FLAG INVESTORS EMERGING GROWTH FUND INC, 485APOS, 1996-03-25

FLAG INVESTORS EMERGING GROWTH FUND INC
485APOS, 1996-03-25

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<PAGE>

As Filed With the Securities and Exchange Commission on March 25, 1996

Registration No. 33-21119
811-5320

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

------------------

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

POST-EFFECTIVE AMENDMENT NO. 12 [x]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]

AMENDMENT NO. 16 [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

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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 Shares)

Cross Reference Sheet

March 25, 1996

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

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>

<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

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
FLAG INVESTORS

EMERGING GROWTH FUND, INC.

(Class A and Class B Shares)

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.

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 ------, 1996, 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-FLAG.

Shares of the Fund are available through Alex. Brown & Sons Incorporated
("Alex. Brown") as well as Participating Dealers and Shareholder Servicing
Agents. This Prospectus relates to Flag Investors Class A Shares ("Class A
Shares") and Flag Investors Class B Shares ("Class B Shares") of the Fund.
The separate classes provide investors with alternatives as to sales load and
fund expenses. See "How to Invest in the Fund.")

- -------------------------------------------------------------------------------
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.
PROSPECTUS

The date of this Prospectus is , 1996

<PAGE>

FLAG INVESTORS

EMERGING GROWTH FUND, INC.

(CLASS A AND CLASS B SHARES)

135 East Baltimore Street
Baltimore, Maryland 21202

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
1. Fund Expenses .................................... 2
2. Financial Highlights ............................. 3
3. Investment Program ............................... 6
4. Investment Restrictions .......................... 9
5. How to Invest in the Fund ........................ 10

6. How to Redeem Shares ............................. 18
7. Telephone Transactions ........................... 19
8. Dividends and Taxes .............................. 20
9. Management of the Fund ........................... 22
10. Investment Advisor ............................... 22
11. Distributor ...................................... 23
12. Custodian, Transfer Agent, Accounting Services ... 25
13. Performance Information .......................... 25
14. General Information .............................. 26

</TABLE>

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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:
- -------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Alternative Alternative
----------------- ----------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) ................ 4.50%* None
Maximum Sales Charge Imposed on
Reinvested Dividends ............................... None None
Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, whichever
is lower) .......................................... None* 4.00%**
- ----------------------------------------------------------------------------------------------
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
- ----------------------------------------------------------------------------------------------
Management Fees ..................................... .67% .67%
12b-1 Fees .......................................... .25% .75%
Other Expenses (including a .25% shareholder
servicing fee for Class B Shares) ................. .58% .83%***
Total Fund Operating Expenses ....................... 1.50% 2.25%
===== =====
</TABLE>

- ------
* Purchases of $1 million or more are not subject to an initial sales
charge, however, a contingent deferred sales charge of .50% may be
imposed on such purchases. (See "How to Invest in the Fund -- Class A
Shares.")
** A declining contingent deferred sales charge will be imposed on
redemptions of Class B Shares made within six years of purchase. Class B
Shares will automatically convert to Class A Shares six years after
purchase. (See "How to Invest in the Fund --Class B Shares.")
*** A portion of the shareholder servicing fee is allocated to member firms
of the National Association of Securities Dealers, Inc. and qualified
banks for continued personal service by such members to investors in
Class B Shares, such as responding to shareholder inquiries, quoting net
asset values, providing current marketing materials and attending to
other shareholder matters.

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
- --------------------------------------------------------------------------------------------------
Class A Shares ......................... $60 $ 91 $126 $230
Class B Shares ......................... $63 $103 $147 $246*
- --------------------------------------------------------------------------------------------------
You would pay the following expenses on
the same investment, assuming no
redemption:* 1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------
Class B Shares ......................... $23 $ 72 $127 $246*
- --------------------------------------------------------------------------------------------------
</TABLE>

- ------
* Expenses assume that Class B Shares are converted to Class A Shares at the
end of six years. Therefore, the expense figures assume six years of Class
B expenses and four years of Class A expenses.

<PAGE>

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. A
person who purchases shares of either class through a financial institution
may be charged separate fees by the financial institution. (For more complete
descriptions of the various costs and expenses, see "How to Invest in the
Fund", "Investment Advisor" and "Distributor.") The Expenses and Example for
the Class A Shares appearing in the table above are based on the Fund's
expenses for the Class A Shares for the fiscal year ended October 31, 1995,
which were 1.50% of the Class A Shares' average net assets. The Expenses and
Example for the Class B Shares, which have not been offered prior to the date
of this Prospectus, are based on those for the Class A Shares plus the
incremental 12b-1 and service fee costs. Due to the continuous nature of Rule
12b-1 fees, long-term shareholders of the Fund may pay more than the
equivalent of the maximum front-end sales charges permitted by the Rules of
Fair Practice of the National Association of Securities Dealers, Inc.

