common stocks available
at appropriate prices or if the Advisor believes debt securities are consistent
with the Fund's investment objective because such securities can enjoy capital
appreciation due to an increase in their value caused by changes in interest
rates.
In addition, for temporary defensive purposes, the Fund may, without
limitation as to the amount of the Fund's assets which may be so invested, hold
money market instruments. For purposes of the foregoing, money market
instruments will be limited to short-term obligations, including government
obligations, time deposits, bankers acceptances, certificates of deposit,
commercial paper and short-term debt securities, which are rated in the top two
categories published by Moody's Investors Service, Inc. ("Moody's") or by
Standard & Poor's Ratings Group ("S&P") or, if unrated, are of comparable
quality as determined by the Advisor under guidelines established by the Fund's
Board of Directors.
7
<PAGE>
Corporate bonds and debentures will be limited to those rated in the top
three categories published by Moody's (Aaa, Aa or A) or by S&P (AAA, AA or A)
or, if unrated, are of comparable quality as determined by the Advisor under
guidelines established by the Fund's Board of Directors. Should the Fund
maintain a temporary defensive position, investment income would increase and
might constitute a greater percentage of the return of the Fund.
The Fund may also invest in securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933, as amended ("Rule 144A Securities") that
have been determined to be liquid by the Advisor under standards approved by the
Fund's Board of Directors, and may invest up to 10% of its net assets in Rule
144A Securities that are illiquid (see "Investment Restrictions"). Rule 144A
Securities may become illiquid if qualified institutional buyers are not
interested in acquiring the securities.
The Fund may engage to a limited extent in the following investment
practices, each of which may involve certain special risks. The Statement of
Additional Information contains more detailed information about these practices,
including limitations designed to reduce these risks.
1) Repurchase Agreements. The Fund may agree to purchase U.S. Government
securities from financial institutions, such as banks and broker-dealers,
subject to the seller's agreement to repurchase the securities at an
established time and price. The Fund will enter into repurchase agreements
only with banks and broker-dealers that have been determined to be
creditworthy by the Fund's Board of Directors under criteria established with
the assistance of the Advisor. The seller under a repurchase agreement would
be required to maintain the value of the securities subject to the repurchase
agreement at not less than the repurchase price. Default by the seller would,
however, expose the Fund to possible loss because of adverse market action or
delay in connection with the disposition of the underlying obligations. In
addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, the Fund may be delayed or limited in its ability to sell
the collateral.
2) Loans of Portfolio Securities. The Fund may also lend portfolio securities to
financial institutions in accordance with the investment restrictions
described in this Prospectus and the Statement of Additional Information. The
Fund lends portfolio securities only to those financial institutions that are
approved as creditworthy by the Fund's Board of Directors and only against
collateral consisting of cash or U.S. Government securities with an aggregate
value at all times equal to or greater than the value of the securities
loaned. The borrowers pay the Fund an
8
<PAGE>
amount equal to any dividends or interest received on the securities they
borrow. The Fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower.
..............................................................................
SPECIAL RISK CONSIDERATIONS
Although the Advisor will seek to invest in quality emerging growth
companies, there are risks to investors inherent in the characteristics of
emerging growth companies. Securities of small companies often will be closely
held with only a small proportion of their outstanding securities held by the
general public. Securities held by the Fund may have limited trading markets
that may be subject to wide price fluctuations. In view of such factors, the net
asset value of a share may vary significantly. Accordingly, the Fund should not
be considered suitable for investors who are unable or unwilling to assume the
risk of loss inherent in such a program, nor should investment in the Fund be
considered a balanced or complete investment program.
The companies in which the Fund may invest may have relatively small revenues
and lack depth of management. Investments in such companies tend to be volatile
and are therefore speculative. They may have a small share of the market for
their products or services and they may provide goods or services to a regional
or limited market. Small companies may be unable to internally generate funds
necessary for growth or potential development or to generate such funds through
external financing on favorable terms. In addition, they may be developing or
marketing new products or services for which markets are not yet established and
may never become established. Such companies may have or may develop only a
regional market for products or services and thus be affected by local or
regional market conditions. Moreover, small companies may have insignificant
market share in their industries and may have difficulty maintaining or
increasing their market share in competition with larger companies. Due to these
and other factors, small companies may suffer significant losses.
- -------------------------------------------------------------------------------
4. INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions numbered 1 through 4 below are matters
of fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares. The investment restriction numbered 5 may be
changed by a vote of the majority of the Board of Directors. The Fund will not:
9
<PAGE>
1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for these purposes the U.S. Government and its agencies
and instrumentalities are not considered an issuer);
2) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for these purposes the U.S.
Government and its agencies and instrumentalities are not considered an
issuer);
3) Invest in the securities of any single issuer if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of such
issuer;
4) Borrow money except as a temporary measure to facilitate settlements and for
extraordinary or emergency purposes and then only from banks and in an amount
not exceeding 10% of the value of the total assets of the Fund at the time of
such borrowing, provided that, while borrowings by the Fund equalling 5% or
more of the Fund's total assets are outstanding, the Fund will not purchase
securities; and
5) Invest more than 10% of the Fund's net assets in illiquid securities,
including time deposits and repurchase agreements with maturities of greater
than seven days.
The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.
- -------------------------------------------------------------------------------
5. HOW TO INVEST IN ABCAT SHARES
Alex. Brown Capital Advisory & Trust Company and its affiliates may acquire
ABCAT Shares on behalf of their discretionary accounts by placing orders with
the Fund's distributor (the "Distributor"). Beneficial ownership of ABCAT Shares
will be reflected on books maintained by Alex. Brown Capital Advisory & Trust
Company, an affiliate, or another financial institution. There is no minimum for
initial or subsequent investments in ABCAT Shares.
It is the responsibility of Alex. Brown Capital Advisory & Trust Company and
its affiliates to transmit orders for ABCAT Share purchases and deliver required
funds to the Distributor. Orders for purchases of ABCAT Shares are accepted on
any day on which the New York Stock Exchange is open for business (a "Business
Day"). Purchase orders for ABCAT Shares will be executed at a per share purchase
price equal to the net asset value next determined after receipt of the purchase
order and immediately available funds. The Fund reserves the right to suspend
the sale of ABCAT Shares at any time or reject any order.
10
<PAGE>
The net asset value per share is determined daily as of the close of the New
York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities, including liabilities
attributable to that specific class, and dividing the resulting amount by the
number of then outstanding shares of the class. For this purpose, portfolio
securities are given their market value where feasible. If a portfolio security
is traded on a national exchange or on an automated dealer quotation system,
such as NASDAQ, on the valuation date, the last quoted sale price is generally
used. Securities or other assets for which market quotations are not readily
available are valued at their fair value as determined in good faith under
procedures established from time to time and monitored by the Fund's Board of
Directors. Debt obligations with maturities of 60 days or less will be valued at
amortized cost, which constitutes fair value as determined by the Fund's Board
of Directors.
In the interest of economy and convenience and because of the operating
procedures for the ABCAT Shares, certificates representing such shares will not
be issued. Beneficial owners of ABCAT Shares ("Shareholders") will have the same
rights and ownership with respect to such shares as if certificates had been
issued.
- -------------------------------------------------------------------------------
6. HOW TO REDEEM ABCAT SHARES
ABCAT Shares may be redeemed by, or at the direction of, Alex. Brown Capital
Advisory & Trust Company or an affiliate, as appropriate, on any Business Day by
transmission of a redemption order through the Distributor, or by regular or
express mail to the Fund's transfer agent (the "Transfer Agent") at its address
listed under "Custodian, Transfer Agent and Accounting Services." A redemption
is effected at the net asset value per share next determined after receipt of
the order in proper form. Redemption orders received after 4:00 p.m. (Eastern
Time), or the close of the New York Stock Exchange, whichever is earlier, will
be effected at the net asset value next determined on the following Business
Day. Payment for redeemed ABCAT Shares will be made to, or at the direction of,
Alex. Brown Capital Advisory & Trust Company or an affiliate, as appropriate,
for the benefit of Shareholders. Payment will be made as promptly as feasible
and, under most circumstances, within three Business Days.
11
<PAGE>
Dividends payable up to the date of the redemption of ABCAT Shares will be
paid on the next dividend payment date.
- -------------------------------------------------------------------------------
7. DIVIDENDS AND TAXES
...............................................................................
DIVIDENDS AND DISTRIBUTIONS
The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income (consisting of dividend and interest income and
the excess, if any, of net short-term capital gains over net long-term capital
losses) in the form of annual dividends. The Fund anticipates that it will
distribute substantially all of its "net capital gain" income (the excess of net
long-term capital gains over net short-term capital losses) for each taxable
year as a capital gains distribution.
Unless other arrangements are made, all income dividends and net capital
gains distributions, if any, will be reinvested in additional ABCAT Shares at
net asset value per share on the payment date.
===============================================================================
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain tax considerations
affecting the Fund and the Shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or the Shareholders, and
the discussion here is not intended as a substitute for careful tax planning.
The following summary is based on current tax laws and regulations, which may
be changed by legislative, judicial, or administrative action. The Statement of
Additional Information sets forth further information concerning taxes.
The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders, but
shareholders, unless otherwise exempt, will be taxed on the amounts so
distributed, regardless of whether such distributions are paid in cash or
reinvested in additional ABCAT Shares.
Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to Shareholders as long-term capital gains regardless of the length of
time a Shareholder has held the ABCAT Shares. All other income distribu-
12
<PAGE>
tions are taxed to the Shareholders as ordinary income. Corporate Shareholders
may be entitled to the dividends received deduction on a portion of dividends
received from the Fund. The Fund will provide advice annually as to the tax
status of all distributions.
Ordinarily, Shareholders will include all dividends declared by the Fund as
income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
Shareholders and paid by the Fund in the year in which the dividends were
declared.
The sale, exchange, or redemption ABCAT Shares is a taxable event for the
Shareholder.
The Fund intends to make sufficient distributions of its ordinary income and
capital gain net income (the excess of short and long-term capital gains over
short and long-term capital losses) prior to the end of each calendar year to
avoid liability for federal excise tax.
Shareholders are advised to consult their tax advisors concerning the
application of the rules described above to their particular circumstances and
the application of federal, state and local income taxes to investments in the
Fund.
- -------------------------------------------------------------------------------
8. MANAGEMENT OF THE FUND
The overall business affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with the Advisor and with its custodian and transfer agent. The
day-to-day operations of the Fund are delegated to the Fund's executive officers
and to the Advisor. Three Directors and all of the officers of the Fund are
officers or employees of the Distributor or the Advisor. The other Directors of
the Fund have no affiliation with the Distributor or the Advisor.
13
<PAGE>
The Fund's Directors and officers are as follows:
*Truman T. Semans Chairman Frederick L. Meserve, Jr. President
*W. James Price Director Edward J. Veilleux Vice President
*Richard T. Hale Director Gary V. Fearnow Vice President
James J. Cunnane Director Charles A. Reid Vice President
John F. Kroeger Director Sandra J. Doeller Vice President
Louis E. Levy Director Scott J. Liotta Vice President
Eugene J. McDonald Director Joseph A. Finelli Treasurer
[Harry Woolf Director] Edward J. Stoken Secretary
Laurie D. DePrine Assistant Secretary
- ------
*Messrs. Semans, Price and Hale are "interested persons" of the Fund within the
meaning of Section 2(a)(19) under the Investment Company Act of 1940, as
amended.
- --------------------------------------------------------------------------------
9. INVESTMENT ADVISOR
Investment Company Capital Corp. ("ICC"), the Fund's investment advisor, is
an indirect subsidiary of Alex. Brown Incorporated (described below) and an
affiliate of Alex. Brown Capital Advisory & Trust Company. Since the mid 1970's,
Alex. Brown Incorporated has provided services to and in respect of emerging
growth and later stage private companies in the United States, including
research and analysis, venture capital participation, investment banking and
investment advisory services. Subject to review by the Board of Directors and to
any limitations imposed by applicable law, the Fund may purchase securities of
such emerging growth companies. The Advisor is also the investment advisor to,
and Alex. Brown & Sons Incorporated ("Alex. Brown") acts as distributor for,
other mutual funds in the Flag Investors family of funds and Alex. Brown Cash
Reserve Fund, Inc., which funds had approximately $___ billion of assets as of
________ __, 1996. The address of the Advisor is 135 East Baltimore Street,
Baltimore, Maryland 21202.
The Advisor is responsible for the general management of the Fund, as well as
for decisions to buy and sell securities for the Fund, for broker-dealer
selection, and for negotiation of commission rates under standards established
and periodically reviewed by the Board of Directors.
The Advisory Agreement provides for a maximum annual fee equal to .85% of
Fund's average daily net assets. However, the actual amount of the fee is
contractually limited to an amount that would result in total expenses on Flag
Investors Class A Shares of no more than 1.50%. As compensation for its services
for the fiscal year ended October 31, 1995, the Advisor received from the Fund a
fee equal to .67% of the Fund's average daily net assets.
14
<PAGE>
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent and
Accounting Services.")
...............................................................................
PORTFOLIO MANAGER
Frederick L. Meserve, Jr., President of the Fund and a principal of Alex.
Brown, has had primary responsibility for managing the Fund's assets since
October of 1993. Mr. Meserve joined Alex. Brown in 1977. He has been a member
of Alex. Brown's Investment Committee since 1979. In addition, Mr. Meserve
has published a number of investment strategy reports on growth stocks. Mr.
Meserve received a B.S.&E. from Princeton University in 1960 and an M.B.A.
from Columbia School of Business in 1962.
- -------------------------------------------------------------------------------
10. DISTRIBUTOR
Alex. Brown, 135 East Baltimore Street, Baltimore, Maryland 21202, acts as
distributor of each class of the Fund's shares. Alex. Brown is an investment
banking firm which offers a broad range of investment services to individual,
institutional, corporate and municipal clients. It is a wholly-owned
subsidiary of Alex. Brown Incorporated, which has engaged directly and
through subsidiaries and affiliates in the investment business since 1800.
Alex. Brown is a member of the New York Stock Exchange and other leading
securities exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has
offices throughout the United States and, through subsidiaries, maintains
offices in London, England, Geneva, Switzerland and Tokyo, Japan. Alex. Brown
receives no compensation for distributing the ABCAT Shares.
Alex. Brown bears all expenses associated with advertisements, promotional
materials, sales literature and printing and mailing prospectuses to other than
Fund shareholders.
- -------------------------------------------------------------------------------
11. CUSTODIAN, TRANSFER AGENT, AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), with offices at Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, acts as custodian of the
Fund's assets. Investment Company Capital Corp., 135 East Baltimore Street,
Baltimore, Maryland 21202 (telephone: (800) 553-8080) is the Fund's transfer
and dividend disbursing agent and provides accounting services to the Fund. As
compensation for providing accounting
15
<PAGE>
services for the fiscal year ended October 31, 1995, ICC received from the Fund
a fee equal to .10% of the Fund's average daily net assets. (See the Statement
of Additional Information.) ICC also serves as the Fund's investment advisor.
- -------------------------------------------------------------------------------
12. PERFORMANCE INFORMATION
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one, five and ten year periods or, if such periods have
not yet elapsed, shorter periods corresponding to the life of the Fund. Such
total return quotations will be computed by finding average annual compounded
rates of return over such periods that would equate an assumed initial
investment of $1,000 to the ending redeemable value according to the required
standardized calculation. The standardized calculation is required by the SEC to
provide consistency and comparability in investment company advertising and is
not equivalent to a yield calculation. If the Fund compares its performance to
other funds or to relevant indices, its performance will be stated in the same
terms in which such comparative data and indices are stated, which is normally
total return rather than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Standard & Poor's 500 Stock
Index, the Russell 2000 Index, the Dow Jones Industrial Average, and the NASDAQ
OTC Composite and OTC Industrial Indices. The Fund may also use total return
performance data as reported in national financial and industry publications
that monitor the performance of mutual funds such as Money Magazine, Forbes,
Business Week, Barron's, Investor's Daily, IBC/Donoghue's Money Fund Report and
The Wall Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the Fund,
operating expenses and market conditions.
16
<PAGE>
- -------------------------------------------------------------------------------
13. GENERAL INFORMATION
...............................................................................
DESCRIPTION OF SHARES
The Fund is an open-end management investment company organized under the
laws of the State of Maryland on July 2, 1987 and is authorized to issue twenty
million shares of capital stock, with a par value of $.001 per share. Shares
have equal rights with respect to voting. Voting rights are not cumulative, so
the holders of more than 50% of the outstanding shares voting together for the
election of Directors may elect all the members of the Board of Directors of the
Fund. In the event of liquidation or dissolution of the Fund, each share is
entitled to its pro rata portion of the Fund's assets after all debts and
expenses have been paid. The fiscal year end of the Fund is October 31.
The Board of Directors is authorized to establish additional series of shares
of capital stock, each of which would evidence interests in a separate portfolio
of securities, and separate classes of each series of the Fund. The shares
offered by this Prospectus have been designated "Alex. Brown Capital Advisory &
Trust Emerging Growth Shares." The Board has no present intention of
establishing any additional series of the Fund but the Fund does have three
other classes of shares in addition to the shares offered hereby: "Flag
Investors Emerging Growth Fund Class A Shares", "Flag Investors Emerging Growth
Fund Class B Shares" and "Flag Investors Emerging Growth Fund Institutional
Shares." Additional information concerning the Fund's other classes of shares
may be obtained by calling Alex. Brown at (800) 767-3524. Different classes of
the Fund may be offered to certain investors and holders of such shares may be
entitled to certain exchange privileges not offered to ABCAT Shares. All classes
of the Fund share a common investment objective, portfolio of investments and
advisory fee, but the classes may have different distribution fees or sales load
structures and the net asset value per share of classes may differ at times.
...............................................................................
ANNUAL MEETINGS
Unless required under applicable Maryland law, the Fund does not expect to
hold annual meetings of shareholders. However, shareholders of the Fund retain
the right, under certain circumstances, to request that a meeting of
shareholders be held for the purpose of considering the removal of a Director
from office, and if such a request is made, the Fund will assist with the
shareholder communications in connection with the meeting.
17
<PAGE>
...............................................................................
REPORTS
The Fund furnishes semi-annual reports containing information about the Fund
and its operations, including a list of investments held in the Fund's portfolio
and financial statements. The annual financial statements are audited by the
Fund's independent accountants, Coopers & Lybrand L.L.P.