The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, certain investors may qualify for reduced sales
charges. (See "How to Invest in the Fund -- Class A Shares.")

===============================================================================
2. Financial Highlights

The Fund was organized as a corporation under the laws of the State of
Maryland on July 2, 1987. Its registration statement under the Investment
Company Act of 1940 (the "1940 Act") and the Securities Act of 1933 was
declared effective by the SEC on June 15, 1988. The financial highlights
included in this table are a part of the Fund's financial statements for the
Class A Shares for the periods indicated and have been audited by Coopers &
Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the Class A Shares for the fiscal year ended October
31, 1995 and the report thereon of Coopers & Lybrand L.L.P. are included in
the Statement of Additional Information. Additional performance information
for the Class A Shares is contained in the Fund's Annual Report for the
fiscal year ended October 31, 1995, which can be obtained at no charge by
calling the Fund at (800) 767-FLAG. The Fund did not offer the Class B Shares
prior to the date of this Prospectus.

3
<PAGE>

(For a Class A Share outstanding throughout each period)*

For the period
December 30, 1987
For the Year Ended October 31, (commencement of
--------------------------------------------------------------------- operations) through
1995 1994 1993 1992 1991 1990 1989 October 31, 1988
---- ---- ---- ---- ---- ---- ---- -----------------
<S> <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>

- ------
* Computed based upon average shares outstanding.
** Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charges.
(1) Annualized.

4-5
<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 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.

Investment Company Capital Corp., the Fund's investment advisor ("ICC" or
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

8
<PAGE>

with an aggregate value at all times equal to or greater than the value of
the securities loaned. The borrowers pay the Fund an 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

9
<PAGE>

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:

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 the Fund

Class A Shares and Class B Shares may be purchased from Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202 ("Alex.
Brown"), through any securities dealer which has entered into a dealer
agreement with Alex. Brown ("Participating Dealers"), or through any
financial institution which has entered into a shareholder servicing
agreement with the Fund ("Shareholder Servicing Agents"). Shares of either
class may also be purchased by completing the Application Form attached to
this Prospectus and returning it, together with payment of the purchase price
(including any applicable front-end sales charge), to the address shown on
the Application Form. Participating Dealers or Shareholder Servicing Agents
and their investment representatives may receive different levels of
compensation depending on which class of shares they sell.

<PAGE>

The Class A and Class B alternatives permit an investor to choose the
method of purchasing shares that is more beneficial given the amount of the
purchase, the length of time the investor expects to hold the shares, and
other circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the combination of sales
charge and distribution fee on Class A Shares is more favorable than the
combination of distribution/service fees and contingent deferred sales charge
on Class B Shares. In almost all cases, investors planning to purchase
$100,000 or more of Fund shares will pay lower aggregate charges and expenses
by purchasing Class A Shares. Accordingly, the Fund will not accept purchases
for Class B Shares in excess of $100,000 per account. (See "Fee Table.")

The minimum initial investment in shares of either class is $2,000, except
that the minimum initial investment for shareholders of any other Flag
Investors fund or class is $500 and the minimum initial investment for
participants in the Fund's Automatic Investing Plan is $250. Each subsequent
investment must be at least $100 per class, except that the minimum
subsequent investment under the Fund's Automatic Investing Plan is $250 for
quarterly investments and $100 for monthly investments. (See "Purchases
Through Automatic Investing Plan" below.) There is no minimum investment
requirement for qualified retirement plans (i.e., 401(k) plans or pension and
profit sharing plans). IRA accounts are, however, subject to the $2,000
minimum initial investment requirement. There is no minimum investment
requirement for spousal IRA accounts.

The Fund reserves the right to suspend the sale of shares at any time at
the discretion of Alex. Brown and the Advisor. Orders for purchases of shares
are accepted on any day on which the New York Stock Exchange is open for
business ("Business Day"). Purchase orders for shares will be executed at a
per share purchase price equal to the net asset value next determined after
receipt of the purchase order plus any applicable front-end sales charge (the
"Offering Price") on the date such net asset value is determined (the
"Purchase Date"). Purchases made by mail must be accompanied by payment of
the Offering Price. Purchases made through Alex. Brown or a Participating
Dealer or Shareholder Servicing Agent must be in accordance with such
entity's payment procedures. Alex. Brown may, in its sole discretion, refuse
to accept any purchase order.

The net asset value per share is determined once 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 all assets held by the Fund, 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

11
<PAGE>

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 are valued at amortized cost, which constitutes fair value
as determined by the Fund's Board of Directors.
...............................................................................
OFFERING PRICE

Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price which for Class A Shares
includes a sales charge which is calculated as a percentage of the Offering
Price and for Class B Shares is net asset value.