...............................................................................
FUND COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
...............................................................................
SHAREHOLDER INQUIRIES
Shareholders with inquiries concerning their ABCAT Shares should contact
their account manager at Alex. Brown Capital Advisory & Trust Company.
18
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------
FLAG INVESTORS EMERGING GROWTH FUND, INC.
135 East Baltimore Street
Baltimore, Maryland 21202
-----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION
IS NOT A PROSPECTUS. IT SHOULD BE READ IN
CONJUNCTION WITH A PROSPECTUS WHICH MAY BE
OBTAINED FROM YOUR PARTICIPATING DEALER OR BY WRITING
OR CALLING ALEX. BROWN & SONS INCORPORATED, 135 EAST
BALTIMORE ST., BALTIMORE, MARYLAND 21202, (800)
767-FLAG.
Statement of Additional Information Dated: March 1, 1996, as amended
through _______, 1996
Relating to Prospectuses dated:
May 24, 1996 -- Relating to the Flag Investors Class A
and Flag Investors Class B Shares
March 1, 1996 -- Relating to the Flag Investors Institutional Shares
_______ 1996 -- Relating to the Alex. Brown Capital Advisory & Trust Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History........................ 1
2. Investment Objectives and Policies..................... 2
3. Valuation of Shares and Redemption..................... 4
4. Federal Tax Treatment of Dividends and
Distributions........................................ 5
5. Management of the Fund................................. 8
6. Investment Advisory and Other Services................. 12
7. Distribution of Fund Shares............................ 14
8. Brokerage.............................................. 18
9. Capital Shares......................................... 19
10. Reports................................................ 20
11. Custodian, Transfer Agent, Accounting Services ........ 20
12. Independent Accountants................................ 21
13. Performance Information................................ 21
14. Control Persons and Principal Holders of
Securities........................................... 23
15. Financial Statements .................................. 23
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Emerging Growth Fund, Inc. (the "Fund") is an open-end
management investment company. Under the rules and regulations of the Securities
and Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
company being considered for investment. The Fund currently offers four classes
of shares: Flag Investors Emerging Growth Fund Class A Shares (the "Flag
Investors Class A Shares"), Flag Investors Emerging Growth Fund Class B Shares
(the "Flag Investors Class B Shares"), Flag Investors Emerging Growth Fund
Institutional Shares (the "Flag Investors Institutional Shares") and Alex. Brown
Capital Advisory & Trust Emerging Growth Shares (the "ABCAT Shares")
(collectively, the "Shares").
There are three separate prospectuses for the Fund's shares: one for
the Flag Investors Class A and Flag Investors Class B Shares, one for the Flag
Investors Institutional Shares and one for the ABCAT Shares. Each prospectus
contains important information concerning the classes of shares offered thereby
and the Fund and may be obtained without charge from Alex. Brown & Sons
Incorporated ("Alex. Brown"), 135 East Baltimore Street, Baltimore, Maryland
21202 (telephone: (800) 767-FLAG) or, with respect to each class except the
ABCAT Shares class, from Participating Dealers that offer such Shares to
prospective investors. Prospectuses for the Flag Investors Class A and Flag
Investors Class B Shares may also be obtained from Shareholder Servicing Agents.
As used herein, the term "Prospectus" describes information common to the
prospectuses of the four classes of the Fund's Shares, unless the term
"Prospectus" is modified by the appropriate class designation. As used herein,
the "Fund" refers to Flag Investors Emerging Growth Fund, Inc., and specific
references to any class of the Fund's Shares will be made using the name of such
class. Some of the information required to be in this Statement of Additional
Information is also included in the Fund's current Prospectuses. To avoid
unnecessary repetition, references are made to related sections of the
Prospectuses. In addition, the Prospectuses and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the registration statement respecting the Fund and its Shares filed
with the SEC. Copies of the registration statement as filed, including such
omitted items, may be obtained from the SEC by paying the charges prescribed
under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
July 2, 1987. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended ("the Investment Company Act") and
its Shares under the Securities Act of 1933, as amended. The Fund's registration
statement was declared effective by the SEC on June 15, 1988 and the Fund
commenced operations as a diversified open-end management investment company.
The Fund has offered the Flag Investors Class A Shares since its inception on
December 30, 1987, the Flag Investors Institutional Shares since November 1,
1995 and the Flag Investors Class B Shares since _______, 1996. The ABCAT Shares
have not been offered prior to the date of this Statement of Additional
Information.
Under a license agreement dated December 29, 1987 between the Fund and
Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund the
"Flag Investors" name and logo but retains the rights to that name and logo,
including the right to permit other investment companies to use them.
Size of the Fund
The allocation of the Fund's assets in emerging growth companies
requires substantial research and analysis in respect of such companies and the
Fund's management believes that the size of the Fund should be limited so that
the investment advisor can perform the appropriate research and analysis of
investment opportunities. Accordingly, at such time as the assets of the Fund
are in excess of $400 million, the Fund will accept Share purchases only from
existing shareholders (including reinvestment of dividends and capital gains
distributions). Further, at such time as the assets of the Fund are in excess of
-1-
<PAGE>
$500 million, the Fund will discontinue sales of Shares with the exception of
purchases made by pre-existing IRA accounts.
2. INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
The Fund's investment objective and its general investment policies are
described in the Prospectus. As stated in the Prospectus, the Fund's investment
objective is long-term capital appreciation. Realization of income is not a
significant investment consideration and any income realized on the Fund's
investments therefore will be incidental to the Fund's objective. There can be
no assurance that the Fund will, in fact, achieve its objective. The Fund's
investment objective may not be changed by the Board of Directors without
shareholder approval.
The Prospectus discusses the types of securities in which the Fund will
invest, the portfolio policies and techniques and the size of the Fund. This
Statement of Additional Information describes other investment practices in
which the Fund may engage, including making loans of the Fund's portfolio
securities, purchasing securities for future delivery, and entering into
repurchase agreements.
Other Investment Practices
Except as described in the section of the Prospectus entitled
"Investment Restrictions" and below under "Investment Restrictions", the
investment policies described in the Prospectus and in this Statement of
Additional Information are not fundamental, and the Board of Directors may
change such policies without the affirmative vote of a majority of the Fund's
outstanding Shares. The Fund's investment objective may not be changed by the
Board of Directors without such a vote.
As described in the Prospectus, the Fund may invest up to 20% of its net
assets in securities convertible into the common stock of high quality growth
companies. In general, the market value of a convertible security is at least
the higher of its "investment value" (i.e., its value as a fixed-income
security) or its "conversion value" (i.e., the value of the underlying shares of
common stock if the security is converted). As a fixed-income security, a
convertible security tends to increase in market value when interest rates
decline and tends to decrease in value when interest rates rise. However, the
price of a convertible security also is influenced by the market value of the
security's underlying common stock. Thus, the price of a convertible security
tends to increase as the market value of the underlying stock increases, whereas
it tends to decrease as the market value of the underlying stock declines.
Investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Repurchase Agreements
The Fund may agree to purchase U.S. Government securities from financial
institutions, such as banks and broker-dealers, subject to the seller's
agreement to repurchase the securities at an established time and price. The
collateral for these repurchase agreements will be held by the Fund's custodian
or by a duly appointed sub-custodian. The Fund will enter into repurchase
agreements only with banks and broker-dealers that have been determined to be
creditworthy by the Fund's Board of Directors under criteria established with
the assistance of Investment Company Capital Corp., the Fund's investment
advisor ("ICC"). The list of approved banks and broker-dealers will be monitored
regularly by ICC and reviewed at least quarterly by the Fund's Board of
Directors. The seller under a repurchase agreement would be required to maintain
the value of the securities subject to the repurchase agreement at not less than
the repurchase price. Default by the seller would, however, expose the Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund
may be delayed or limited in its ability to sell the collateral.
-2-
<PAGE>
Loans of Portfolio Securities
The Fund may also lend portfolio securities to financial institutions in
accordance with the investment restrictions described in the Prospectus and this
Statement of Additional Information. The Fund will lend portfolio securities
only to those financial institutions that are approved as creditworthy by the
Fund's Board of Directors and only against collateral consisting of cash or U.S.
Government securities with an aggregate value at all times equal to or greater
than the value of the securities loaned. The borrower would pay to the Fund an
amount equal to any dividends or interest received on the securities lent. The
Fund would retain all or a portion of the interest received on investment of the
cash collateral or receive a fee from the borrower. Payments received on such
loans, including amounts received during the loan on account of interest on the
securities loaned, may not (together with all non-qualifying income) exceed 10%
of the Fund's gross income (without offset for realized capital gains) unless,
in the opinion of counsel to the Fund, such amounts are qualifying income under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal and state
regulatory limitations. The investment restrictions recited below are in
addition to those described in the Fund's Prospectus, and are matters of
fundamental policy which may not be changed without the affirmative vote of a
majority of the Fund's outstanding Shares.
Accordingly, the Fund will not:
1) Invest in real estate or mortgages on real estate except that
the Fund may invest in the securities of companies that invest in real estate or
mortgages;
2) Purchase or sell commodities or commodities contracts;
3) Act as an underwriter of securities within the meaning of the
federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired
within the limitation on purchases of restricted securities;
4) Issue senior securities;
5) Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may lend portfolio securities and enter into repurchase agreements
as described in the Registration Statement;
6) Effect short sales of securities;
7) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions); or
8) Purchase participations or other direct interests in oil, gas
or other mineral exploration or development programs.
The following are investment restrictions that may be changed by a vote
of the majority of the Board of Directors. The percentage limitations contained
in these restrictions apply at the time of purchase of securities. The Fund will
not:
1) Purchase any securities of unseasoned issuers which have been
in operation directly or through predecessors for fewer than three
years;
-3-
<PAGE>
2) Invest in shares of any other investment company registered
under the Investment Company Act, except as a temporary investment in an
investment company that invests only in securities the Fund could
purchase directly for temporary investment, provided that the Fund will
pay any sales charges in connection with such purchases without
reduction to the sales charges on purchases of Shares, and provided
further, that the Fund shall acquire not more than 3% of the total
outstanding voting stock of such company, or invest more than 5% of the
Fund's assets in any one such company or 10% of the Fund's assets in all
such investment companies, and only as otherwise permitted by law. (If
the Board of Directors voted to approve investments in shares of any
other investment company, the Fund might incur sales charges, management
fees and other expenses in connection with any such investment, which
charges would be a Fund expense and accordingly might have some impact
on the Fund's net asset value);
3) Purchase or retain the securities of any issuer if, to the
knowledge of the Fund, any officer or Director of the Fund or its
Advisor owns beneficially more than .5% of the outstanding securities of
such issuer and together they own beneficially more than 5% of the
securities of such issuer;
4) Invest in companies for the purpose of exercising management
or control;
5) Invest in puts or calls or any combination thereof;
6) Invest more than 10% of the Fund's net assets in illiquid
securities (as defined under federal and state securities laws),
including time deposits and repurchase agreements with maturities of
greater than seven days;
7) Purchase warrants, if by reason of such purchase more than 5%
of the Fund's net assets (taken at market value) will be invested in
warrants, valued at the lower of cost or market. Included within this
amount, but not to exceed 2% of the value of the Fund's net assets, may
be warrants that are not listed on the New York or American Stock
Exchange. For the purpose of the foregoing calculations, warrants
acquired by the Fund in units or attached to securities will be deemed
to be without value and therefore not included within the preceding
limitations;
8) Invest in real estate limited partnerships;
9) Invest in oil, gas or mineral leases.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time) on
each day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays (or the days on which they are observed): New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per Share of a class is calculated by valuing all
assets held by the Fund, deducting liabilities attributable to all Shares and
any liabilities attributable to the specific class and dividing the resulting
amount by the number of then outstanding Shares of the class. For this purpose,
portfolio securities will be given their market value where feasible. If a
portfolio security is traded on a national exchange or an automatic dealer
quotation system, such as NASDAQ, on the valuation date, the last
-4-
<PAGE>
quoted sale price will generally be used. Securities or other assets for which
market quotations are not readily available are valued at their fair value as
determined in good faith by ICC under procedures established and monitored by
the Board of Directors. Debt obligations with maturities of 60 days or less will
be valued at amortized cost, which constitutes fair value as determined by the
Fund's Board of Directors.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Flag Investors Class A
and Flag Investors Class B Shares by check, Flag Investors Institutional Shares
by wire transfer of funds and ABCAT Shares by transfer of funds by, or at the
direction of, Alex. Brown Capital Advisory & Trust Company or an affiliate, as
described in the Prospectus relating to each class of Shares. However, if the
Board of Directors determines that it would be in the best interests of the
remaining shareholders of the Fund to make payment of the redemption price in
whole or in part by a distribution in kind of readily marketable securities from
the portfolio of the Fund in lieu of cash, in conformity with applicable rules
of the SEC, the Fund will redeem Shares by distributions in kind. If Shares are
redeemed in kind, a redeeming shareholder will incur brokerage costs when the
assets are later converted into cash. The valuation of portfolio securities, by
the method described under "Valuation of Shares," will be made as of the same
time the redemption price is determined. The Fund's ability to make payment of
the redemption price by distribution in kind is further limited because the Fund
has elected to be governed by Rule 18f-1 under the Investment Company Act
pursuant to which the Fund is obligated to redeem Shares solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund expects to be taxed as a regulated investment company ("RIC")
under Subchapter M of the Code. However, in order to qualify as a RIC for any
taxable year, the Fund must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from sale or other disposition of stock or securities or foreign currencies, and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"), and (2) derive less
than 30% of its gross income (exclusive of certain gains from the designated
hedging transactions that are offset by realized or unrealized losses on
offsetting positions) from gains on the sale or other disposition of any of the
following investments if such investments are held for less than three months
(the "Short-Short Gain Test"): (a) stock or securities (as defined in Section
2(a)(36) of the Investment Company Act); (b) options,
-5-
<PAGE>
futures or forward contracts (other than options, futures, or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures, or
forward contracts on foreign currencies) but only if such currencies (or
options, futures, or forward contracts) are not directly related to the Fund's
principal business of investing in stock or securities (or options and futures
with respect to stocks or securities).
The Fund must also diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. government securities, securities of other
RICs, and other securities (so long as such other securities with respect to any
issuer do not constitute more than 5% of the total assets of the Fund or more
than 10% of the outstanding voting securities of such issuer), and (ii) not more
than 25% of the value of its total assets is invested in the securities (other
than U.S. government securities or the securities of other RICs) of any one
issuer or of two or more issuers which the Fund controls and which are engaged
in the same or similar trades or businesses or related trades or businesses (the
"Asset Diversification Test"). The Fund will not lose its status as a RIC if it
fails to meet the Asset Diversification Test solely as a result of a fluctuation
in value of portfolio assets not attributable to a purchase. The Fund may
curtail its investments in and trading of other securities where the application
thereto of the Asset Diversification Test is uncertain.
Under Subchapter M, the Fund is exempt from federal income tax on its
net investment income and capital gains which it distributes to shareholders,
provided that it distributes at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gains
over net long-term capital losses) for the year (the "Distribution Requirement")
and complies with the other requirements of the Code described above.
Distributions of investment company taxable income made during the taxable year
or, under certain specified circumstances, within twelve months after the close
of the taxable year, will satisfy the Distribution Requirement. The Distribution
Requirement for any year may be waived if a RIC establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for federal excise tax (discussed below).
Although the Fund intends to distribute substantially all of its net
investment income and capital gains for any taxable (i.e., fiscal) year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
The foregoing requirements of the Code may inhibit the Fund in its
efforts to achieve its investment objectives.
Fund Distributions
The Fund anticipates that it will distribute substantially all of its
investment company taxable income for each taxable year. Distributions of
investment company taxable income will be taxable to shareholders as ordinary
income, regardless of whether such distributions are paid in cash or are
invested in additional Shares.
The Fund also anticipates that it will distribute substantially all of
its "net capital gains" income (the excess of net long-term capital gains over
net short-term capital losses) for each taxable year as a capital gains
distribution. Such a distribution, whether paid in cash or reinvested in Shares,
is taxable to shareholders as long-term capital gains, regardless of the length
of time a shareholder has held Fund Shares or whether such gains were reflected
in the price paid for the Shares. The aggregate amount of distributions
designated by the Fund as capital gains distributions may not exceed the net
capital gains of the Fund for any taxable year, determined by excluding any net
capital losses or net long-term capital losses attributable to transactions
occurring after October 31 of such year and by treating any such losses as if
they arose on the first day of the following taxable year.
Shareholders who invest either distributions of investment company
taxable income or capital gains in additional Shares will generally be treated
as receiving a distribution in an amount equal to the fair
-6-
<PAGE>
market value, determined as of the payment date, of the Shares received. Such
shareholders will have a cost basis in each Share received equal to the fair
market value of a Share of the Fund on the payment date.
Ordinary income dividends paid by the Fund to corporate shareholders
will be eligible for the 70% dividends received deduction to the extent of the
gross amount of qualified dividends received by the Fund for the year.
Generally, and subject to certain limitations, a dividend is a qualified
dividend if it is received from a domestic corporation. The Fund will provide a
statement annually to shareholders of the amount of dividends eligible for the
deduction. The dividends received deduction is not available for capital gains
distributions.
For purposes of the alternative minimum tax and the environmental tax,
corporate shareholders will generally be required to take the full amount of any
dividend received from the Fund into account in determining their "alternative
minimum taxable income."
Investors should be careful to consider the tax implications of buying
Shares just prior to the next record date for any ordinary income dividend or
capital gains distribution. Those purchasing just prior to an ordinary income
dividend or capital gains distribution will be taxable on the entire amount of
the dividend or distribution received even though the net asset value per share
on the date of purchase reflected the amount of such distribution.
If, for any taxable year, the Fund does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to shareholders as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions generally will
be eligible for the dividends received deduction in the case of corporate
shareholders.
The Fund generally will be required in certain cases to withhold tax at
the rate of 31% with respect to distributions payable to any shareholder (1) who
has provided either an incorrect tax identification number or no number at all,
(2) who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly, or (3)
who has failed to certify to the Fund that the shareholder is not subject to
backup withholding or that he is an "exempt recipient."