.............................................................................
Class A Shares

The sales charge on Class A Shares, which decreases as the amount of
purchase increases, is shown below:

<TABLE>
<CAPTION>
Dealer
Retention as
Sales Charge as Percentage
Percentage of of
Offering Net Amount Offering
Amount of Purchase Price Invested Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $ 50,000 ..... 4.50% 4.71% 4.00%
$50,000 - $ 99,999 ..... 3.50% 3.63% 3.00%
$100,000 - $249,999 ..... 2.50% 2.56% 2.00%
$250,000 - $499,999 ..... 2.00% 2.04% 1.50%
$500,000 - $999,999 ..... 1.50% 1.52% 1.25%
$1,000,000 and over ..... None* None* None*
</TABLE>
- -----------------------------------------------------------------------------
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The distributor may make payments to dealers in
the amount of .50% of the Offering Price.

A shareholder who purchases additional Class A Shares may obtain reduced
sales charges, as set forth in the table above, through a right of
accumulation. In addition, an investor may obtain reduced sales charges as
set forth above through a right of accumulation of purchases of Class A
Shares and purchases of shares of other Flag Investors funds with the same
sales charge, and purchases of Flag Investors shares of Flag Investors
Intermediate-Term Income Fund, Inc. and Flag Investors Maryland Intermediate
Tax Free Income Fund, Inc. (the "Intermediate Funds"). The applicable sales
charge will be determined based on the total of (a) the shareholder's current

12
<PAGE>

purchase plus (b) an amount equal to the then current net asset value or cost,
whichever is higher, of all Class A Shares and of all Flag Investors shares
described above and any Flag Investors Class D shares held by the shareholder.
To obtain the reduced sales charge through a right of accumulation, the
shareholder must provide Alex. Brown, either directly or through a Participating
Dealer or Shareholder Servicing Agent, as applicable, with sufficient
information to verify that the shareholder has such a right. The Fund may amend
or terminate this right of accumulation at any time as to subsequent purchases.

The term "purchase" refers to an individual purchase by a single purchaser,
or to concurrent purchases, which will be aggregated by a purchaser, the
purchaser's spouse and their children under the age of 21 years purchasing Class
A Shares for their own account.

An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest at least $50,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the Offering
Price applicable at the time of such purchase to the full amount indicated on
the Letter of Intent. A Letter of Intent is not a binding obligation upon the
investor to purchase the full amount indicated. The minimum initial investment
under a Letter of Intent is 5% of the full amount. Class A Shares purchased with
the first 5% of the full amount will be held in escrow (while remaining
registered in the name of the investor) to secure payment of the higher sales
charge applicable to the Class A Shares actually purchased if the full amount
indicated is not invested. Such escrowed shares will be involuntarily redeemed
to pay the additional sales charge, if necessary. When the full amount indicated
has been purchased, the escrowed shares will be released. An investor who wishes
to enter into a Letter of Intent in conjunction with an investment in Class A
Shares may do so by completing the appropriate section of the Application Form
attached to this Prospectus.

No sales charge will be payable at the time of purchase on investments of $1
million or more of Class A Shares. However, a contingent deferred sales charge
may be imposed on such investments in the event of a redemption within 24 months
following the purchase, at the rate of .50% on the lesser of the value of the
Class A Shares redeemed or the total cost of such shares. No contingent deferred
sales charge will be imposed on purchases of $3 million or more of Class A
Shares redeemed within 24 months of purchase if the Participating Dealer and
Alex. Brown have entered into an agreement under which the Participating Dealer
agrees to return any payments received on the sale of such shares. In
determining whether a contingent deferred sales

13
<PAGE>

charge is payable, and, if so, the amount of the charge, it is assumed that
Class A Shares not subject to such charge are the first redeemed followed by
other Class A Shares held for the longest period of time.

The Fund may sell Class A Shares at net asset value (without sales charge)
to the following: (i) banks, bank trust departments, registered investment
advisory companies, financial planners and broker-dealers purchasing Class A
Shares on behalf of their fiduciary and advisory clients, provided such
clients have paid an account management fee for these services (investors may
be charged a fee if they effect transactions in Fund shares through a broker
or agent); (ii) qualified retirement plans; (iii) participants in a Flag
Investors fund payroll savings plan program; (iv) investors who have redeemed
Class A Shares, or shares of any other mutual fund in the Flag Investors
family of funds with the same sales charges, or who have redeemed shares of
the Intermediate Funds which they had held for at least 24 months prior to
redemption, in an amount that is not more than the total redemption proceeds,
provided that the purchase is within 90 days after the redemption; and (v)
current or retired Directors of the Fund, and directors and employees (and
their immediate families) of Alex. Brown, Participating Dealers and their
respective affiliates.