Federal Excise Tax; Miscellaneous Considerations; Effect of Future Legislation
The Code imposes a nondeductible 4% federal excise tax on RICs that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The excise tax is
imposed on the undistributed part of this required distribution. In addition,
the balance of such income must be distributed during the next calendar year to
avoid liability for the excise tax in that year. For the foregoing purposes, a
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year. For this purpose,
in determining its capital gain net income for the one-year period ending on
October 31 of such calendar year the Fund must reduce its capital gain net
income by the amount of any net ordinary loss for the calendar year (but not
below the net capital gains for the one-year period ending on October 31).
Because the Fund intends to distribute all of its income currently (or to
retain, at most, its "net capital gains" and pay tax thereon), the Fund does not
anticipate incurring any liability for this excise tax. However, investors
should note that the Fund may in certain circumstances be required to liquidate
portfolio investments in order to make sufficient distributions to avoid excise
tax liability and, in addition, that the liquidation of such investments in such
circumstances may affect the ability of the Fund to satisfy the Short-Short Gain
Test.
Generally, gain or loss on the sale, exchange or redemption of a Share
will be capital gain or loss, which will be long-term capital gain or loss if
the Share is held for more than one year and otherwise will be short-term
capital gain or loss. However, if a shareholder realizes a loss on the sale,
exchange or
-7-
<PAGE>
redemption of a Share held for six months or less, such loss will be treated as
a long-term capital loss to the extent that any capital gains distributions have
been paid with respect to such Share (or any undistributed net capital gains of
the Fund with respect to such Share have been included in determining the
shareholder's long-term capital gains). In addition, any loss realized on a sale
or other disposition of Shares will be disallowed to the extent an investor
repurchases (or enters into a contract or option to repurchase) Shares within a
period of 61 days (beginning 30 days before and ending 30 days after the
disposition of the Shares). This loss disallowance rule will apply to Shares
received through the reinvestment of dividends or distributions during the
61-day period.
Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from the rules for federal income taxation
described above. Shareholders are urged to consult their tax advisers as to the
consequences of federal, state and local tax rules affecting an investment in
the Fund.
5. MANAGEMENT OF THE FUND
The overall business affairs of the Fund are the responsibility of the
Board of Directors. The Board approves all significant agreements between the
Fund and persons or companies furnishing services to the Fund, including the
Fund's agreements with its investment advisor, distributor, custodian and
transfer agent. The day-to-day operations of the Fund are delegated to the
Fund's executive officers and the Fund's Advisor. Three Directors and all of the
officers of the Fund, are officers or employees of Alex. Brown or ICC. The other
Directors of the Fund have no affiliation with Alex. Brown or ICC.
Directors and Officers
The Directors and executive officers of the Fund, their respective dates
of birth and their principal occupations for the last five years are set forth
below. Unless otherwise indicated, the address of each Director and executive
officer is 135 East Baltimore Street, Baltimore, Maryland 21202.
*TRUMAN T. SEMANS, Chairman and Director (10/27/27)
Managing Director, Alex. Brown & Sons Incorporated; Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated.
*RICHARD T. HALE, Director (7/17/45)
Managing Director, Alex. Brown & Sons Incorporated; President,
Investment Company Capital Corp. (registered investment advisor);
Chartered Financial Analyst.
*W. JAMES PRICE, Director (10/6/24)
6885 North Ocean Boulevard, Apartment #306, Ocean Ridge, Florida
33435-3342. Director, Boca Research, Inc. (computer peripherals);
Managing Director Emeritus, Alex. Brown & Sons Incorporated; Formerly,
Director, CSX Corporation (transportation), and PHH Corporation
(business services).
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (merchant banking), 1993-Present; Formerly, Senior
Vice President and Chief Financial Officer, General Dynamics Corporation
(defense), 1989-1993 and Director, The Arch Fund (mutual funds)
- --------
* A Director who is an "interested person" as defined in the Investment
Company Act of 1940.
-8-
<PAGE>
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds; Formerly Consultant, Wendell & Stockel Associates, Inc.
(consulting firm) and General Manager, Shell Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (finance and banking); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University- Graduate School of Business,
1991-1992; Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and healthcare); Director, Central Carolina Bank & Trust
(banking), Key Funds (mutual funds), and AMBAC Treasurers Trust
(mutual funds).
[HARRY WOOLF, Director (8/12/23)
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study;
Director, ATL and Spacelabs Medical Corp. (medical equipment) and Family
Health International (non-profit research and education); Trustee, Reed
College (education); Director, Research America (non-profit medical
research); Formerly, Trustee, Rockefeller Foundation; and Director,
Merrill Lynch Cluster C Funds (mutual funds).]
FREDERICK L. MESERVE, JR., President (12/11/38)
Principal, Alex. Brown & Sons Incorporated 1977-Present.
EDWARD J. VEILLEUX, Vice President (8/26/43)
Principal, Alex. Brown & Sons Incorporated; Executive Vice President,
Investment Company Capital Corp. (registered investment advisor); Vice
President, Armata Financial Corp. (registered broker-dealer).
GARY V. FEARNOW, Vice President (12/6/44)
Managing Director, Alex. Brown & Sons Incorporated; Manager, Special
Products Department, Alex. Brown & Sons Incorporated.
CHARLES A. REID, Vice President (7/28/43)
Principal, Alex. Brown & Sons Incorporated, 1980-Present; General
Partner, Baltimore Street Capital III (growth companies investor).
SANDRA J. DOELLER, Vice President (8/29/61)
Vice President, Alex. Brown & Sons Incorporated, 1994-Present; Equity
Trader, Asset Management Department, Alex. Brown & Sons Incorporated,
1983-Present.
SCOTT J. LIOTTA, Vice President (3/18/65)
Manager, Fund Administration, Alex. Brown & Sons Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (mutual funds), April 1994-July 1996; and Supervisor,
Brown Brothers Harriman & Co. (domestic and global custody), August
1991-April 1994.
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<PAGE>
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, Alex. Brown & Sons Incorporated and Investment Company
Capital Corp. (registered investing advisor), September 1995-Present;
Formerly, Vice President and Treasurer, The Delaware Group of Funds
(mutual funds) and Vice President, Delaware Management Company Inc.,
1980-August 1995.
EDWARD J. STOKEN, Secretary (8/7/47)
Compliance Officer, Alex. Brown & Sons Incorporated, April 1995-Present;
Formerly, Legal Advisor, Federated Investors (registered investment
advisor), 1991-1995.
LAURIE D. DePRINE, Assistant Secretary (1/1/66)
Asset Management Department, Alex. Brown & Sons Incorporated,
1991-Present.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered, advised or
distributed by Alex. Brown or its affiliates. There are currently 12 funds in
the Flag Investors/ISI Funds and Alex. Brown Cash Reserve Fund, Inc. fund
complex (the "Fund Complex"). Mr. Price serves as a Director of seven funds in
the Fund Complex. Mr. Semans serves as a Director of eight funds in the Fund
Complex. Mr. Hale serves as President and Director of one fund and as a Director
of each of the other funds in the Fund Complex. Messrs. Cunnane, Kroeger, Levy,
McDonald and Woolf serve as Directors of each fund in the Fund Complex. Messrs.
Meserve and Reid serve as President and Vice President, respectively, of the
Fund. Mr. Fearnow serves as Vice President of 10 funds in the Fund Complex. Mr.
Veilleux serves as Executive Vice President of one fund and as Vice President of
11 funds in the Fund Complex. Mr. Liotta serves as Vice President, Mr. Finelli
serves as Treasurer, Mr. Stoken serves as Secretary and Ms. DePrine serves as
Assistant Secretary, respectively, of each of the funds in the Fund Complex. Ms.
Doeller serves as a Vice President of the Fund.
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, Alex. Brown in the ordinary course of business. All
such transactions were made on substantially the same terms as those prevailing
at the time for comparable transactions with unrelated persons. Additional
transactions may be expected to take place in the future.
Officers of the Fund receive no direct remuneration in such capacity
from the Fund. Officers and Directors of the Fund who are officers or directors
of Alex. Brown or ICC may be considered to have received remuneration
indirectly. As compensation for his services as director, each Director who is
not an "interested person" of the Fund (as defined in the Investment Company
Act) (a "Non-Interested Director") receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection with
his attendance at board and committee meetings) from all Flag Investors/ISI
Funds and Alex. Brown Cash Reserve Fund, Inc. for which he serves. In addition,
the Chairman of the Fund Complex's Audit Committee receives an aggregate annual
fee from the Fund Complex. Payment of such fees and expenses is allocated among
all such funds described above in direct proportion to their relative net
assets. For the fiscal year ended October 31, 1995, Non-Interested Directors'
fees attributable to the assets of the Fund totaled $2,004. The following table
shows aggregate compensation paid to each of the Fund's Directors by the Fund
and the Fund Complex, respectively, and pension or retirement benefits accrued
as part of Fund expenses in the fiscal year ended October 31, 1995.
-10-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------
Name of Person, Aggregate Compensation Pension or Retirement Total Compensation
Position From the Fund Benefits Accrued as from the Fund and Fund
for the Fiscal Year Ended Part of Fund Expenses Complex Paid to Directors
October 31, 1995 for the Fiscal Year Ended
October 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
*Truman T. Semans, Chairman $0 $0 $0
*W. James Price, Director $0 $0 $0
Richard T. Hale, Director $0 $0 $0
James J. Cunnane, Director $213(1) + $29,250 for service on 13
Boards in the Fund Complex(2)
N. Bruce Hannay, Director** $271(1) + $39,000 for service on 13
Boards in the Fund Complex(2)
John F. Kroeger, Director $298(1) + $42,900 for service on 13
Boards in the Fund Complex(2)
Louis E. Levy, Director $271(1) + $39,000 for service on 13
Boards in the Fund Complex(2)
Eugene J. McDonald, Director $271(1) + $39,000 for service on 13
Boards in the Fund Complex(2)
Harry Woolf, Director $271(1) + $39,000 for service on 13
Boards in the Fund Complex(2)
</TABLE>
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Retired on January 31, 1996 and is now deceased.
+ The Fund Complex has adopted a Retirement Plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the year ended October 31,1995 was approximately $795.
1 None of the amounts received by Messrs. Cunnane, Hannay, Kroeger, Levy,
McDonald and Woolf was deferred pursuant to a deferred compensation plan.
2 One of these funds ceased operations on May 17, 1995.
The Fund Complex has adopted a Retirement Plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by him in his last year of
service. Upon retirement, each Participant will receive annually 10% of such fee
for each year that he served after completion of the first five years, up to a
maximum annual benefit of 50% of the fee earned by him in his last year of
service. The fee will be paid quarterly, for life, by each Fund for which he
serves. The Retirement Plan is unfunded and unvested. Messrs. Kroeger and Woolf
have qualified but have not received benefits. The Fund has one Participant, a
Director who retired effective December 31, 1994 who has qualified for the
Retirement Plan and who will be paid a quarterly fee of $4,875 by the Fund
Complex for the rest of his life. Another Participant, who retired on January
31, 1996 and died on June 2, 1996 was paid fees of $13,000 by the Fund Complex
under the Retirement Plan. Such fees are allocated to each fund in the Fund
Complex based upon the relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his last year of
service, as described above. The estimated credited years of service are as
follows: for Mr. Cunnane, 1 year; for Mr. Kroeger, 13 years; for Mr. Levy, 2
years; for Mr. McDonald, 4 years; and for Mr. Woolf, 13 years, respectively.
-11-
<PAGE>
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<C> <C> <C>
6 years $4,595 $3,900
7 years $9,190 $7,800
8 years $13,785 $11,700
9 years $18,380 $15,600
10 years or more $22,975 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, of his annual compensation pursuant to a Deferred
Compensation Plan. Messrs. Cunnane, Kroeger, Levy, McDonald and Woolf have each
executed a Deferred Compensation Agreement. Currently, the deferring Directors
may select various Flag Investors and Alex. Brown Cash Reserve Funds in which
all or part of their deferral account shall be deemed to be invested.
Distributions from the deferring Directors' deferral accounts will be paid in
cash, in generally equal quarterly installments over a period of five years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
significantly restricts the personal investing activities of all employees of
ICC and the directors and officers of Alex. Brown. As described below, the Code
of Ethics imposes additional, more onerous, restrictions on the Fund's
investment personnel, including the portfolio managers and employees who execute
or help execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.
The Code of Ethics requires that all employees of ICC, any director or
officer of Alex. Brown, and all Interested Directors, preclear personal
securities investments (with certain exceptions, such as non-volitional
purchases or purchases which are part of an automatic dividend reinvestment
plan). The preclearance requirement and associated procedures are designed to
identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to investment personnel
include a ban on acquiring any securities in an initial public offering, a
prohibition from profiting on short-term trading in securities and preclearance
of the acquisition of securities in private placements. Furthermore, the Code of
Ethics provides for trading "blackout periods" that prohibit trading by
investment personnel and certain other employees within periods of trading by
the Fund in the same security.
6. INVESTMENT ADVISORY AND OTHER SERVICES
On December 29, 1987, the sole shareholder of the Fund approved and on
June 20, 1989 a majority of the outstanding Shares of the Fund approved, an
Investment Advisory Agreement (the "Advisory Agreement") between the Fund and
ICC, which contract is described in greater detail below.
The Advisor
ICC is a wholly-owned subsidiary of Alex. Brown Financial Corporation
and an indirect subsidiary of Alex. Brown Incorporated. ICC is also the
investment advisor to Alex. Brown Cash Reserve Fund, Inc., Flag Investors
Telephone Income Fund, Inc., Flag Investors International Fund, Inc., Flag
Investors Value Builder Fund, Inc., Flag Investors Intermediate-Term Income
Fund, Inc., Flag Investors Maryland
-12-
<PAGE>
Intermediate Tax Free Income Fund, Inc., Flag Investors Real Estate Securities
Fund, Inc. and Flag Investors Equity Partners Fund, Inc., which are distributed
by Alex. Brown, the Fund's distributor.
ICC (a) formulates and implements continuing programs for the purchases
and sales of securities, (b) determines what issuers and securities (and in what
proportion) shall be represented in the Fund's portfolio, (c) provides the
Fund's Board of Directors regular financial reports and analyses respecting the
Fund's portfolio investments and operations, and the operations of comparable
investment companies, (d) obtains and evaluates pertinent information about
economic, statistical and financial information pertinent to the Fund, (e)
takes, on behalf of the Fund, all actions which appear necessary to the Fund to
carry into effect its purchase and sale programs, (f) supervises all aspects of
the Fund's management, (g) arranges, but does not pay for, the printing and
mailing of prospectuses, proxy materials and shareholder reports, (h) prepares
and files federal and state tax returns, (i) prepares and files registration
statements and reports regarding the sale of shares and (j) maintains books and
records respecting its activities. Any investment program undertaken by ICC will
at all times be subject to policies and control of the Fund's Board of
Directors. ICC shall not be liable to the Fund or its shareholders for any act
or omission by ICC or any losses sustained by the Fund or its shareholders
except in the case of willful misfeasance, bad faith, gross negligence, or
reckless disregard of duty. These services of ICC to the Fund are not exclusive
and ICC is free to render similar services to others.
The Investment Advisory Agreement provides for a maximum annual fee,
payable monthly, representing .85% of the Fund's average daily net assets.
However, the actual amount of the fee is contractually limited to an amount that
would result in total expenses on Class A Shares of no more than 1.50% of the
Class A Shares' average daily net assets.
[In addition, ICC has agreed to reduce its aggregate fees attributable
to the Fund or make payments to the Fund, if necessary, to the extent required
to satisfy any expense limitations imposed by any securities laws or regulations
thereunder of any state in which the Shares of the Fund are qualified for sale.
Currently, the most restrictive of such expense limitations requires the
Investment Advisor to reduce its fees, or to make payments to the Fund, to the
extent required so that ordinary expenses of the Fund (excluding brokerage
commissions, interest, taxes and extraordinary expenses, such as legal claims,
liabilities, litigation costs and indemnification related thereto) do not exceed
2.5% of the first $30 million of the Fund's average daily net assets, 2.0% of
the next $70 million of the Fund's average daily net assets and 1.5% of the
Fund's average daily net assets in excess of $100 million.]
The Advisory Agreement will continue in effect for an initial term of
two years and from year to year thereafter as specifically approved (a) at least
annually by the Fund's Board of Directors or by a vote of a majority of the
outstanding Shares of the Fund and (b) by the affirmative vote of a majority of
the Non-Interested Directors who have no direct or indirect financial interest
in the Advisory Agreement by votes cast in person at a meeting called for such
purpose. The Advisory Agreement was most recently approved by the Fund's Board
of Directors, including a majority of the Non-Interested Directors, on September
30, 1996. The Fund or ICC may terminate the Advisory Agreement on 60 days'
written notice without penalty. The Advisory Agreement will terminate
automatically in the event of assignment. For the fiscal years ended October 31,
1995, October 31, 1994 and October 31, 1993, ICC received fees from the Fund of
$201,199, $206,444 and $255,608, respectively.
ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. See "Custodian, Transfer Agent and
Accounting Services."
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7. DISTRIBUTION OF FUND SHARES
Alex. Brown serves as the distributor of the Fund's Shares pursuant to
four separate Distribution Agreements, one for the Flag Investors Class A Shares
(the "Flag Investors Class A Distribution Agreement"), one for the Flag
Investors Class B Shares (the "Flag Investors Class B Distribution Agreement"),
one for the Flag Investors Institutional Shares (the "Flag Investors
Institutional Distribution Agreement") and one for the ABCAT Shares (the "ABCAT
Distribution Agreement") (collectively, the "Distribution Agreements").
The Flag Investors Class A Shares and the Flag Investors Class B Shares
The Flag Investors Class A and the Flag Investors Class B Distribution
Agreements provide that Alex. Brown has the exclusive right to distribute the
related class of Shares either directly or through other broker-dealers and
further provides that Alex. Brown will solicit and receive orders for the
purchase of Flag Investors Class A or Flag Investors Class B Shares, accept or
reject such orders on behalf of the Fund in accordance with the Fund's currently
effective Prospectus for such shares and transmit such orders as are accepted to
the Fund's transfer agent as promptly as possible, receive requests for
redemption and transmit such redemption requests to the Fund's transfer agent as
promptly as possible, respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund, provide the Fund's Board
of Directors for their review with quarterly reports required by Rule 12b-1,
maintain such accounts, books and records as may be required by law or be deemed
appropriate by the Fund's Board of Directors, and take all actions deemed
necessary to carry into effect the distribution of the Flag Investors Class A or
Flag Investors Class B Shares. Alex. Brown has not undertaken to sell any
specific number of Flag Investors Class A or Flag Investors Class B Shares. The
Flag Investors Class A and the Flag Investors Class B Distribution Agreements
further provide that, in connection with the distribution of the related class
of shares, Alex. Brown will be responsible for all of the promotional expenses.
The services provided by Alex. Brown to the Fund are not exclusive, and Alex.
Brown shall not be liable to the Fund or its shareholders for any act or
omission by Alex. Brown or any losses sustained by the Fund or its shareholders
except in the case of willful misfeasance, bad faith, gross negligence or
reckless disregard of duty.
Alex. Brown and certain broker-dealers ("Participating Dealers") may
enter into sub-distribution agreements ("Sub-Distribution Agreements"), pursuant
to which such broker-dealers have agreed to process investor purchase and
redemption orders and respond to inquiries from Fund shareholders concerning the
status of their accounts and the operations of the Fund.
As compensation for providing distribution and related administrative
services for the Flag Investors Class A Shares as described above, Alex. Brown
receives an annual fee, calculated and paid monthly, equal to .25% the average
daily net assets of the Flag Investors Class A Shares. Alex. Brown expects to
allocate a substantial portion of its annual fee to its investment
representatives and to Participating Dealers. For the fiscal years ended October
31, 1995, October 31, 1994 and October 31, 1993, Alex. Brown received from the
Fund $74,639, $60,719 and $89,403, respectively, in fees for distribution and
related administrative services for the Flag Investors Class A Shares. Alex.
Brown received no brokerage commissions from the Fund during these periods.
As compensation for providing distribution services for the Flag
Investors Class B Shares as described above, Alex. Brown will receive an annual
fee, calculated and paid monthly, equal to .75% of the average daily net assets
of the Flag Investors Class B Shares. Alex. Brown expects to retain the entire
distribution fee as reimbursement for front-end payments to its investment
representatives and to Participating Dealers.
In addition, with respect to the Flag Investors Class B Shares, the
Fund will pay Alex. Brown a shareholder servicing fee at an annual rate equal to
.25% of the Flag Investors Class B Shares' average daily net assets. (See the
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Prospectus.) Alex. Brown expects to allocate most of its shareholder servicing
fee to its investment representatives or to Participating Dealers.
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or indirectly,
only pursuant to a plan adopted by the investment company's board of directors
and approved by its shareholders, the Fund has adopted two separate Plans of
Distribution, one for the Flag Investors Class A Shares (the "Flag Investors
Class A Plan") and one for the Flag Investors Class B Shares (the "Flag
Investors Class B Plan") (collectively, the "Plans"). Under the Plans, the Fund
pays a fee to Alex. Brown for distribution and other shareholder servicing
assistance as set forth in the related Distribution Agreement, and Alex. Brown
is authorized to make payments out of its fee to its investment representatives
and to Participating Dealers. Each of the Flag Investors Class A and Flag
Investors Class B Distribution Agreements has an initial term of two years. The
Flag Investors Class A and Flag Investors Class B Distribution Agreements and
the Plans encompassed therein will remain in effect from year to year thereafter
if specifically approved at least annually by the Fund's Board of Directors and
by the affirmative vote of a majority of the Non-Interested Directors, by votes
cast in person at a meeting called for such purpose.
The Flag Investors Class A Distribution Agreement, including the Flag
Investors Class A Plan and a form of Sub-Distribution Agreement was approved by
the Fund's Board of Directors, including a majority of the Non-Interested
Directors (and those Directors who have no direct or indirect financial interest
in the Flag Investors Class A Plan or the Flag Investors Class A Distribution
Agreement) initially on July 2, 1987 and most recently on September 25, 1995.
The Plan was approved by a majority of the outstanding Flag Investors Class A
Shares on June 20, 1989. The Flag Investors Class B Distribution Agreement
including the Flag Investors Class B Plan and a form of Sub-Distribution
Agreement was approved by the Fund's Board of Directors and by the affirmative
vote of a majority of the Non-Interested Directors (and those Directors who have
no direct or indirect financial interest in the Flag Investors Class B Plan or
the Flag Investors Class B Distribution Agreement) initially on September 22,
1994 and most recently on September 25, 1995. The Flag Investors Class B Plan
was approved by the sole shareholder of the class on May 24, 1996.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the related Distribution Agreement without the approval of the shareholders of
the related class. The Plans may be terminated at any time and the Flag
Investors Class A and Flag Investors Class B Distribution Agreements may be
terminated at any time upon sixty days' notice, in either case without penalty,
by the vote of a majority of the Fund's Non-Interested Directors or by a vote of
a majority of the outstanding shares (as defined under "Capital Shares") of the
related class. Any Sub-Distribution Agreement may be terminated in the same
manner at any time. Any Shareholder Servicing Agreement may be terminated at any
time, without penalty, upon 10 days' notice. The Flag Investors Class A and Flag
Investors Class B Distribution Agreements, any Sub-Distribution Agreement and
any Shareholder Servicing Agreement shall automatically terminate in the event
of assignment.
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, with a written report
concerning the payments made under the Plans to Alex. Brown pursuant to the
related Distribution Agreement, to broker-dealers pursuant to Sub-Distribution
Agreements and to Shareholder Servicing Agents pursuant to Shareholder Servicing
Agreements described below. Such reports shall be made by the persons authorized
to make such payments. In addition, during the continuance of the Plans, the
selection and nomination of the Fund's Non-Interested Directors shall be
committed to the discretion of the Non-Interested Directors then in office.
For the fiscal year ended October 31, 1995, the Fund paid $74,639 to
Alex. Brown, the Fund's distributor pursuant to the Class A Plan. Alex. Brown,
in turn, paid the distribution related expenses of the Fund including one or
more of the following: printing and mailing of prospectuses to other than
current
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shareholders; compensation to dealers and sales personnel; and interest,
carrying, or other financing charges.
In addition, with respect to the Flag Investors Class A or Flag
Investors Class B Shares, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which Alex. Brown will allocate a
portion of its distribution fee as compensation for such financial institutions'
ongoing shareholder services. Although banking laws and regulations prohibit
banks from distributing shares of open-end investment companies such as the
Fund, according to interpretations by various bank regulatory authorities,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as the shareholder servicing capacities described
above. Should future legislative, judicial or administrative action prohibit or
restrict the activities of the Shareholder Servicing Agents in connection with
the Shareholder Servicing Agreements, the Fund may be required to alter
materially or discontinue its arrangements with the Shareholder Servicing
Agents. Such financial institutions may impose separate fees in connection with
these services and investors should review the Prospectus and this Statement of
Additional Information in conjunction with any such institution's fee schedule.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
the Plans with respect to shares held by or on behalf of customers of such
entities. Payments under the Plans are made as described above regardless of
Alex. Brown's actual cost of providing distribution services and may be used to
pay Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Flag Investors Class A
Shares is less than .25% of the Flag Investors Class A Shares' average daily net
assets for any period or in connection with the sale of the Flag Investors Class
B Shares is less than .75% of the Flag Investors Class B Shares' average daily
net assets for any period, the unexpended portion of the distribution fee may be
retained by Alex. Brown. The Plans do not provide for any charges to the Fund
for excess amounts expended by Alex. Brown and, if either Plan is terminated in
accordance with its terms, the obligation of the Fund to make payments to Alex.
Brown pursuant to such Plan will cease and the Fund will not be required to make
any payments past the date the related Distribution Agreement terminates.
In the fiscal years ended October 31, 1995, October 31, 1994 and
October 31, 1993, Alex. Brown received sales commissions on the Flag Investors
Class A Shares of $153,431, $44,802 and $48,745 and from such amounts retained
$106,239, $37,546 and $46,314 for each such year, respectively.
The Flag Investors Institutional Shares and the ABCAT Shares
The Flag Investors Institutional Distribution Agreement and the ABCAT
Distribution Agreement provide that Alex. Brown either directly or through other
broker-dealers has the exclusive right to distribute the related class of shares
and further provide that Alex. Brown will solicit and receive orders for the
purchase of Flag Investors Institutional or ABCAT Shares, as appropriate, accept
or reject such orders on behalf of the Fund in accordance with the Fund's
currently effective Prospectus for such shares and transmit such orders as are
accepted to the Fund's transfer agent as promptly as possible, receive requests
for redemption and transmit such redemption requests to the Fund's transfer
agent as promptly as possible, respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund, maintain such accounts,
books and records as may be required by law or be deemed appropriate by the
Fund's Board of Directors, and take all actions deemed necessary to carry into
effect the distribution of the related class of shares. Alex. Brown has not
undertaken to sell any specific number of Flag Investors Institutional or ABCAT
Shares. The Flag Investors Institutional Distribution Agreement and the ABCAT
Distribution Agreement further provide that, in connection with the distribution
of the related class of shares, Alex. Brown will
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be responsible for all of the promotional expenses. The services provided by
Alex. Brown to the Fund are not exclusive, and Alex. Brown is free to provide
similar services to others. Alex. Brown shall not be liable to the Fund or its
shareholders for any act or omission by Alex. Brown or any losses sustained by
the Fund or its shareholders, except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. ABCAT Shares are
available solely for the discretionary accounts of Alex. Brown Capital Advisory
& Trust Company and its affiliates.
Alex. Brown receives no compensation for distributing the Flag
Investors Institutional Shares or the ABCAT Shares.
With respect to the Flag Investors Institutional Shares, Alex. Brown
and Participating Dealers have entered into Sub-Distribution Agreements under
which such Participating Dealers have agreed to process investor purchase and
redemption orders and respond to inquiries from shareholders concerning the
status of their accounts and the operations of the Fund. It is not currently
anticipated that Alex. Brown will enter into Sub-Distribution Agreements for the
ABCAT Shares.
The Flag Investors Institutional Distribution Agreement was approved by
the Fund's Board of Directors on September 25, 1995 and by the sole shareholder
of the class on October 31, 1995. The ABCAT Distribution Agreement was approved
by the Fund's Board of Directors on September 30, 1996 and by the sole
shareholder of the class on _______. Each such Agreement has an initial term of
two years and will remain in effect from year to year thereafter, if
specifically approved at least annually by the Fund's Board of Directors and by
the affirmative vote of a majority of the Non-Interested Directors by votes cast
at a meeting called for such purpose. Each Agreement may be terminated at any
time upon sixty days' written notice, without penalty, by the vote of a majority
of the Fund's Non-Interested Directors or by a vote of a majority of the shares
of the class (as defined under Capital Shares). The Flag Investors Institutional
Distribution Agreement, the ABCAT Distribution Agreement and any
Sub-Distribution Agreement shall automatically terminate in the event of
assignment.
General Information
Except as described elsewhere, the Fund pays or causes to be paid all
continuing expenses of the Fund, including, without limitation: investment
advisory and distribution fees; the charges and expenses of any registrar, any
custodian or depositary appointed by the Fund for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and corporate fees payable by the Fund to federal, state or other
governmental agencies; the costs and expenses of engraving or printing of
certificates representing Shares; all costs and expenses in connection with the
maintenance of registration of the Fund and its Shares with the SEC and various
states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting and distributing prospectuses and statements of additional
information of the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing, printing and
mailing proxy statements and reports to shareholders; fees and travel expenses
of Non-Interested Directors and Non-Interested Director members of any advisory
board or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Shares; fees and
expenses of legal counsel, including counsel to the Non-Interested Directors,
and independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and
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indemnification related thereto); and all other charges and cost of the Fund's
operation unless otherwise explicitly assumed by Alex. Brown or ICC.
8. BROKERAGE
Purchases and sales of securities on a securities exchange are effected
through brokers who charge a commission for their services. These brokerage
commissions are subject to negotiation between ICC and the broker-dealer. ICC
may direct purchase and sale orders to any broker-dealer, including, to the
extent and in the manner permitted by applicable law, Alex. Brown.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown serves as a principal; that is, an
order will not be placed with Alex. Brown if execution of the trade involves
Alex. Brown serving as a principal with respect to any part of the Fund's order.
If Alex. Brown is participating in an underwriting or selling group,
the Fund may not buy portfolio securities from the group except in accordance
with rules of the SEC. While the Fund believes that the limitation will not
significantly affect its ability to carry out its present investment objective,
the Fund may be at a disadvantage in the future in comparison to other funds
which have similar investment objectives, but which are not subject to such
limitations.
ICC's primary consideration in effecting securities transactions is to
obtain, on an overall basis, the best price and execution of orders. As
described below, however, to the extent that the price and execution offered by
more than one broker-dealer are comparable, ICC may, in its discretion, effect
transactions with broker-dealers that furnish statistical, research or other
information or services which are deemed by ICC to be beneficial to the Fund's
investment program. ICC is also authorized to pay higher commissions on
brokerage transactions for the Fund to non-affiliated brokers in order to secure
research and investment services described below, subject to periodic review by
the Fund's Board of Directors. Research services may include the following:
statistical and background information on the U.S. economy, industry groups and
individual small and mid-sized companies; forecasts and interpretations with
respect to specific industry groups and individual small and mid-sized
companies; information on federal, state, local and foreign political
developments; portfolio management strategies; performance information on
securities, indices and investment accounts; information concerning prices of
securities; provision of equipment used to communicate research information;
arrangement of meetings with management of companies; and provision of access to
consultants who supply research information. Certain research services furnished
by broker-dealers may be useful to ICC with clients other than the Fund.
Similarly, any research services received by ICC through placement of portfolio
transactions of other clients may be of value to ICC in fulfilling its
obligations to the Fund. No specific value can be determined for research and
statistical services furnished without cost to ICC by a broker-dealer. ICC is of
the opinion that because the material must be analyzed and reviewed by its
staff, its receipt does not tend to reduce expenses, but may be beneficial in
supplementing ICC's research and analysis. Therefore, it may tend to benefit the
Fund by improving ICC's investment advice. ICC's policy is to pay a
broker-dealer higher commissions for particular transactions than might be
charged if a different broker-dealer had been chosen when, in ICC's opinion,
this policy furthers the overall objective of obtaining the best price and
execution. The allocation of orders among broker-dealers and the commission
rates paid by the Fund will be reviewed periodically by the Board.
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Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown pursuant to certain policies and procedures incorporating
the standards of Rule 17e-1 under the Investment Company Act which requires that
the commissions paid Alex. Brown must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." Rule 17e-1 also contains requirements for
the review of such transactions by the Board of Directors and requires ICC to
furnish reports and to maintain records in connection with such reviews. The
Distribution Agreements between Alex. Brown and the Fund do not provide for any
reduction in the distribution fee to be received by Alex. Brown from the Fund as
a result of profits from brokerage commissions on transactions of the Fund
effected through Alex. Brown.
For the fiscal years ended October 31, 1995, October 31, 1994 and
October 31, 1993, ICC directed $25,120,072, $11,425,223 and $31,080,534,
respectively of transactions to broker-dealers and paid $12,495, $35,863 and
$125,743, respectively to broker-dealers in related commissions because of
research services provided to the Fund. During such periods, the Fund did not
pay brokerage commissions to Alex. Brown. The Fund is required to identify any
securities of its "regular brokers or dealers" (as such term is defined in the
Investment Company Act) which the Fund has acquired during its most recent
fiscal year. As of October 31, 1995, the Fund held a 5.75% repurchase agreement
issued by Goldman Sachs & Co. valued at $4,424,000. Goldman Sachs & Co. is a
"regular broker or dealer" of the Fund.
ICC manages other investment accounts and it is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ICC. ICC may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
9. CAPITAL SHARES
The Fund is authorized to issue 20 million Shares of capital stock, par
value of $.001 per Share, all of which Shares are designated common stock. The
Board of Directors may increase or decrease the number of authorized Shares
without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated four classes of shares: Flag Investors Emerging Growth Fund Class
A Shares (formerly known as the Flag Investors Emerging Growth Fund Shares),
Flag Investors Emerging Growth Fund Class B Shares, Flag Investors Emerging
Growth Fund Institutional Shares and Alex. Brown Capital Advisory & Trust
Emerging Growth Shares. The Flag Investors Institutional Shares are offered only
to certain eligible institutions and to clients of investment advisory
affiliates of Alex. Brown. The ABCAT Shares are offered only to clients of Alex.
Brown Capital Advisory & Trust Company and its affiliates. In the event separate
series are established, all Shares of the Fund, regardless of series or class
would have equal rights with respect to voting, except that with respect to any
matter affecting the
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rights of the holders of a particular series or class, the holders of each
series or class would vote separately. In general, each series would be managed
separately and shareholders of each series would have an undivided interest in
the net assets of that series. For tax purposes, the series would be treated as
separate entities. Generally, each class of Shares would be identical to every
other class in a particular series and expenses of the Fund (other than 12b-1
and any applicable service fees) would be prorated between all classes of a
series based upon the relative net assets of each class. Any matters affecting
any class exclusively will be voted on by the holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and,
therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining shareholders cannot elect
any members of the Board of Directors of the Fund. The Fund's issued and
outstanding Shares are fully paid and non-assessable. Each Share has one vote
and shall be entitled to dividends and distributions when and if declared by the
Fund. There are no preemptive, conversion or exchange rights applicable to any
of the Shares. In the event of liquidation or dissolution of the Fund, each
Share is entitled to its pro rata portion of the Fund's assets (or the assets
allocated to a separate series of shares if there is more than one series) after
all debts and expenses have been paid.
As used in this Statement of Additional Information, the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
PNC Bank, National Association ("PNC Bank"), Airport Business Park, 200
Stevens Drive, Lester, Pennsylvania 19113, a subsidiary of PNC Bank Corp., has
been retained to act as custodian of the Fund's investments. PNC Bank receives
such compensation from the Fund for its services as custodian as may be agreed
to from time to time by PNC Bank and the Fund. Investment Company Capital Corp.,
135 East Baltimore Street, Baltimore, Maryland 21202 (telephone: (800)
553-8080), has been retained to act as the Fund's transfer and dividend
disbursing agent. As compensation for providing these services, the Fund pays
ICC up to $10.12 per account per year, plus reimbursement for out-of-pocket
expenses. For the fiscal year ended October 31, 1995, such fees totaled $21,635.
ICC also provides certain accounting services to the Fund under a
Master Services Agreement effective January 1, 1994 between the Fund and ICC. As
compensation for these services, ICC is entitled to receive an annual fee,
calculated daily and paid monthly as shown below.