Class A Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.
............................................................................

Class B Shares

No sales charge will be payable at the time of purchase of Class B Shares.
However, a contingent deferred sales charge will be imposed on certain Class
B Shares redeemed within six years of purchase. The charge is assessed on an
amount equal to the lesser of the then-current market value of the Class B
Shares redeemed or the total cost of such shares. Accordingly, the contingent
deferred sales charge will not be applied to dollar amounts representing an
increase in the net asset values above the initial purchase price of the
shares being redeemed. In addition, no charge is assessed on redemptions of
Class B Shares derived from reinvestment of dividends or capital gains
distributions.

In determining whether the contingent deferred sales charge is applicable
to a redemption, the calculation is made in the manner that results in the
lowest possible rate. Therefore, it is assumed that the redemption is first
of any Class B Shares in the shareholder's account that represent reinvested
dividends and distributions and second of Class B Shares held the longest

<PAGE>

during the six year period. The amount of the contingent deferred sales
charge, if any, will vary depending on the number of years from the time of
payment for the purchase of Class B Shares until the redemption of such
shares (the "holding period"). For purposes of determining this holding
period, all payments during a month are aggregated and deemed to have been
made on the first day of the month. The following table sets forth the rates
of the contingent deferred sales charge.

<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar amount
Payment was Made subject to charge)
- -----------------------------------------------------------------
<S> <C>
First ................ 4.0%
Second ............... 4.0%
Third ................ 3.0%
Fourth ............... 3.0%
Fifth ................ 2.0%
Sixth ................ 1.0%
Thereafter ........... None*
- ------------------------------------------------------------------
</TABLE>

* As described more fully below, Class B Shares automatically convert
to Class A Shares six years after the beginning of the calendar month
in which the purchase order is accepted.

Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived on the redemption of Class B Shares (i) following the
death or initial determination of disability (as defined in the Internal
Revenue Code of 1986, as amended) of a shareholder; or (ii) to the extent
that the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a shareholder who
has attained the age of 70 1/2. The waiver with respect to (i) above is only
applicable in cases where the shareholder account is registered (a) in the
name of an individual person, (b) as a joint tenancy with rights of
survivorship, (c) as community property or (d) in the name of a minor child
under the Uniform Gifts or Uniform Transfers to Minors Act. A shareholder, or
his or her representative, must notify the Fund's transfer agent (the
"Transfer Agent") prior to the time of redemption if such circumstances exist
and the shareholder is eligible for this waiver. For information on the
imposition and waiver of the contingent deferred sales charge, contact the
Transfer Agent at (800) 553-8080.

Automatic Conversion to Class A Shares. Six years after the beginning of
the calendar month in which the purchase order for Class B Shares is
accepted, such Class B Shares will automatically convert to Class A Shares
and will no longer be subject to the higher distribution and service fees.
Such conversion will be on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or other charge.
The conversion is not a taxable event to the shareholder.

<PAGE>

For purposes of conversion to Class A Shares, shares received as dividends
and other distributions paid on Class B Shares in the shareholder's account
will be considered to be held in a separate sub-account. Each time any Class
B Shares in the shareholder's account (other than those in the sub-account)
convert to Class A Shares, an equal pro rata portion of the Class B Shares in
the sub-account will also convert to Class A Shares.

Class B Shares may also be purchased through a Systematic Purchase Plan.
An investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.

.............................................................................
PURCHASES BY EXCHANGE

As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds may exchange their shares of
those funds for an equal dollar amount of Fund shares of the same class that
have the same sales load structure. Shares issued pursuant to this offer will
not be subject to the sales charges described above or any other charge. In
addition, shareholders of the Intermediate Funds may exchange into Class A
Shares upon payment of the difference in sales charges, as applicable, except
that the exchange will be made at net asset value if the shares of such funds
have been held for more than 24 months. Shareholders of Flag Investors Cash
Reserve Prime Class A Shares may exchange into Class A Shares upon payment of
the difference in sales charges, as applicable, or into Class B Shares at net
asset value, subject thereafter to any applicable contingent deferred sales
charge.

When a shareholder acquires Fund shares through an exchange from another
fund in the Flag Investors family of funds, the Fund will combine the period
for which the original shares were held prior to the exchange with the
holding period of the shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon
a redemption of any such shares.

The net asset value of shares purchased and redeemed in an exchange
request received on a Business Day will be determined on the same day,
provided that the exchange request is received prior to 4:00 p.m. (Eastern
Time), or the close of the New York Stock Exchange, whichever is earlier.
Exchange requests received after 4:00 p.m. (Eastern Time) will be effected on
the next Business Day.