Average Net Assets Incremental Annual Accounting Fee
------------------ ---------------------------------
$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
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<PAGE>
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services under the Master Services Agreement: express delivery service,
independent pricing and storage. ICC also serves as the Fund's investment
advisor.
As compensation for providing accounting services for the fiscal year
ended October 31, 1995, ICC received fees of $30,407.
ICC also serves as the Fund's investment advisor.
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers &
Lybrand L.L.P. whose report thereon appears elsewhere herein, and has been
included herein in reliance upon the report of such firm of accountants given on
their authority as experts in accounting and auditing. Coopers & Lybrand L.L.P.
has offices at 2400 Eleven Penn Center, Philadelphia, PA 19103.
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return, rather than
in terms of yield. The total return quotations, under the rules of the SEC, must
be calculated according to the following formula:
n
P(1 + T = ERV )
Where:P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5, or 10 year
periods (or fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year periods.
Under the foregoing formula the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one, five and ten year periods or a shorter period dating from the
effectiveness
-21-
<PAGE>
of the Fund's registration statement (or the later commencement of operations of
the series or class). During its first year of operations the Fund may, in lieu
of annualizing its total return, use an aggregate total return calculated in the
same manner. In calculating the ending redeemable value for the Flag Investors
Class A Shares, the maximum sales load (4.5%) is deducted from the initial
$1,000 payment and all dividends and distributions by the Fund are assumed to
have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. In calculating performance for the Flag
Investors Class B Shares, the applicable contingent deferred sales charge (4.0%
for the one-year period, 2.0% for the five-year period and no sales charge
thereafter) is deducted from the ending redeemable value and all dividends and
distributions by the Fund are assumed to have been reinvested at net asset value
as described in the Prospectus on the reinvestment dates during the period. "T"
in the formula above is calculated by finding the average annual compounded rate
of return over the period that would equate an assumed initial payment of $1,000
to the ending redeemable value. Any sales loads that might in the future be made
applicable at the time to reinvestments would be included as would any recurring
account charges that might be imposed by the Fund. The Flag Investors
Institutional Shares and the ABCAT Shares are sold without a sales load.
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., the Fund calculates its aggregate
and average annual total return for the specified periods of time by assuming
the investment of $10,000 in Shares and assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date. For
this alternative computation, the Fund assumes that the $10,000 invested in
Shares is net of all sales charges (as distinguished from the computation
required by the SEC where the $1,000 payment is reduced by sales charges before
being invested in Shares). The Fund will, however, disclose the maximum sales
charges and will also disclose that the performance data do not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.
Such alternative total return information will be given no greater prominence in
such advertising than the information prescribed under SEC rules and all
advertisements containing performance data will include a legend disclosing that
such performance data represent past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Calculated according to the SEC rules, for the one year period ended
September 30, 1995, the ending redeemable value of a hypothetical $1,000 payment
for Flag Investors Class A Shares was $1,373, resulting in a total return for
such Shares equal to 37.26%. For the five year period ended September 30, 1995,
the ending redeemable value of a hypothetical $1,000 payment for Flag Investors
Class A Shares was $2,094, resulting in an average annual total return for such
Shares equal to 15.93%. For the period from June 15, 1988 (effectiveness of the
Fund's registration statement) through the end of the Fund's calendar quarter on
September 30, 1995, the ending redeemable value of a hypothetical $1,000 payment
for Flag Investors Class A Shares was $2,001, resulting in an average annual
total return for such Shares equal to 9.98%.
Calculated according to the alternative computation, which assumes no
sales charges and reinvestment of all distributions, for the one year period
ended October 31, 1995, the ending redeemable value of a hypothetical $10,000
investment in Flag Investors Class A Shares was $13,292, resulting in a total
return equal to 32.9%. For the five year period ended October 31, 1995, the
ending redeemable value of a hypothetical $10,000 investment in Flag Investors
Class A Shares was $22,635, resulting in an average annual total return equal to
17.8%. For the period from June 15, 1988 (effectiveness of the Fund's
registration statement) through the end of the Fund's fiscal year on October 31,
1995, the ending redeemable value of a hypothetical $10,000 investment in the
Flag Investors Class A Shares was $20,175, resulting in an average annual total
return equal to 10.0%.
No other classes of the Fund's shares were offered in any period ended
October 31, 1995.
-22-
<PAGE>
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding securities with maturities of one
year or less) may vary from year to year, as well as within a year, depending on
market conditions. For the fiscal years ended October 31, 1995 and October 31,
1994, the Fund's portfolio turnover rate was 39% and 86%, respectively. A high
level of portfolio turnover may generate relatively high transaction costs and
may increase the amount of taxes payable by the Fund's shareholders. (See
"Dividends and Taxes".)
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 20, 1996, to Fund management's knowledge, the following
persons owned of record or beneficially 5% or more of the Fund's outstanding
Shares:
Name & Address % Ownership
-------------- -----------
Alex. Brown Incorporated 55.33%*
135 East Baltimore Street
Baltimore, MD 21202
T. Rowe Price 13.88%
Trustee for Alex. Brown & Sons Incorporated
Plan 100460
Flag Investors Emerging Growth
ATTN: ASSET RECON
P.O. Box 17215
Baltimore, MD 21203-7215
Lauer & Co Cust 15.70%
BAT Customers
c/o Glenmede Income Collection Dept.
1650 Market Street, Suite 1200
Philadelphia, PA 19103-7301
* As of such date, to Fund management's knowledge, Alex. Brown
Incorporated owned beneficially less than 5% of such shares.
As of September 20, 1996, the Directors and executive officers as a
group owned less than 1% of the Fund's total outstanding Shares.
15. FINANCIAL STATEMENTS
See next page.
-23-
<PAGE>
[LOGO]
FLAG INVESTORS
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1995
<TABLE>
<CAPTION>
PERCENT
NO. OF VALUE OF NET
SHARES SECURITY (NOTE A) ASSETS
<C> <S> <C> <C>
- -------------------------------------------------------------------
COMMON STOCKS--88.5%
BUSINESS SERVICES--8.8%
2,100 Apollo Group* $ 55,125 0.1%
18,750 Corporate Express, Inc.* 489,844 1.3
21,000 Energy Biosystems Corp.* 189,000 0.5
75,000 Manugistics Group, Inc.* 1,293,750 3.4
50,500 QuickResponse Services,
Inc.* 1,262,500 3.3
7,600 Strategic Distribution Inc.* 55,575 0.2
------------ -----
3,345,794 8.8
CONSUMER SERVICES--14.4%
51,000 DF&R Restaurants, Inc.* 1,555,500 4.1
104,650 HomeTown Buffet, Inc.* 1,373,531 3.6
58,000 O'Charley's, Inc.* 667,000 1.7
51,500 Pacific Sunwear of
California* 373,375 1.0
12,500 Papa John's International,
Inc.* 481,250 1.3
17,250 PETsMART, Inc.* 577,875 1.5
11,500 Starbucks Corp.* 451,375 1.2
------------ -----
5,479,906 14.4
FINANCIAL SERVICES--5.0%
57,500 Life Partners Group Inc. 1,042,188 2.7
34,500 Pxre Corporation 879,750 2.3
------------ -----
1,921,938 5.0
HEALTH CARE SERVICES--11.9%
17,500 Access Health Marketing
Inc.* 544,688 1.4
37,500 Genesis Health Ventures
Inc.* 1,082,813 2.9
47,250 PhyCor, Inc.* 1,736,437 4.6
35,050 Vivra Inc.* 1,156,650 3.0
------------ -----
4,520,588 11.9
-24-
<PAGE>
<CAPTION>
PERCENT
NO. OF VALUE OF NET
SHARES SECURITY (NOTE A) ASSETS
<C> <S> <C> <C>
- -------------------------------------------------------------------
MEDIA/COMMUNICATIONS--1.9%
6,066 Clear Channel Communications
Inc.* $ 497,412 1.3%
17,500 Lancit Media Productions* 224,219 0.6
------------ -----
721,631 1.9
TECHNOLOGY--
SOFTWARE/SERVICES--22.3%
26,000 Cidco Inc.* 770,250 2.0
49,500 Integrated Systems Inc.* 1,732,500 4.5
68,500 Marcam Corp.* 1,027,500 2.7
11,000 Parametric Technology Corp.* 735,625 1.9
27,500 Progress Software Corp.* 1,801,250 4.7
13,000 Security Dynamics
Technologies, Inc.* 409,500 1.1
34,000 Synopsys Inc.* 1,275,000 3.3
8,000 System Softwares Associates* 247,000 0.7
30,000 XcelleNet Inc.* 517,500 1.4
------------ -----
8,516,125 22.3
TECHNOLOGY--
SYSTEMS/SEMICONDUCTOR--13.7%
44,000 Applied Digital Access Inc.* 528,000 1.4
21,000 Atmel Corp.* 656,250 1.7
8,500 Itron, Inc.* 246,500 0.6
69,000 Level One Communications
Inc.* 1,552,500 4.1
9,000 Maxim Integrated Products
Inc.* 672,750 1.8
22,900 QUALCOMM, Inc.* 881,650 2.3
15,000 Xilinx, Inc.* 690,000 1.8
------------ -----
5,227,650 13.7
</TABLE>
[LOGO]
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<PAGE>
[LOGO]
FLAG INVESTORS
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (CONCLUDED) October 31, 1995
<TABLE>
<CAPTION>
NO. OF
SHARES/ PERCENT
PAR VALUE OF NET
(000) SECURITY (NOTE A) ASSETS
<C> <S> <C> <C>
- ------------------------------------------------------------------
COMMON STOCKS (CONCLUDED)
TRANSPORTATION--10.5%
47,200 Fritz Companies Inc.* $ 1,652,000 4.3%
114,500 Great Lakes Aviation Ltd.* 543,875 1.4
47,500 Landair Services Inc.* 552,188 1.5
24,500 Landstar System Inc.* 643,125 1.7
24,700 Wabash National Corp. 626,761 1.6
------------- -----
4,017,949 10.5
TOTAL COMMON STOCKS
(Cost $22,087,820) 33,751,581 88.5
------------- -----
REPURCHASE AGREEMENT--11.6%
$4,424 GOLDMAN SACHS & CO., 5.75%
Dated 10/31/95, to be
repurchased on 11/1/95,
collateralized by U.S.
Treasury Notes with a
market value of
$4,513,376.
(Cost $4,424,000) 4,424,000 11.6
------------- -----
</TABLE>
<TABLE>
<CAPTION>
PERCENT
VALUE OF NET
(NOTE A) ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
TOTAL INVESTMENT IN
SECURITIES (Cost
$26,511,820)** $ 38,175,581 100.1%
------------- ----------
LIABILITIES IN EXCESS OF
OTHER ASSETS, NET (48,945) (0.1)
------------- ----------
NET ASSETS $ 38,126,636 100.0%
------------- ----------
------------- ----------
NET ASSET VALUE AND REDEMPTION
PRICE
PER SHARE
($38,126,636 DIVIDED BY
2,231,111 shares outstanding) $17.09
MAXIMUM OFFERING
PRICE PER SHARE
($17.09 DIVIDED BY .955) $17.90
</TABLE>
- --------------------------------------------------------------------------------
*Non-income producing security.
**Aggregate cost for federal tax purposes was $26,680,701.
See accompanying Notes to Financial Statements.
[LOGO]
-26-
<PAGE>
[LOGO]
FLAG INVESTORS
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended October 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME (NOTE A):
Interest................................................................. $ 222,779
Dividends................................................................ 20,158
Other income............................................................. 14,607
---------
Total income........................................................... 257,544
---------
EXPENSES:
Investment advisory fee (Note B)......................................... 201,199
Distribution fee (Note B)................................................ 74,639
Legal.................................................................... 35,158
Printing and postage..................................................... 30,979
Accounting fee (Note B).................................................. 30,407
Transfer agent fees (Note B)............................................. 21,635
Audit.................................................................... 21,444
Miscellaneous............................................................ 10,792
Custodian fees........................................................... 10,160
Registration fees........................................................ 8,592
Directors' fees.......................................................... 2,004
Insurance................................................................ 913
---------
Total expenses......................................................... 447,922
---------
Net investment loss...................................................... (190,378)
---------
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions............................. 2,180,561
Change in unrealized appreciation of investments......................... 6,850,511
---------
Net gain on investments.................................................. 9,031,072
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......................... $8,840,694
---------
---------
- ----------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
[LOGO]
-27-
<PAGE>
[LOGO]
FLAG INVESTORS
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER
31,
----------------------------
1995 1994
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss.................................................................. $ (190,378) $ (176,176)
Net realized gain/(loss) from security transactions.................................. 2,180,561 (13,816)
Change in unrealized appreciation of investments..................................... 6,850,511 328,533
------------- -------------
Net increase in net assets resulting from operations................................. 8,840,694 138,541
------------- -------------
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized long-term gains......................................................... (73,772) (2,944,147)
------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of 735,343 and 502,395 shares, respectively....................... 10,561,629 6,358,306
Value of 5,714 and 230,642 shares issued in reinvestment
of dividends, respectively......................................................... 68,962 2,746,944
Cost of 316,169 and 985,114 shares repurchased, respectively......................... (4,572,632) (11,865,168)
------------- -------------
Increase/(decrease) in net assets derived from capital share transactions............ 6,057,959 (2,759,918)
------------- -------------
Total increase/(decrease) in net assets.............................................. 14,824,881 (5,565,524)
NET ASSETS:
Beginning of year.................................................................... 23,301,755 28,867,279
------------- -------------
End of year.......................................................................... $ 38,126,636 $ 23,301,755
------------- -------------
------------- -------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
[LOGO]
-28-
<PAGE>
[LOGO]
FLAG INVESTORS
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)*
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year................ $ 12.90 $ 14.02 $ 13.53 $ 15.23 $ 8.93
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................... (0.09) (0.08) (0.08) (0.16) (0.10)
Net realized and unrealized gain/(loss)
on investments.................................... 4.32 0.47 1.20 (1.54) 6.40
---------- ---------- ---------- ---------- ----------
Total from Investment Operations.................... 4.23 0.39 1.12 (1.70) 6.30
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Distributions from net realized
long-term gains................................... (0.04) (1.51) (0.63) -- --
---------- ---------- ---------- ---------- ----------
Total distributions................................. (0.04) (1.51) (0.63) -- --
---------- ---------- ---------- ---------- ----------
Net asset value at end of year...................... $ 17.09 $ 12.90 $ 14.02 $ 13.53 $ 15.23
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN.......................................... 32.92% 3.75% 8.33% (11.16)% 70.55%
RATIOS TO AVERAGE NET ASSETS:
Expenses............................................ 1.50% 1.50% 1.50% 1.46% 1.50%
Net investment income............................... (0.64)% (0.73)% (0.52)% (0.92)% (0.76)%
SUPPLEMENTAL DATA:
Net assets at end of the year (000)................. $38,127 $23,302 $28,867 $38,924 $48,656
Portfolio turnover rate............................. 39% 86% 133% 69% 79%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Computed based upon average shares outstanding.
See accompanying Notes to Financial Statements.
[LOGO]
-29-
<PAGE>
[LOGO]
FLAG INVESTORS
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements
A. SIGNIFICANT ACCOUNTING POLICIES -- Flag Investors
Emerging Growth Fund, Inc. (the "Fund") was organized as a Maryland
Corporation on July 2, 1987 and commenced operations December 30, 1987. The
Fund is registered under the Investment Company Act of 1940 as a diversified,
open-end management investment company. Significant accounting policies are
as follows:
SECURITY VALUATION -- Portfolio securities that are primarily traded on a
recognized U.S. securities exchange are valued on the basis of their last
sale price. In the event that there are no sales or the security is not
listed, it is valued at the average between the last reported bid and asked
prices or at the fair value as determined by the Investment Advisor under
procedures established and monitored by the Board of Directors. Short-term
obligations with maturities of 60 days or less are valued at amortized cost.
REPURCHASE AGREEMENTS -- The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller, under a repurchase agreement, will be
required on a daily basis to maintain the value of the securities subject to
the agreement at not less than the repurchase price. The agreement is
conditioned upon the collateral being deposited under the Federal Reserve
book-entry system.
FEDERAL INCOME TAX -- No provision is made for federal income taxes as it is
the Fund's intention to continue to qualify as a regulated investment company
and to make requisite distributions to shareholders, which will be sufficient
to relieve it from all or substantially all federal income and excise taxes.
The Fund's policy is to annually distribute to shareholders substantially all
of its taxable net investment income and net realized long-term capital
gains, if any.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. Accordingly,
periodic reclassifications are made within the Fund's capital accounts to
reflect income and gains available for distribution under income tax
regulations.
OTHER -- Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed in kind is determined by use of the
specific identification method for both financial reporting and income tax
purposes. Interest income is recorded on an accrual basis. Dividend income is
recorded on the ex-dividend date.
B. INVESTMENT ADVISORY FEE, TRANSACTIONS WITH
AFFILIATES AND OTHER FEES -- Investment Company Capital Corp. ("ICC"), a
subsidiary of Alex. Brown & Sons Incorporated ("Alex. Brown"), serves as the
Fund's investment advisor. The Advisory Agreement provides for a maximum
annual fee equal to .85% of the Fund's average daily net assets. However, the
actual amount of the fee is contractually limited to an amount that would
result in total expenses on Class A Shares of no more than 1.50%. As
compensation for its services for the fiscal year ended October 31, 1995, the
Advisor received $201,199 in fees.
As compensation for its transfer agent services, ICC receives from the Fund a
per account fee, calculated and paid monthly. ICC received $21,635 for
transfer agent services for the year ended October 31, 1995.
As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, from the Fund's average daily
net assets. ICC received $30,407 for accounting services for the year ended
October 31, 1995.
As compensation for providing distribution services, Alex. Brown receives
from the Fund an annual fee, calculated daily and paid monthly, at an annual
rate equal to .25% of the Fund's average daily net assets. For the year ended
October 31, 1995, distribution fees were $74,639.
C. CAPITAL SHARE TRANSACTIONS -- At October 31,
1995, the Fund was authorized to issue up to 10 million shares of $.001 par
value common stock.
[LOGO]
-30-
<PAGE>
[LOGO]
FLAG INVESTORS
EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (CONCLUDED)
D. INVESTMENT TRANSACTIONS -- Purchases and sales
of investment securities, other than short-term obligations, aggregated
$14,826,109 and $10,543,560, respectively, for the year ended October 31,
1995.
At October 31, 1995, net unrealized appreciation for all securities in which
there is an excess of value over tax cost was $11,494,880 of which
$12,575,034 related to appreciated securities and $1,080,154 related to
depreciated securities.
E. NET ASSETS -- At October 31, 1995, net assets
consisted of:
<TABLE>
<S> <C>
Paid-in capital.................... $ 24,588,439
Accumulated net realized gain from
security transactions............ 1,874,437
Unrealized appreciation of
investments...................... 11,663,760
------------
$ 38,126,636
------------
------------
</TABLE>
Report of Independent Accountants
To the Shareholders and Directors of Flag Investors Emerging Growth Fund, Inc.:
We have audited the accompanying statement of net assets of Flag Investors
Emerging Growth Fund, Inc. as of October 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flag Investors Emerging Growth Fund, Inc. as of October 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and its financial highlights for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
December 1, 1995
[LOGO]
-31-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Statement of Net Assets April 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Percent Percent
No. of Value of Net No. of Value of Net
Shares Security (Note A) Assets Shares Security (Note A) Assets
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS--87.9%
Business Services--11.8% Media/Communications--2.1%
20,000 Apollo Group* $ 880,000 1.6% 13,032 Clear Channel Communica-
24,450 Corporate Express, Inc.* 913,818 1.7 tions Inc. $ 882,918 1.6%
57,100 Energy Biosystems Corp.* 371,150 0.7 19,800 Lancit Media Productions
111,600 Manugistics Group, Inc.* 1,813,500 3.4 Ltd.* 257,400 0.5
78,800 QuickResponse Services, 1,140,318 2.1
Inc.* 2,304,900 4.3
8,428 Strategic Distribution, Technology--Software/Services--16.7%
Inc.* 61,103 0.1 91,600 Integrated Systems Inc.* 2,679,300 5.0
6,344,471 11.8 93,000 Marcam Corp.* 1,069,500 2.0
26,000 Parametric Technology
Consumer Services--19.2% Corp.* 1,046,500 1.8
87,900 Apple South, Inc. 2,285,400 4.2 81,100 Progress Software Corp.* 1,277,325 2.4
154,550 HomeTown Buffet, Inc.* 2,202,338 4.1 56,700 Synopsys Inc.* 2,338,875 4.4
67,500 O'Charleys, Inc.* 1,037,813 1.9 39,000 XcelleNet Inc.* 575,250 1.1
86,200 Pacific Sunwear of 8,986,750 16.7
California* 1,400,750 2.6
20,050 Papa John's International, Technology--Systems/
Inc.* 988,715 1.8 Semiconductor--18.4%
21,950 PETsMART, Inc.* 974,032 1.8 31,200 Atmel Corporation* 1,248,000 2.3
32,500 Starbucks Corp.* 881,562 1.7 55,400 Cidco Inc.* 1,980,550 3.7
15,400 Sylvan Learning Systems, 16,000 Itron, Inc.* 940,000 1.7
Inc.* 596,750 1.1 67,400 Level One Communications
10,367,360 19.2 Inc. 1,786,100 3.3
20,800 Maxim Integrated Products
Financial Services--1.9% Inc.* 712,400 1.3
40,800 PXRE Corporation 1,040,400 1.9 27,100 QUALCOMM, Inc.* 1,050,126 2.0
15,300 Security Dynamics
Health Care Services--11.1% Technologies, Inc.* 1,292,850 2.4
29,300 Access Health Marketing 2,075 Sipex Corp.* 42,538 0.1
Inc.* 1,622,488 3.0 22,800 Xilinx, Inc.* 840,750 1.6
53,800 Genesis Health Ventures
Inc. 1,593,825 2.9 9,893,314 18.4
25,650 PhyCor, Inc.* 1,263,262 2.3
49,375 Vivra Inc.* 1,561,484 2.9 Transportation--6.2%
6,041,059 11.1 47,000 Fritz Companies Inc.* 1,727,250 3.2
122,500 Great Lakes Aviation Ltd.* 505,312 0.9
Health Equipment and Services--0.5% 69,000 Landair Services Inc.* 1,104,000 2.1
12,700 Perclose, Inc.* 260,350 0.5 3,336,562 6.2
Total Common Stocks
(Cost $27,723,221) 47,410,584 87.9
</TABLE>
-32-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Statement of Net Assets (concluded) April 30, 1996
(Unaudited)
Percent
Par Value of Net
(000) Security (Note A) Assets
- --------------------------------------------------------
REPURCHASE AGREEMENT--16.7%
$8,981 Goldman Sachs & Co., 5.20%
Dated 4/30/96, to be
repurchased on 5/1/96,
collateralized by U.S.
Treasury Notes with a
market value of
$9,161,447.
(Cost $8,981,000) $ 8,981,000 16.7%
Total Investment in
Securities
(Cost $36,704,221)** 56,391,584 104.6
Liabilities in Excess of
Other Assets, Net (2,483,400) (4.6)
Net Assets $53,908,184 100.0%
Value
(Note A)
Net Asset Value and
Redemption Price
Per:
Class A Share
($41,856,986 / 2,128,129
shares outstanding) $19.67
Institutional Share
($12,051,198 / 613,537
shares outstanding) $19.64
Maximum Offering
Price Per:
Class A Share
($19.67 / .955) $20.60
Institutional Share $19.64
- --------------------------------------------------------------------------------
* Non-income producing security.
** Aggregate cost for federal tax purposes was $36,671,784.
See accompanying Notes to Financial Statements.
-33-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Statement of Operations For the Six Months Ended April 30, 1996
(Unaudited)
INVESTMENT INCOME (NOTE A):
Interest $ 126,731
Dividends 16,098
Total income 142,829
EXPENSES:
Investment advisory fee (Note B) 178,837
Distribution fee (Note B) 45,568
Accounting fee (Note B) 18,927
Legal 17,452
Audit 10,962
Printing and postage 10,472
Transfer agent fees (Note B) 9,972
Custodian fees 8,976
Miscellaneous 5,360
Registration fees 4,284
Directors' fees 997
Total expenses 311,807
Expenses in excess of income (168,978)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from security transactions 1,096,319
Change in unrealized appreciation of investments 8,023,603
Net gain on investments 9,119,922
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $8,950,944
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
-34-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
April 30, 1996 Ended
(Unaudited) October 31, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE/DECREASE IN NET ASSETS:
Operations:
Expenses in excess of income $ (168,978) $ (190,378)
Net realized gain from security transactions 1,096,319 2,180,561
Change in unrealized appreciation of investments 8,023,603 6,850,511
Net increase in net assets resulting from operations 8,950,944 8,840,694
DIVIDENDS TO SHAREHOLDERS FROM:
Net realized short-term gains (674,016) --
Net realized long-term gains (1,348,032) (73,772)
Total distributions (2,022,048) (73,772)
CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of 922,987 and 735,343 shares,
respectively 15,932,793 10,561,629
Value of 117,523 and 5,714 shares issued in
reinvestment of dividends, respectively 1,913,272 68,962
Cost of 529,876 and 316,169 shares repurchased,
respectively (8,993,413) (4,572,632)
Increase in net assets derived from capital share
transactions 8,852,652 6,057,959
Total increase in net assets 15,781,548 14,824,881
NET ASSETS:
Beginning of period 38,126,636 23,301,755
End of period $53,908,184 $38,126,636
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
-35-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Financial Highlights--Class A Shares
(For a share outstanding throughout each period)*
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year Ended October 31,
April 30, 1996 ---------------------------------------------------
(Unaudited) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 17.09 $ 12.90 $ 14.02 $ 13.53 $ 15.23 $ 8.93
Income from Investment Operations:
Net investment loss (0.07) (0.09) (0.08) (0.08) (0.16) (0.10)
Net realized and unrealized gain/(loss)
on investments 3.55 4.32 0.47 1.20 (1.54) 6.40
Total from Investment Operations 3.48 4.23 0.39 1.12 (1.70) 6.30
Less Distributions:
Dividends from net investment income
and short-term gains (0.30) -- -- -- -- --
Distributions from net realized
long-term gains (0.60) (0.04) (1.51) (0.63) -- --
Total distributions (0.90) (0.04) (1.51) (0.63) -- --
Net asset value at end of period $ 19.67 $ 17.09 $ 12.90 $ 14.02 $ 13.53 $ 15.23
Total Return** 21.46% 32.92% 3.75% 8.33% (11.16)% 70.55%
Ratios to Average Daily Net Assets:
Expenses(2) 1.50%(1) 1.50% 1.50% 1.50% 1.46% 1.50%
Expenses in excess of income(3) (0.84)%(1) (0.64)% (0.73)% (0.52)% (0.92)% (0.76)%
Supplemental Data:
Net assets at end of period (000) $41,822 $38,127 $23,302 $28,867 $38,924 $48,656
Portfolio turnover rate 33%(1) 39% 86% 133% 69% 79%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Computed based upon average shares outstanding.
** Total return excludes the effect of sales charge.
(1) Annualized.
(2) Without the waiver of advisory fees (Note B), the ratio of expenses to
average daily net assets would have been 1.50% (annualized), 1.68%, 1.88%,
1.64%, 1.91% and 1.64% for the six months ended April 30, 1996 and the years
ended October 31, 1995, 1994, 1993, 1992 and 1991, respectively.
(3) Without the waiver of advisory fees (Note B), the ratio of expenses in
excess of income to average daily net assets would have been 1.50%
(annualized), (0.81)%, (1.10)%, (0.66)%, (1.17)% and (1.07)% for the six
months ended April 30, 1996 and the years ended October 31, 1995, 1994,
1993, 1992 and 1991, respectively.
See accompanying Notes to Financial Statements.
-36-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Financial Highlights--Institutional Class Shares
(For a share outstanding throughout the period)*
For the Period
November 2, 1995**
through
April 30, 1996
(Unaudited)
---------------------------------------------------------------------------
Per Share Operating Performance:
Net asset value at beginning of period $17.12
Income from Investment Operations:
Expenses in excess of income (0.03)
Net realized and unrealized gain on investments 3.45
Total from Investment Operations 3.42
Less Distributions:
Distributions from net investment income and short-term gains (0.30)
Distributions from net realized long-term gains (0.60)
Total distributions (0.90)
Net asset value at end of period $19.64
Total Return(1) 19.31%
Ratios to Average Daily Net Assets:
Expenses(2) 1.24%
Expenses in excess of income(2) (0.58)%
Supplemental Data:
Net assets at end of period (000) $11,992
Portfolio turnover rate(2) 33%
- -------------------------------------------------------------------------------
* Computed based upon average shares outstanding.
** Commencement of operations.
(1) Total return excludes the effect of sales charge.
(2) Annualized.
See accompanying Notes to Financial Statements.
-37-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Notes to Financial Statements
A. Significant Accounting Policies -- Flag Investors Emerging Growth Fund, Inc.
(the "Fund") was organized as a Maryland Corporation on July 2, 1987
and commenced operations on December 30, 1987, consisting of Class A
Shares, which are subject to a maximum front-end sales charge of
4.50% and a 0.25% distribution fee. On November 2, 1995, the Fund began
offering Institutional Shares, which are not subject to a front-end sales
charge or distribution fee. The Fund is registered under the
Investment Company Act of 1940 as a diversified, open-end management
investment company.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant accounting policies are as follows:
Security Valuation -- Portfolio securities that are primarily traded
on a recognized U.S. securities exchange are valued on the basis of their
last sale price. In the event that there are no sales or the security is not
listed, it is valued at the average between the last reported bid and
asked prices or at the fair value as determined by the Investment Advisor
under procedures established and monitored by the Board of Directors.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost.
Repurchase Agreements -- The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an
agreed upon date and price. The seller, under a repurchase agreement, will
be required on a daily basis to maintain the value of the securities subject
to the agreement at not less than the repurchase price. The agreement is
conditioned upon the collateral being deposited under the Federal Reserve
book-entry system.
Federal Income Tax -- No provision is made for federal income taxes as it is
the Fund's intention to continue to qualify as a regulated investment
company and to make requisite distributions to shareholders that will be
sufficient to relieve it from all or substantially all federal income and
excise taxes. The Fund's policy is to annually distribute to shareholders
substantially all of its taxable net investment income and net realized
long-term capital gains, if any.
Distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles. Accordingly,
periodic reclassifications are made within the Fund's capital accounts to
reflect income and gains available for distribution under income tax
regulations.
Other -- Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed in kind is determined by use of the
specific identification method for both financial reporting and income tax
purposes. Interest income is recorded on an accrual basis. Dividend
income is recorded on the ex-dividend date.
B. Investment Advisory Fee, Transactions with Affiliates and Other Fees --
Investment Company Capital Corp. ("ICC"), a subsidiary of Alex. Brown
Financial Corp., serves as the Fund's investment advisor. The Advisory
Agreement provides for a maximum annual fee equal to .85% of the Fund's
average daily net assets. However, the actual amount of the fee is
contractually limited to an amount that would result in total expenses on
Class A Shares of no more than 1.50%. As compensation for its services
for the six months ended April 30, 1996, the Advisor received $178,837 in
fees.
As compensation for its transfer agent services, ICC receives from the Fund a
per account fee, calculated and paid monthly. ICC received $9,972 for
transfer agent services for the six months ended April 30, 1996. As
compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly, from the Fund's average daily
net assets. ICC received $18,927 for
-38-
<PAGE>
[Flag Investors logo]
FLAG INVESTORS
EMERGING GROWTH FUND
Notes to Financial Statements (concluded)
accounting services for the six months ended April 30, 1996.
As compensation for providing distribution services, Alex. Brown & Sons
Incorporated ("Alex. Brown") receives from the Fund an annual fee,
calculated daily and paid monthly, at an annual rate equal to .25% of the
Class A Shares' average daily net assets. For the six months ended April
30, 1996, distribution fees were $45,568.
The fund complex of which the Fund is a part has adopted a retirement
plan for eligible Directors. The actuarially computed pension expense
allocated to the Fund for the six months ended April 30, 1996 was $318.
C. Capital Share Transactions -- As of April 30, 1996, the Fund was authorized
to issue up to 15 million shares of $.001 par value common stock (8
million Class A, 1 million Class B, 5 million Institutional and 1 million
undesignated). Transactions in shares of the Fund were as follows:
Class A Shares
- --------------------------------------------------------------------------------
For the For the
Six Months Year Ended
Ended October 31,
April 30, 1996 1995
- --------------------------------------------------------------------------------
Shares sold 270,239 735,343
Shares issued to share-
holders on reinvest-
ment of dividends 106,529 5,714
Shares redeemed (479,670) (316,169)
Net increase/(decrease) in
shares outstanding (102,902) 424,888
Proceeds from sale
of shares $ 4,611,364 $10,561,629
Reinvested dividends 1,733,222 68,962
Net asset value of
shares redeemed (8,185,724) (4,572,632)
Net increase/(decrease) from
capital share
transactions $(1,841,138) $ 6,057,959
Institutional Shares
- --------------------------------------------------------------------------------
For the Six
Months Ended
April 30, 1996
- --------------------------------------------------------------------------------
Shares sold 652,748
Shares issued to share-
holders on reinvest-
ment of dividends 10,994
Shares redeemed (50,206)
Net increase in shares
outstanding 613,536
Proceeds from sale
of shares $11,321,429
Reinvested dividends 180,050
Net asset value of
shares redeemed (807,689)
Net increase from
capital share
transactions $10,693,790
D. Investment Transactions -- Purchases and sales of investment securities,
other than short-term obligations, aggregated $10,324,804 and
$5,995,206, respectively, for the six months ended April 30, 1996.
At April 30, 1996, net unrealized appreciation for all securities in which
there is an excess of value over tax cost was $19,522,200, of which
$20,393,961 related to appreciated securities and $871,761 related to
depreciated securities.
E. Net Assets -- At April 30, 1996, net assets consisted of:
Paid-in capital $33,441,091
Accumulated net realized
gain from security
transactions 779,730
Unrealized appreciation
of investments 19,687,363
$53,908,184
-39-
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Part A of the Registration Statement:
- Financial Highlights for the Flag Investors Class A
Shares for the six months ended April 30, 1996
(Unaudited) and for the fiscal years ended October 31,
1995, October 31, 1994, October 31, 1993, October 31,
1992, October 31, 1991, October 31, 1990 and October
31, 1989 and for the period from December 30, 1987
(commencement of operations) through October 31, 1988
- Financial Highlights for the Flag Investors
Institutional Shares for the period from November 2,
1995 (commencement of operations) through April 30,
1996 (Unaudited)
(2) Included in Part B of the Registration Statement:
- Statement of Net Assets as of October 31, 1995
- Statement of Operations for the fiscal year ended
October 31, 1995
- Statement of Changes in Net Assets for the fiscal
years ended October 31, 1995 and October 31, 1994
- Financial Highlights for the fiscal years ended
October 31, 1995, October 31, 1994, October 31, 1993,
October 31, 1992 and October 31, 1991
- Notes to the Financial Statements
- Report of Independent Accountants
- Statement of Net Assets as of April 30, 1996.
(Unaudited)
- Statement of Operations for the six months ended April
30, 1996 (Unaudited)
- Statement of Changes in Net Assets for the six months
ended April 30, 1996 (Unaudited) and for the fiscal
year ended October 31, 1995
- Financial Highlights for Flag Investors Class A Shares
for the six months ended April 30, 1996 (Unaudited)
and for the fiscal years ended October 31, 1995,
October 31, 1994, October 31, 1993, October 31, 1992,
October 31, 1991
- Financial Highlights for the Flag Investors
Institutional Shares for the period from November 2,
1995 (commencement of operations) through April 30,
1996 (Unaudited)
C-1
<PAGE>
- Notes to Financial Statements
(3) All required financial statements are included in Parts A and
B of the Registration Statement. All other financial
statements and schedules are inapplicable.
(b) Exhibits:
(1) (a)(1) Articles of Incorporation.
(b)(1) Articles of Amendment.
(c)(1) Articles Supplementary.
(d)(3) Articles Supplementary.
(e) Form of Articles Supplementary with respect to
creation of ABCAT Shares Class, filed herewith.
(2)(1) By-Laws.
(3) Not Applicable.
(4)(2) Specimen Security with respect to Flag Investors
Shares.