Holders of partnership interests in EGC Limited Partnership may similarly
exchange their partnership interests for an equal dollar amount of Class A
Shares. Alex. Brown will tender the partnership interests offered for
exchange for redemption by the issuer and will use the proceeds to purchase

16
<PAGE>
Class A Shares on the shareholder's behalf. In addition, shareholders of any
mutual fund not affiliated with the Fund who have paid a sales charge may
also exchange shares of such fund for an equal dollar amount of Class A
Shares by submitting to Alex. Brown or a Participating Dealer the proceeds of
the redemption of such shares, together with evidence of the payment of a
sales charge and the source of such proceeds. Class A Shares issued pursuant
to these offers will not be subject to the sales charges described above or
any other charge.

The exchange privilege with respect to other Flag Investors funds may also
be exercised by telephone. (See "Telephone Transactions" below.)

The exchange privilege may be exercised only in those states where the
class of shares of such other funds may legally be sold. Investors should
receive and read the applicable prospectus prior to tendering shares for
exchange. The Fund may modify or terminate this offer of exchange at any time
on 60 days' prior written notice to shareholders.
............................................................................
PURCHASES THROUGH AUTOMATIC INVESTING PLAN

Shareholders may purchase either Class A Shares or Class B Shares
regularly by means of an Automatic Investing Plan with a pre-authorized check
drawn on their checking accounts. Under this plan, the shareholder may elect
to have a specified amount invested monthly or quarterly in either Class A
Shares or Class B Shares. The amount specified by the shareholder will be
withdrawn from the shareholder's checking account using the pre-authorized
check. This amount will be invested in the class of shares selected by the
shareholder at the applicable Offering Price determined on the date the
amount is available for investment. Participation in the Automatic Investing
Plan may be discontinued either by the Fund or the shareholder upon 30 days'
prior written notice to the other party. A shareholder who wishes to enroll
in the Automatic Investing Plan may do so by completing the appropriate
section of the Application Form attached to this Prospectus.

............................................................................
PURCHASES THROUGH DIVIDEND REINVESTMENT PLAN

Shareholders may elect to have their distributions (capital gains and/or
dividend income) paid by check or reinvested in additional Fund shares of the
same class. A shareholder who wishes to enroll in the Dividend Reinvestment
Plan should check the appropriate box on the Application Form or call (800)
553-8080 for additional information.

17
<PAGE>

Alternately, shareholders may have their distributions invested in shares
of other funds in the Flag Investors family of funds. Shareholders who are
interested in this option should call (800) 553-8080 for additional
information.

Reinvestments of distributions will be effected without a sales charge.

============================================================================
6. How to Redeem Shares

Shareholders may redeem all or part of their investment on any Business
Day by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Fund's transfer agent (the "Transfer Agent"). Shareholders may also redeem
shares of either class by telephone (in any amount up to $50,000). (See
"Telephone Transactions" below.) A redemption order is effected at the net
asset value per share (reduced by any applicable contingent deferred sales
charge) next determined after receipt of the order (or, if stock certificates
have been issued for the shares to be redeemed, after the tender of the stock
certificates for redemption). Redemption orders received after 4:00 p.m.
(Eastern Time) will be effected at the net asset value next determined on the
following Business Day. Payment for redeemed shares will be made by check and
will be mailed within seven days after receipt of a duly authorized telephone
redemption request or of a redemption order fully completed and, as
applicable, accompanied by the documents described below:

1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer, if applicable, and the number of shares or dollar
amount to be redeemed, signed by all owners of the shares in the exact
names in which their account is maintained;

2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;

3) If shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for shares to be
redeemed; and

4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.

18
<PAGE>

Dividends payable up to the date of the redemption of shares will be paid
on the next dividend payable date. If all of the shares in a shareholder's
account have been redeemed on a dividend payable date, the dividend will be
remitted by check to the shareholder. The Fund has the power under its
Articles of Incorporation to redeem shareholder accounts amounting to less
than $500 (as a result of redemptions) upon 60 days' written notice.

.............................................................................
SYSTEMATIC WITHDRAWAL PLAN

Shareholders who hold Class A Shares or Class B Shares having a value of
$10,000 or more may arrange to have a portion of their shares redeemed
monthly or quarterly under the Fund's Systematic Withdrawal Plan. Such
payments are drawn from income dividends, and, to the extent necessary, from
share redemptions (which would be a return of principal and, if reflecting a
gain, would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because share purchases include a sales charge that
will not be recovered at the time of redemption, a shareholder should not
have a withdrawal plan in effect at the same time he is making recurring
purchases of shares. In addition, Class B Shares may be subject to a
contingent deferred sales charge upon redemption. (See "How to Invest in the
Fund--Class B Shares.") A shareholder who wishes to enroll in the Systematic
Withdrawal Plan may do so by completing the appropriate section of the
Application Form attached to this Prospectus.