(5)(1) Investment Advisory Agreement between Registrant and
Investment Company Capital Corp.
(6) (a)(1) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Emerging Growth Fund Class A Shares.
(b)(1) Sub-Distribution Agreement between Alex. Brown & Sons
Incorporated and Participating Dealers.
(c)(1) Form of Shareholder Servicing Agreement between Alex.
Brown & Sons Incorporated and Shareholder Servicing
Agents.
(d)(3) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Emerging Growth Fund Institutional Shares.
(e)(4) Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag
Investors Emerging Growth Fund Class B Shares.
(f) Form of Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to Alex.
Brown Capital Advisory & Trust Emerging Growth Shares,
filed herewith.
C-2
<PAGE>
(7) Not Applicable.
(8)(1) Custodian Agreement between Registrant and Provident
National Bank in effect from February 1, 1991.
(9)(1) Master Services Agreement between Registrant and
Investment Company Capital Corp. with Appendices for the
provision of Transfer Agency and Accounting Services.
(10)(1) Opinion of Counsel.
(11) Consent of Coopers & Lybrand L.L.P., filed herewith.
(12) Not Applicable.
(13)(1) Subscription Agreements between Registrant and
Investors.
(14) Not Applicable.
(15) (a)(1) Plan of Distribution with respect to Flag
Investors Emerging Growth Fund Class A Shares.
(b)(4) Plan of Distribution with respect to Flag
Investors Emerging Growth Fund Class B
Shares.
(16)(1) Schedule of Computation of Performance Data (unaudited).
(18) Rule 18f-3 Plan, filed herewith.
(24) Powers of Attorney, filed herewith.
(27) Financial Data Schedule, filed herewith.
1 Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
August 18, 1995.
2 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (Registration No. 33-21119), filed with the Securities and
Exchange Commission on April 7, 1988.
3 Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
February 28, 1996.
C-3
<PAGE>
4 Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
March 25, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, and (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities.
State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders of each
class of securities of the Registrant.
The following information is given as of September 20, 1996.
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock Flag Investors Class A Shares 1,712
Flag Investors Class B Shares 39
Flag Investors Institutional Shares 114
Item 27. Indemnification.
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Section 17(h) of the Investment Company Act of 1940, as amended (the "1940
Act"), MD Corps. & Ass'ns Code Ann. Section 2-418 (1985 repl. vol.) and Article
VIII of Registrant's Articles of Incorporation, provide that in certain
situations the Registrant may indemnify any person who was or is a director,
officer or employee of the Registrant against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any such indemnified person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body except with respect to any matter as to which
such person shall have been finally adjudicated in any such action, suit or
other proceeding (a) not to have acted in good faith in the reasonable belief
that such person's action was in the best interests of the Registrant or (b) to
be liable to the Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office. Expenses, including counsel
fees so incurred by any such person, shall be paid from time to time by the
Registrant in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay amounts so paid to the Registrant if it is ultimately determined that
indemnification of such expenses is not authorized under the Articles of
Incorporation, provided, however, that either (a) such person shall
C-4
<PAGE>
have provided appropriate security for such undertaking, (b) the Registrant
shall be insured against losses arising from any such advance payments or (c)
either a majority of the Directors who are not "interested persons" of the
Registrant as defined in Section 2(a)(19) of the 1940 Act acting on the matter
(provided that a majority of the Directors who are not "interested persons" then
in office act on the matter), or independent legal counsel in a written opinion,
shall have determined, based upon a review of readily available facts that there
is reason to believe that such person will be found entitled to indemnification
under the Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1940 Act and
is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed by
the final adjudication of such issue. In the absence of a determination by a
court of competent jurisdiction, the determinations that indemnification against
such liabilities is proper, and advances can be made, are made by a majority of
a quorum of the disinterested, non-party directors of the Fund, or an
independent legal counsel in a written opinion, based on review of readily
available facts.
Item 28. Business and Other Connections of Investment Advisor.
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's Investment Advisor, has engaged in any
other business, profession, vocation or employment of a substantial nature other
than as an officer or employee of Alex. Brown.
Item 29. Principal Underwriters
(a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc.,
Flag Investors International Fund, Inc., the Flag Investors Total
Return U.S. Treasury Fund Shares of Total Return U.S. Treasury Fund,
Inc., the Flag Investors Managed Municipal Fund Shares of Managed
Municipal Fund, Inc., Flag Investors Intermediate-Term Income Fund,
Inc., Flag Investors Value Builder Fund, Inc., Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc. and Flag Investors Equity Partners Fund, Inc.,
all registered open-end management investment companies.
C-5
<PAGE>
(b)
<TABLE>
<CAPTION>
Names and Principal Position with offices Position and Offices
Business Address* and Principal Underwriter with Registrant
----------------- ------------------------- ---------------
<S> <C> <C>
Alvin B. Krongard Chairman, Chief Executive Officer, None
Director
Mayo A. Shattuck III President, Director None
Beverly L. Wright Chief Financial Officer and Treasurer None
Robert F. Price Secretary and General Counsel None
</TABLE>
- --------------------
* 135 East Baltimore Street
Baltimore, Maryland 21202
(c) Not Applicable.
Item 30. Location of Accounts and Records.
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
Alex. Brown & Sons Incorporated (Registrant's distributor) and
Investment Company Capital Corp. (Registrant's investment advisor,
transfer agent and dividend disbursing agent), 135 E. Baltimore Street,
Baltimore, Maryland 21202, will maintain physical possession of each such
account, book or other document of the Registrant, except for those
maintained by the Registrant's custodian, PNC Bank, 17th & Chestnut
Streets, Philadelphia, PA 19103.
Item 31. Management Services.
Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form (because the
contract was not believed to be of interest to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom, for the last three
fiscal years.
See Exhibit 8.
C-6
<PAGE>
Item 32. Undertakings.
Furnish the following undertakings in substantially the following form in
all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's latest Annual Report to Shareholders
is available upon request, without charge by contacting
Registrant at (800) 767-3524.
C-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 the Registrant has duly caused this
Post-Effective Amendment No. 13 to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 18th day of October, 1996.
FLAG INVESTORS EMERGING GROWTH
FUND, INC.
By:/s/ Frederick L. Meserve, Jr.
----------------------------------
Frederick L. Meserve, Jr.
President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by the
following persons in the capacities on the date(s) indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
*/s/ Truman T. Semans Director October 18, 1996
- ------------------------------- -----------------------
Truman T. Semans Date
*/s/ W. James Price Director October 18, 1996
- ------------------------------- -----------------------
W. James Price Date
*/s/ Richard T. Hale Director October 18, 1996
- ------------------------------- -----------------------
Richard T. Hale Date
*/s/ James J. Cunnane Director October 18, 1996
- ------------------------------- -----------------------
James J. Cunnane Date
*/s/ John F. Kroeger Director October 18, 1996
- ------------------------------- -----------------------
John F. Kroeger Date
*/s/ Louis E. Levy Director October 18, 1996
- ------------------------------- -----------------------
Louis E. Levy Date
*/s/ Eugene J. McDonald Director October 18, 1996
- ------------------------------- -----------------------
Eugene J. McDonald Date
*/s/ Harry Woolf Director October 18, 1996
- ------------------------------- -----------------------
Harry Woolf Date
/s/ Frederick L. Meserve, Jr. President October 18, 1996
- ------------------------------- -----------------------
Frederick L. Meserve, Jr. Date
/s/ Joseph A. Finelli Chief Financial October 18 , 1996
- ------------------------------- and Accounting -----------------------
Joseph A. Finelli Officer Date
*By: /s/ Edward J. Stoken
--------------------------
Edward J. Stoken
Attorney-In-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
EDGAR
Exhibit
Number Description Page No.
------ ----------- --------
(1) (a) Registrant's Articles of Incorporation.(1)
(1) (b) Registrant's Articles of Amendment.(1)
(1) (c) Registrant's Articles Supplementary.(1)
(1) (d) Registrant's Articles Supplementary.(3)
EX-99.B (1) (e) Registrant's Form of Articles Supplementary with
respect to creation of ABCAT Shares Class, filed
herewith.
(2) Registrant's By-Laws.(1)
(3) None.
(4) Registrant's Specimen Security with respect to Flag
Investors Shares.(2)
(5) Registrant's Investment Advisory Agreement between
Registrant and Investment Company Capital Corp.(1)
(6) (a) Registrant's Distribution Agreement between
Registrant and Alex. Brown & Sons Incorporated
with respect to Flag Investors Emerging Growth
Fund Class A Shares.(1)
(6) (b) Registrant's Sub-Distribution Agreement between
Alex. Brown & Sons Incorporated and Participating
Broker-Dealers.(1)
(6) (c) Registrant's Shareholder Servicing Agreement
between Registrant and Shareholder Servicing
Agents.(1)
(6) (d) Registrant's Distribution Agreement between
Registrant and Alex. Brown & Sons Incorporated
with respect to Flag Investors Emerging Growth
Fund Institutional Shares.(3)
(6) (e) Registrant's Distribution Agreement between
Registrant and Alex. Brown & Sons
Incorporated with respect to Flag Investors
Emerging Growth Fund Class B Shares.(4)
EX-99.B (6) (f) Registrant's Form of Distribution Agreement
between Registrant and Alex. Brown & Sons
Incorporated with respect to Alex. Brown Capital
Advisory & Trust Emerging Growth Shares, filed
herewith.
(7) None.
<PAGE>
(8) Custodian Agreement between Registrant and Provident
National Bank, as in effect from February 1, 1991.(1)
(9) Master Services Agreement between Registrant and
Investment Company Capital Corp. with Appendices for
the provision of Transfer Agency and Accounting
Services.(3)
(10) Opinion of Counsel.(1)
EX-99.B (11) Consent of Coopers & Lybrand L.L.P., filed herewith.
(12) None.
(13) Subscription Agreements between Registrant and
Investors.(1)
(14) None.
(15) (a) Distribution Plan with respect to Flag
Investors Emerging Growth Fund Class A
Shares.(1)
(15) (b) Distribution Plan with respect to Flag
Investors Emerging Growth Fund Class B
Shares.(4)
(16) Schedule of Computation of Performance Quotations
(unaudited).(1)
EX-99.B (18) Rule 18f-3 Plan, filed herewith.
EX-99.B (24) (a) Powers of Attorney, filed herewith.
EX-27 Financial Data Schedule, filed herewith.
- --------------------
1 Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
August 18, 1995.
2 Incorporated herein by reference to Registrant's Registration Statement on
Form N-1A (Registration No. 33-21119), filed with the Securities and
Exchange Commission on April 7, 1988.
3 Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
February 28, 1996.
4 Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
March 25, 1996.
<PAGE>
EX-99.B(1)(e)
FLAG INVESTORS EMERGING GROWTH FUND, INC.
FORM OF
ARTICLES SUPPLEMENTARY
FLAG INVESTORS EMERGING GROWTH FUND, INC. (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in
accordance with Section 2-105(c) of the Maryland General Corporation Law has
adopted a resolution increasing the total number of shares of capital stock
which the Corporation has the authority to issue to twenty million (20,000,000)
shares of Common Stock, of the par value of 1 mil ($.001) per share and of the
aggregate par value of twenty thousand dollars ($20,000), all of which shares
are designated and classified as follows: eight million (8,000,000) shares are
designated "Flag Investors Emerging Growth Fund Class A Shares," one million
(1,000,000) shares are designated "Flag Investors Emerging Growth Fund Class B
Shares," five million (5,000,000) shares are designated "Flag Investors Emerging
Growth Fund Institutional Shares," five million (5,000,000) shares are
designated "Alex. Brown Capital Advisory & Trust Emerging Growth Shares" and one
million (1,000,000) shares remain undesignated.
SECOND: Immediately before the increase, the
Corporation was authorized to issue fifteen million (15,000,000) shares of
Common Stock, of the par value of 1 mil ($.001) per share and of the aggregate
par value of fifteen thousand dollars ($15,000), all of which shares were
designated and classified as follows: eight million (8,000,000) shares were
designated "Flag Investors Emerging Growth Fund Class A Shares," one million
(1,000,000) shares were designated "Flag Investors Emerging Growth Fund Class B
Shares," five million (5,000,000) shares were designated "Flag Investors
Emerging Growth Fund Institutional Shares" and one million (1,000,000) shares
remained undesignated.
THIRD: The Corporation is registered as an open-end
investment company under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, Flag Investors Emerging Growth Fund, Inc.
has caused these Articles Supplementary to be executed by one of its Vice
Presidents and its corporate seal to be affixed and attested by its Secretary on
this 2nd day of October, 1996.
<PAGE>
[CORPORATE SEAL]
FLAG INVESTORS EMERGING GROWTH FUND, INC.
By: ____________________________________
Edward J. Veilleux
Vice President
Attest: __________________________
Edward J. Stoken
Secretary
The undersigned, Vice President of FLAG INVESTORS EMERGING
GROWTH FUND, INC., who executed on behalf of said corporation the foregoing
Articles Supplementary to the Articles of Incorporation of which this
certificate is made a part, hereby acknowledges, in the name and on behalf of
said corporation, the foregoing Articles Supplementary to the Articles of
Incorporation to be the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in all
material respects, under the penalties of perjury.
By: ____________________________________
Edward J. Veilleux
Vice President
<PAGE>
EX-99.B(6)(e)
FLAG INVESTORS EMERGING GROWTH FUND, INC.
ALEX. BROWN CAPITAL ADVISORY & TRUST SHARES
FORM OF
DISTRIBUTION AGREEMENT
AGREEMENT, made as of the ___ day of __________, 1996, by
and between FLAG INVESTORS EMERGING GROWTH FUND, INC., a Maryland corporation
(the "Fund"), and ALEX. BROWN & SONS INCORPORATED, a Maryland corporation
("Alex. Brown").
W I T N E S S E T H
WHEREAS, the Fund is registered as an open-end,
diversified, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Fund's Articles of Incorporation, filed with
the Secretary of State of the State of Maryland on July 2, 1987 (the
"Articles"), authorize the Board of Directors of the Fund to increase or
decrease the number of shares of capital stock of the Fund and the number of
shares of any class of capital stock of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the
designation of three classes of shares of the Fund known respectively as the
Flag Investors Emerging Growth Fund Class A Shares, the Flag Investors Emerging
Growth Fund Class B Shares and the Flag Investors Emerging Growth Fund
Institutional Shares; and
WHEREAS, the Fund's Board of Directors has further
authorized the creation of an additional class of shares of the Fund known as
the Alex. Brown Capital Advisory & Trust Emerging Growth Shares (the "Shares") ;
and
WHEREAS, the Fund wishes to appoint Alex. Brown as the
exclusive distributor of the Shares and Alex. Brown wishes to become the
distributor of the Shares.
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and of other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
<PAGE>
1. Appointment. The Fund appoints Alex. Brown as
Distributor for the Shares for the period and on the terms set forth in this
Agreement. Alex. Brown accepts such appointment and agrees to render the
services set forth herein.
2. Delivery of Documents. The Fund has furnished Alex.
Brown with copies properly certified or authenticated of each of the following:
(a) The Fund's Articles and all amendments thereto;
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be amended,
are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of Alex. Brown as the Fund's
Distributor of the Shares and approving this Agreement;
(d) The Fund's Notification of Registration filed
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act, as
filed with the Securities and Exchange Commission (the "SEC") on April 7, 1988;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
33-21119) and under the 1940 Act as filed with the SEC on April 7, 1988 relating
to the Shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus for the Shares
(such prospectus and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish Alex. Brown from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties as Distributor. Alex. Brown shall give the Fund
the benefit of its best judgment, efforts and facilities in rendering its
services as Distributor of the Shares. Alex. Brown shall:
(a) respond to inquiries from the Fund's shareholders
concerning the status of their accounts with the Fund; and
(b) take, on behalf of the Fund, all actions deemed
necessary to carry into effect the distribution of the Shares.
2
<PAGE>
4. Distribution of Shares. Alex. Brown shall be the
exclusive distributor of the Shares. It is mutually understood and agreed that
Alex. Brown does not undertake to sell all or any specific portion of the
Shares. The Fund shall not sell any of the Shares except through Alex. Brown.
Notwithstanding the provisions of the foregoing sentence,
(a) the Fund may issue its Shares at their net asset
value to any shareholder of the Fund purchasing such Shares with dividends or
other cash distributions received from the Fund pursuant to an offer made to all
shareholders;
(b) Alex. Brown may enter into shareholder processing
and servicing agreements;
(c) Alex. Brown may, and when requested by the Fund
shall, suspend its efforts to effectuate sales of the Shares at any time when in
the opinion of Alex. Brown or of the Fund no sales should be made because of
market or other economic considerations or abnormal circumstances of any kind;
and
(d) the Fund may withdraw the offering of the Shares
(i) at any time with the consent of Alex. Brown, or (ii) without such consent
when so required by the provisions of any statute or of any order, rule or
regulation of any governmental body having jurisdiction.
5. Control by Board of Directors. Any distribution
activities undertaken by Alex. Brown pursuant to this Agreement, as well as any
other activities undertaken by Alex. Brown on behalf of the Fund pursuant
hereto, shall at all times be subject to any directives of the Board of
Directors of the Fund. The Board of Directors may agree, on behalf of the Fund,
to amendments to this Agreement.
6. Compliance with Applicable Requirements. In carrying
out its obligations under this Agreement, Alex. Brown shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder as amended;
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any amendments and supplements
thereto;
(c) the provisions of the Articles of Incorporation of
the Fund and any amendments thereto;
(d) the provisions of the By-Laws of the Fund;
3
<PAGE>
(e) the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory
organizations applicable to the sale of investment company shares; and
(f) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and Alex. Brown as follows:
(a) Alex. Brown shall furnish, at its expense and
without cost to the Fund, the services of personnel to the extent that such
services are required to carry out their obligations under this Agreement;
(b) Alex. Brown shall bear the expenses of any
promotional or sales literature used by Alex. Brown or furnished by Alex. Brown
to purchasers or dealers in connection with the public offering of the Shares,
the expenses of advertising in connection with such public offering and all
legal expenses in connection with the foregoing;
(c) the Fund assumes and shall pay or cause to be paid
all other expenses of the Fund, including, without limitation: the fees of the
Fund's investment advisor; the charges and expenses of any registrar, custodian
or depositary appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any stock transfer, dividend or accounting
agent or agents appointed by the Fund; brokers' commissions chargeable to the
Fund in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and
corporate fees payable by the Fund to Federal, State or other governmental
agencies; all costs and expenses in connection with maintenance of registration
of the Fund and the Shares with the SEC and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel) except as provided in subparagraph (a) above; the expenses of printing,
including typesetting, and distributing prospectuses of the Fund and supplements
thereto to the Fund's shareholders; all expenses of shareholders' and Directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) or members of any advisory
board or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in Shares or in cash; charges
and expenses of any outside service used for pricing of the Shares; charges and
expenses of legal counsel, including counsel to the Directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), and of
independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
4
<PAGE>
8. Delegation of Responsibilities. Alex. Brown may, but
shall be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and Alex. Brown's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by
Alex. Brown of any Fund expense that Alex. Brown is not required to pay or
assume under this Agreement shall not relieve Alex. Brown of any of its
obligations to the Fund or obligate Alex. Brown to pay or assume any similar
Fund expense on any subsequent occasions.