=============================================================================
7. Telephone Transactions

Shareholders may exercise the exchange privilege with respect to other
Flag Investors funds, or redeem shares of either class in amounts up to
$50,000, by notifying the Transfer Agent by telephone at (800) 553-8080 on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time)
or by regular or express mail at its address listed under "Custodian,
Transfer Agent, Accounting Services." Telephone transaction privileges are
automatic. Shareholders may specifically request that no telephone
redemptions or exchanges be accepted for their accounts. This election may be
made on the Application Form or at any time thereafter by completing and
returning appropriate documentation supplied by the Transfer Agent.

A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, is

19
<PAGE>

effective that day. Telephone orders placed after 4:00 p.m. (Eastern Time)
will be effected at the net asset value (less any applicable contingent
deferred sales charge on redemptions) as determined on the next Business Day.

The Fund and the Transfer Agent will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These procedures
include requiring the investor to provide certain personal identification
information at the time an account is opened and prior to effecting each
transaction requested by telephone. In addition, all telephone transaction
requests will be recorded and investors may be required to provide additional
telecopied instructions of such transaction requests. The Fund or the Transfer
Agent may be liable for any losses due to unauthorized or fraudulent telephone
instructions if either of them does not employ these procedures. If these
procedures are employed, neither the Fund nor the Transfer Agent will be
responsible for any loss, liability, cost or expense for following instructions
received by telephone that either of them reasonably believes to be genuine.
During periods of extreme economic or market changes, shareholders may
experience difficulty in effecting telephone transactions. In such event,
requests should be made by regular or express mail. Shares held in certificate
form may not be exchanged or redeemed by telephone. (See "How to Invest in the
Fund -- Purchases by Exchange" and "How to Redeem Shares.")

=============================================================================
8. 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 the shareholder elects otherwise, all income dividends and net capital
gains distributions, if any, will be reinvested in additional Fund shares of the
same class at net asset value. Shareholders may elect to terminate automatic
reinvestment by giving written notice to the Transfer Agent

20
<PAGE>
(see "Custodian, Transfer Agent, Accounting Services"), either directly or
through their Participating Dealer or Shareholder Servicing Agent, at least
five days before the next date on which dividends or distributions will be
paid.
.............................................................................
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 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 shares. All other income distributions 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. Shareholders will be advised 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 of shares is a taxable event for the
shareholder.

21
<PAGE>
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.

=============================================================================
9. 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 Alex. Brown or the Advisor. The other
Directors of the Fund have no affiliation with Alex. Brown or the Advisor.

The Fund's Directors and officers are as follows:

<TABLE>
<S> <C> <C> <C>
*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 Brian C. Nelson Vice President and Secretary
Louis E. Levy Director Sandra J. Doeller Vice President
Eugene J. McDonald Director Joseph A. Finelli Treasurer
Harry Woolf Director Laurie D. DePrine Assistant Secretary
</TABLE>
- ------
*Messrs. Semans, Price and Hale are "interested persons" of the Fund within
the meaning of Section 2(a)(19) under the 1940 Act.

============================================================================
10. Investment Advisor

Investment Company Capital Corp., the Fund's investment advisor, is a
wholly-owned subsidiary of Alex. Brown, the Fund's distributor. Since the mid
1970's, Alex. Brown 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

22
<PAGE>

securities of such emerging growth companies. The Advisor is also the
investment advisor to, and 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 $4.9 billion of assets as of
February 29, 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 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 from the Fund a fee equal to
.67% of the Fund's average daily net assets.

ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
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.

=============================================================================
11. 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

23
<PAGE>
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.

The Fund has adopted two separate Distribution Agreements and related Plans
of Distribution, one with respect to the Class A Shares and one with respect to
the Class B Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act. In
addition, 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. Such
financial institutions may impose separate fees in connection with these
services and investors should review this Prospectus in conjunction with any
such institution's fee schedule. In addition, financial institutions may be
required to register as dealers pursuant to state securities laws. 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.

As compensation for providing distribution services to the Class A Shares for
the fiscal year ended October 31, 1995, Alex. Brown received a fee equal to .25%
of the Class A Shares' average daily net assets.