9. Compensation. Alex. Brown shall receive no compensation
for the services to be rendered and the expenses assumed by it pursuant to this
Agreement.
10. Compensation for Servicing Shareholder Accounts. The
Fund acknowledges that Alex. Brown may, from its own resources, compensate its
investment representatives for opening accounts, processing investor letters of
transmittals and applications and withdrawal and redemption orders, responding
to inquiries from Fund shareholders concerning the status of their accounts and
the operations of the Fund, and communicating with the Fund and its transfer
agent on behalf of the Fund shareholders.
11. Sub-Distribution Agreements. Alex. Brown may enter
into Sub-Distribution Agreements (the "Sub-Distribution Agreements") with any
securities dealer who is registered under the Securities Exchange Act of 1934
and a member in good standing of the NASD, who may wish to act as a
Participating Dealer in connection with the proposed offering. All
Sub-Distribution Agreements shall be in substantially the form of the agreement
attached hereto as Exhibit "A". For processing Fund shareholders' redemption
orders, responding to the inquiries from Fund shareholders concerning the status
of their accounts and the operations of the Fund and communicating with the
Fund, its transfer agent and Alex. Brown, Alex. Brown may, from its own
resources, compensate each such Participating Dealer for such services.
12. Non-Exclusivity. The services of Alex. Brown to the
Fund are not to be deemed exclusive and Alex. Brown shall be free to render
distribution or other services to others (including other investment companies)
and to engage in other activities. It is understood and agreed that Directors,
officers or employees of Alex. Brown may serve as Directors or officers of the
Fund, and that Directors or officers of the Fund may serve as Directors,
officers and employees of Alex. Brown to the extent permitted by law; and that
Directors, officers and employees of Alex. Brown are not prohibited from
engaging in any other business activity or from rendering services to any other
person, or from serving as partners, Directors or officers of any other firm or
corporation, including other investment companies.
13. Term and Approval. This Agreement shall become
effective at the close of business on the date hereof and shall remain in force
and effect for an initial term of two years and from year to year thereafter,
provided that such continuance is specifically approved at least annually:
5
<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of a majority of the outstanding voting securities of the Shares (as
defined in the 1940 Act), and
(b) by the affirmative vote of a majority of the
Directors who are not "interested persons" of the Fund (as defined in the 1940
Act) and do not have a financial interest in the operation of this Agreement, by
votes cast in person at a meeting specifically called for such purpose.
14. Termination. This Agreement may be terminated at any
time, on sixty (60) days' written notice to the other party without the payment
of any penalty, (i) by vote of the Fund's Board of Directors, (ii) by vote of a
majority of the Directors who are not "interested persons" of the Fund (as
defined in the 1940 Act) and do not have a financial interest in the operation
of this Agreement, (iii) by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) or (iv) by Alex. Brown. The notice
provided for herein may be waived by each party. This Agreement shall
automatically terminate in the event of its assignment (as the term is defined
in the 1940 Act).
15. Liability. In the performance of its duties hereunder,
Alex. Brown shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits in performing all
services provided for under this Agreement, but shall not be liable for any act
or omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of Alex. Brown or reckless disregard by Alex. Brown of
its duties under this Agreement.
16. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other parties, it is agreed that the address of both
Alex. Brown and the Fund for this purpose shall be 135 East Baltimore Street,
Baltimore, Maryland 21202.
17. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to the 1940 Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS EMERGING GROWTH
FUND, INC.
Attest:______________ By _______________________________
Title:
[SEAL] ALEX. BROWN & SONS INCORPORATED
Attest:_______________ By ______________________________
Title:
7
<PAGE>
Exhibit A
FLAG INVESTORS FAMILY OF FUNDS
135 East Baltimore Street
Baltimore, Maryland 21202
FORM OF
SUB-DISTRIBUTION AGREEMENT
_____________________, 19__
Gentlemen:
Alex. Brown & Sons Incorporated ("Alex. Brown"), a
Maryland corporation, serves as distributor (the "Distributor") of the Flag
Investors Funds (collectively, the "Funds", individually a "Fund"). The Funds
are open-end investment companies registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Funds offer their shares
("Shares") to the public in accordance with the terms and conditions contained
in the Prospectus of each Fund. The term "Prospectus" used herein refers to the
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a
Participating Dealer and as such are authorized (i) to accept orders for the
purchase of Shares and to transmit to the Funds such orders and the payment made
therefore, (ii) to accept orders for the redemption of Shares and to transmit to
the Funds such orders and all additional material, including any certificates
for Shares, as may be required to complete the redemption and (iii) to assist
shareholders with the foregoing and other matters relating to their investments
in each Fund, in each case subject to the terms and conditions set forth in the
Prospectus of each Fund. You are to review each Share purchase or redemption
order submitted through you or with your assistance for completeness and
accuracy. You further agree to undertake from time to time certain shareholder
servicing activities for customers of yours who have purchased Shares and who
use your facilities to communicate with the Funds or to effect redemptions or
additional purchases of Shares.
2. Limitation of Authority. No person is authorized to
make any representations concerning the Funds or the Shares except those
contained in the
8
<PAGE>
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you
will look solely to the Distributor, and you acknowledge that the Funds shall
have no direct responsibility for any compensation. In addition to any sales
charge payable to you by your customer pursuant to a Prospectus, the Distributor
will pay you no less often than annually a shareholder processing and service
fee (as we may determine from time to time in writing) computed as a percentage
of the average daily net assets maintained with each Fund during the preceding
period by shareholders who purchase their shares through you or with your
assistance, provided that said assets are at least $250,000 for each Fund for
which you are to be compensated, and provided that in all cases your name is
transmitted with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the
provisions contained in the Securities Act governing the distribution of
prospectuses to persons to whom you offer Shares. You further agree to deliver,
upon our request, copies of any amended Prospectus of the relevant Fund to
purchasers whose Shares you are holding as record owner and to deliver to such
persons copies of the annual and interim reports and proxy solicitation
materials of the Funds. We agree to furnish to you as many copies of each
Prospectus, annual and interim reports and proxy solicitation materials as you
may reasonably request.
5. Qualification to Act. You represent that you are a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"). Your expulsion or suspension from the NASD will automatically
terminate this Agreement on the effective date of such expulsion or suspension.
You agree that you will not offer Shares to persons in any jurisdiction in which
you may not lawfully make such offer due to the fact that you have not
registered under, or are not exempt from, the applicable registration or
licensing requirements of such jurisdiction. You agree that in performing the
services under this Agreement, you at all times will comply with the NASD's
Conduct Rules, including, without limitation, the provisions of Rule 2830 of
such Rules. You agree that you will not combine customer orders to reach
breakpoints in commissions for any purposes whatsoever unless authorized by the
then current Prospectus in respect of Shares of a particular class or by us in
writing. You also agree that you will place orders immediately upon their
receipt and will not withhold any order so as to profit therefrom. In
determining the amount payable to you hereunder, we reserve the right to exclude
any sales which we reasonably determine are not made in accordance with the
terms of the Prospectus and provisions of the Agreement.
6. Blue Sky. The Funds have registered an indefinite
number of Shares under the Securities Act. The Funds intend to register or
qualify in certain states where registration or qualification is required. We
will inform you as to the states or other jurisdictions in which we believe the
Shares have been qualified for sale under, or are
9
<PAGE>
exempt from the requirements of, the respective securities laws of such states.
You agree that you will offer Shares to your customers only in those states
where such Shares have been registered, qualified, or an exemption is available.
We assume no responsibility or obligation as to your right to sell Shares in any
jurisdiction. We will file with the Department of State in New York a State
Notice and a Further State Notice with respect to the Shares, if necessary.
7. Authority of Fund. Each of the Funds shall have full
authority to take such action as it deems advisable in respect of all matters
pertaining to the offering of its Shares, including the right not to accept any
order for the purchase of Shares.
8. Record Keeping. You will (i) maintain all records
required by law to be kept by you relating to transactions in Shares and, upon
request by any Fund, promptly make such of these records available to the Fund
as the Fund may reasonably request in connection with its operations and (ii)
promptly notify the Fund if you experience any difficulty in maintaining the
records described in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by it hereunder. In carrying out your obligations, you agree to act in
good faith and without negligence. Nothing contained in this Agreement is
intended to operate as a waiver by the Distributor or you of compliance with any
provision of the Investment Company Act, the Securities Act, the Securities
Exchange Act of 1934, as amended, or the rules and regulations promulgated by
the Securities and Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by
either party, without penalty, upon ten days' notice to the other party and
shall automatically terminate in the event of its assignment (as defined in the
Investment Company Act). This Agreement may also be terminated at any time for
any particular Fund without penalty by the vote of a majority of the members of
the Board of Directors or Trustees of such Fund who are not "interested persons"
(as defined in the Investment Company Act) and who have no direct or indirect
financial interest in the operation of the Distribution Agreement between such
Fund and the Distributor or by the vote of a majority of the outstanding voting
securities of the Fund.
11. Communications. All communications to us should be
sent to the above address. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
10
<PAGE>
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to us one copy of this
agreement.
ALEX. BROWN & SONS INCORPORATED
------------------------------------------
(Authorized Signature)
Confirmed and accepted:
Firm Name: ________________________
By: _______________________________
Address: __________________________
Date:______________________________
11
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated December 1, 1995 on our
audit of the financial statements and financial highlights of Flag Investors
Emerging Growth Fund, Inc. in the Statement of Additional Information with
respect to Post-Effective Amendment No. 13 to the Registration Statement (File
Nos. 33-21119 and 811-5320) on Form N-1A under the Securities Act of 1933 and
the Investment Company Act of 1940, respectively, of Flag Investors Emerging
Growth Fund, Inc. We also consent to the reference to our Firm under the
headings "Financial Highlights" and "General Information" in the Prospectuses
and under the heading "Independent Accountants" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
- -----------------------------
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 17, 1996
<PAGE>
EX-99.B(18)
Flag Investors Emerging Growth Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B,
Flag Investors Institutional and
Alex. Brown Capital Advisory & Trust Shares Classes
Adopted December 13, 1995
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Emerging
Growth Fund, Inc. (the "Fund"), including a majority of the Directors of the
Fund who are not "interested persons" of the Fund (the "Independent Directors")
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act").
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for its classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B, Flag
Investors Institutional and Alex. Brown Capital Advisory & Trust) and future
classes of Fund shares. The Flag Investors Class A Shares have been offered
since the Fund's inception on December 30, 1987 and the Flag Investors
Institutional Shares have been offered since November 1, 1995. The Alex. Brown
Capital Advisory & Trust Shares and the Flag Investors Class B Shares have not
yet been offered.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors after the date hereof. Before any
<PAGE>
material amendment of the Plan, the Fund is required to obtain a finding by a
majority of the Board, and a majority of the Independent Directors, that the
Plan as proposed to be amended, including the expense allocations, is in the
best interests of each class individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")(1); and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
- --------
(1) Class Expenses are limited to any or all of the following: (i) transfer
agent fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
<PAGE>
Approved: September 26, 1995
Resolutions of Board Creating
Institutional Class of Shares
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Emerging Growth Fund, Inc. is authorized to
issue is hereby increased from ten million (10,000,000) to fifteen million
(15,000,000) and that from such amount, five million (5,000,000) authorized and
unissued shares be, and hereby are, designated and classified as the "Flag
Investors Emerging Growth Fund Institutional Shares";
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file Articles Supplementary to the
Fund's Articles of Incorporation to effectuate the increase in authorized shares
and to designate and classify the new class;
FURTHER RESOLVED, that any filings previously made and any actions
previously taken by the appropriate officers of each Fund in connection with the
establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of such Fund.
Approved: September 26, 1995
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Emerging Growth Fund, Inc. and Alex. Brown & Sons Incorporated for the
Flag Investors Institutional Shares of said Fund be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proper officers of Flag Investors Emerging
Growth Fund, Inc. be, and each of them hereby is, authorized and directed to
enter into and execute the Distribution Agreement on behalf of the Fund, and to
take all other actions that such officer deems necessary or appropriate in
connection with the execution of such agreement, the taking of any action to
establish conclusively such officer's authority therefore and the approval and
ratification thereof by the Fund.
<PAGE>
Approved: October 1, 1996
Resolutions of Board Creating
Alex. Brown Capital Advisory & Trust Shares
RESOLVED, that the total number of shares of common stock, par
value $.001 per share, that Flag Investors Emerging Growth Fund, Inc. is
authorized to issue is hereby increased from fifteen million (15,000,000) to
twenty million (20,000,000) and that from such amount, five million (5,000,000)
authorized and unissued shares be, and hereby are, designated and classified as
the "Alex. Brown Advisory & Trust Emerging Growth Shares";
FURTHER RESOLVED, that the proper officers of Flag Investors
Emerging Growth Fund, Inc. be, and each of them hereby is, authorized and
directed to file Articles Supplementary to the Fund's Articles of Incorporation
to effectuate the increase in authorized shares and to designate and classify
the new class;
Approved: October 1, 1996
Approval of Distribution Agreements for
New Alex. Brown Capital Advisory & Trust Shares
RESOLVED, that the Distribution Agreement between Flag
Investors Emerging Growth Fund, Inc. and Alex. Brown & Sons Incorporated for the
Alex. Brown Capital Advisory & Trust Shares of said Fund be, and the same hereby
is, approved in substantially the form presented to this meeting;
FURTHER RESOLVED, that the proper officers of Flag Investors
Emerging Growth Fund, Inc. be, and they hereby are, authorized and directed to
enter into and execute the appropriate Distribution Agreement on behalf of the
Fund, and to take all other actions that such officer deems necessary or
appropriate in connection with the execution of such agreement, the taking of
any action to establish conclusively such officer's authority therefore and the
approval and ratification thereof by the Fund.
<PAGE>
Flag Investors Emerging Growth Fund, Inc.
18f-3 Plan Exhibits
1. Registrant's Form of Articles Supplementary establishing the ABCAT Shares is
filed as Exhibit (1)(e) to this Registration Statement on Form N-1A
(Registration No. 33-21119) and is incorporated herein by reference.
2. Registrant's By-Laws filed as Exhibit (2) to Post-Effective Amendment No. 10
to Registrant's Registration Statement on Form N-1A (Registration No. 33-21119),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-95-000392) on August 18, 1995 is incorporated herein by reference.
3. Registrant's Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to Flag Investors Emerging Growth Fund Class A Shares
filed as Exhibit (6)(a) to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0000950116-95-000392) on August 18, 1995 is incorporated herein by reference.
4. Registrant's Sub-Distribution Agreement between Alex. Brown & Sons
Incorporated and Participating Broker-Dealers filed as Exhibit (6)(b) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A ( Registration No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-95-000392) on August 18, 1995 is
incorporated herein by reference.
5. Registrant's Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to Flag Investors Emerging Growth Fund Institutional
Shares filed as Exhibit (6)(d) to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (Registration No. 33-21119),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-96-000107) on February 28, 1996 is incorporated herein by reference.
6. Registrant's Distribution Agreement between Registrant and Alex. Brown & Sons
Incorporated with respect to Flag Investors Emerging Growth Fund Class B Shares
filed as Exhibit (6)(e) to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
0000950116-96-000161) on March 25, 1996 is incorporated herein by reference.
7. Registrant's Form of Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Alex. Brown Capital Advisory & Trust
Emerging Growth Shares is filed as Exhibit (6)(f) to this Registration Statement
on Form N-1A (Registration No. 33-21119) and is incorporated herein by
reference.
<PAGE>
8. Registrant's Distribution Plan with respect to Flag Investors Emerging Growth
Fund Class A Shares filed as Exhibit (15)(a) to Post-Effective Amendment No. 10
to Registrant's Registration Statement on Form N-1A (Registration No. 33-21119),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-95-000392) on August 18, 1995 is incorporated herein by reference.
9. Registrant's Distribution Plan with respect to Flag Investors Emerging Growth
Fund Class B Shares filed as Exhibit (15)(b) to Post-Effective Amendment No. 12
to Registrant's Registration Statement on Form N-1A (Registration No. 33-21119),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-96-000161) on March 25, 1996 is incorporated herein by reference.
<PAGE>
EX-99.B(24)
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
--------------------------
James J. Cunnane
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph A. Finelli, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chief Financial and
Accounting Officer of the Fund such Registration Statement and any and all such
pre- and post-effective amendments filed with the Securities and Exchange
Commission under the 1933 Act and the 1940 Act, and any other instruments or
documents related thereto, and the undersigned does hereby ratify and confirm
all that said attorney-in-fact and agent, or either of them or their substitute
or substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Joseph A. Finelli
--------------------------
Joseph A. Finelli
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
--------------------------
Richard T. Hale
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
--------------------------
John F. Kroeger
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
--------------------------
Louis E. Levy
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
--------------------------
Eugene J. McDonald
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Frederick L. Meserve, Jr.,
whose signature appears below, does hereby constitute and appoint Edward J.
Veilleux and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as President of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Frederick L. Meserve, Jr.
--------------------------
Frederick L. Meserve, Jr.
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, W. James Price, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ W. James Price
--------------------------
W. James Price
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Edward J. Stoken, and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
--------------------------
Truman T. Semans
Date: October 17, 1996
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Edward
J. Stoken, and each of them singly, his true and lawful attorney-in-fact and
agent, with full power of substitution or resubstitution, to do any and all acts
and things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Emerging Growth Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Harry Woolf
--------------------------
Harry Woolf
Date: October 17, 1996
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<NAME> EMERGING GROWTH FUND
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