Under the Class B Plan, Alex. Brown will receive an annual distribution fee,
paid monthly, equal to .75% of the Class B Shares' average daily net assets. In
addition, Alex. Brown will receive an annual shareholder servicing fee, paid
monthly, equal to .25% of the Class B Shares' average daily net assets. The
distribution fee will be used to compensate Alex. Brown for its services and
expenses in distributing the Class B Shares. The shareholder servicing fee will
be used to compensate Alex. Brown, Participating Dealers and Shareholder
Servicing Agents for services provided and expenses incurred in maintaining
shareholder accounts, responding to shareholder inquiries and providing
information on their investments.

Payments under the Plans are made as described above, regardless of Alex.
Brown's actual cost of providing distribution services. If the cost of providing
distribution services to the Fund in connection with the sale of the Class A
Shares is less than .25% of the Class A Shares' average daily net assets for any
period or, in connection with the sale of the Class B Shares is less than .75%
of the Class B Shares' average daily net assets for any period, the unexpended
portion of the distribution fee may be retained as profit by Alex. Brown. Alex.
Brown will from time to time and from its own resources pay or allow additional
discounts or promotional incentives in the form of cash or other compensation
(including merchandise or travel), to Participating Dealers.

24
<PAGE>
=============================================================================
12. Custodian, Transfer Agent, 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 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.

=============================================================================
13. 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, net of the Fund's maximum sales charge imposed
on Class A Shares or including the contingent deferred sales charge imposed
on Class B Shares redeemed at the end of the specific period covered by the
total return figure, 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, net of the
maximum sales charge and other fees 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. For these purposes, the performance
of the Fund, as well as the performance of such investment companies or
indices, may not reflect sales charges, which, if reflected, would reduce
performance results.

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

25
<PAGE>

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.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and
market conditions. Any fees charged by banks with respect to customer
accounts through which shares may be purchased, although not included in
calculations of performance, will reduce performance results.

Although expenses for Class B Shares may be higher than those for Class A
Shares, the performance of Class B Shares may be higher than the performance
of Class A Shares after giving effect to the impact of the sales charges and
distribution/service fees applicable to each class of shares.

=============================================================================
14. General Information
.............................................................................
DESCRIPTION OF SHARES

The Fund was incorporated under the laws of the State of Maryland on July 2,
1987 and is authorized to issue fifteen 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 "Flag Investors
Emerging Growth Fund Class A Shares" and "Flag Investors Emerging Growth Fund
Class B Shares." The Board has no present intention of establishing any
additional series of the Fund but the Fund does have another class of shares
in addition to the shares offered hereby: "Flag Investors Emerging Growth
Fund Institutional Shares." Shares of that class, which are not subject to a

26
<PAGE>

sales charge or 12b-1 fee, are offered only to eligible institutions and clients
of investment advisory affiliates of Alex. Brown. Additional information
concerning the Fund's Institutional Shares may be obtained by calling Alex.
Brown at (800) 767-FLAG. 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 Class A or Class B Shares. All classes of the Fund
share a common investment objective, portfolio of investments and advisory fee,
but the classes may have different sales load structures, distribution/service
fees or other expenses and, accordingly, 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.
.............................................................................
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,
Coopers & Lybrand L.L.P.

.............................................................................
FUND COUNSEL

Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
.............................................................................
SHAREHOLDERS INQUIRIES

Shareholders with inquiries concerning their shares should contact the
Transfer Agent at (800) 553-8080, Alex. Brown at (800) 767-FLAG, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.

27
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
NEW ACCOUNT APPLICATION
- -----------------------------------------------------------------------------

Make check payable to "Flag Investors Emerging Growth
Fund, Inc." and mail with this application to:

Alex. Brown & Sons Incorporated/Flag Investors Funds
P.O. Box 419426
Kansas City, MO 64141-6426
Attn: Flag Investors Emerging Growth Fund, Inc.

For assistance in completing this application please call:
1-800-553-8080, 8:30 a.m. to 5:30 p.m., Eastern Time,
Monday-Friday

To open an IRA account, call 1-800-767-3524 to request
an IRA application

I wish to purchase the following class of shares of the Fund, in the amount
indicated below: Please check the applicable box and indicate amount of
purchase.

[ ] Class A Shares (4.5% maximum initial sales charge) in the amount of
$______
[ ] Class B Shares (4.0% maximum contingent deferred sales charge) in the
amount of $_______

The minimum initial purchase is $2,000, except that the minimum initial
purchase for shareholders of any other Flag Investors Fund or class is $500
and the minimum initial purchase for participants in the Fund's Automatic
Investing Plan is $250 per class. Each subsequent purchase requires a $100
minimum per class, except that the minimum subsequent purchase under the
Fund's Automatic Investing Plan is $250 for quarterly purchases and $100
for monthly purchases. The maximum investment in Class B Shares is $100,000
per account. The Fund reserves the right not to accept checks for more than
$50,000 that are not certified or bank checks.

==============================================================================
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)

Existing Account No., if any: __________

INDIVIDUAL OR JOINT TENANT

- -----------------------------------------------------------------------------
First Name Initial Last Name

- -----------------------------------------------------------------------------
Social Security Number

- -----------------------------------------------------------------------------
Joint Tenant Initial Last Name

GIFTS TO MINORS

- -----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)

- -----------------------------------------------------------------------------
Minor's Name (only one)

- -----------------------------------------------------------------------------
Social Security Number of Minor

under the__________________Uniform Gifts to Minors Act
State of Residence

<PAGE>

CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.

- -----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership

- -----------------------------------------------------------------------------
Tax ID Number Date of Trust

- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)

- -----------------------------------------------------------------------------
For the Benefit of

MAILING ADDRESS

- -----------------------------------------------------------------------------
Street

- -----------------------------------------------------------------------------
City State Zip
( )
- -----------------------------------------------------------------------------
Daytime Phone

=============================================================================
LETTER OF INTENT -- CLASS A SHARES ONLY (OPTIONAL)

[ ] I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying Prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Emerging
Growth Fund, Inc. in an aggregate amount at least equal to:

[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000

=============================================================================
RIGHT OF ACCUMULATION -- CLASS A SHARES ONLY (OPTIONAL)

[ ] I already own shares of the Flag Investors Fund(s) (except Class B
shares) set forth below to be applied for a reduced sales charge. List the
Account numbers of other Flag Investors Funds that you or your immediate
family (spouse and children under 21) already own that qualify for reduced
sales charges.

Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------

- -----------------------------------------------------------------------------

<PAGE>
DISTRIBUTION OPTIONS

Please check appropriate boxes. If none of the options is selected, all
distributions will be reinvested in additional shares of the same class of
the Fund at no sales charge.

Income Dividends Capital Gains

[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in Cash [ ] Paid in Cash

Call (800) 553-8080 for information about reinvesting your dividends in other
funds in the Flag Investors Family of Funds.
==============================================================================
AUTOMATIC INVESTING PLAN (OPTIONAL)

[ ] I authorize you as Agent for the Automatic Investing Plan to
automatically invest $______ in Class A Shares or $_______ in Class B Shares
for me, on a monthly or quarterly basis, on or about the 20th of each month
or if quarterly, the 20th of January, April, July and October, and to draw a
bank draft in payment of the investment against my checking account. (Bank
drafts may be drawn on commercial banks only.)

Minimum Initial Investment: $250 per class

Subsequent Investments (check one):

[ ] Monthly ($100 minimum per class) Please attach a voided check.
[ ] Quarterly ($250 minimum per class)

- -----------------------------------------------------------------------------
Bank Name

- -----------------------------------------------------------------------------
Existing Flag Investors Fund Account No., if any

- -----------------------------------------------------------------------------
Depositor's Signature Date

- -----------------------------------------------------------------------------
Depositor's Signature Date
(if joint acct., both must sign)
=============================================================================

SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)

[ ] Beginning the month of _______ , 19_______ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of (complete as
applicable) $______, from Class A Shares and/or $_______ from Class B Shares
that I own, payable to the account registration address as shown above.
(Participation requires minimum account value of $10,000.)

Frequency (check one):
[ ] Monthly
[ ] Quarterly (January, April, July, and October)
=============================================================================

<PAGE>

TELEPHONE TRANSACTIONS

I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or both of the boxes below:

No, I/We do not want

[ ] Telephone redemption privileges
[ ] Telephone exchange privileges

Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:

Bank:_______________________ Bank Account No:_____________________

Address:_______________________ Bank Account Name:______________________

_______________________

==============================================================================

SIGNATURE AND TAXPAYER CERTIFICATION

I have received a copy of the Fund's prospectus dated ______ , 1996. Unless
the box below is checked, I certify under penalties of perjury, (1) that the
number shown on this form is my correct taxpayer identification number and
(2) that I am not subject to backup withholding as a result of a failure to
report all interest or dividends, or the Internal Revenue Service has
notified me that I am no longer subject to backup withholding. [ ] Check here
if you are subject to backup withholding.
If a non-resident alien, please indicate country of residence:_________________
I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.

___________________________________________________________________________
Signature Date

___________________________________________________________________________
Signature (if joint acct., both must sign) Date

===========================================================================

For Dealer Use Only

Dealer's Name ________________________________ Dealer Code:______________

Dealer's Address:________________________________ Branch Code:______________

________________________________

Representative: ________________________________ Rep. No. ______________

<PAGE>

FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Institutional Shares)

Cross Reference Sheet

March 25, 1996

Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- -------

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

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