[FLAG LOGO]
FLAG INVESTORS
[PHOTO APPEARS HERE]
FLAG
INVESTORS
EMERGING GROWTH
FUND
SEMI-ANNUAL REPORT
APRIL 30, 1998
<PAGE>
LETTER TO SHAREHOLDERS
- -------------------------------------------------------------------------------
Dear Fellow Shareholder:
We are pleased to provide this interim report for The Flag Investors
Emerging Growth Fund. As you can see from the table below, your fund handsomely
outperformed the relevant indices for both the first half of Fiscal 1998 ended
April 30, 1998 and for the one and three year periods ended the same date.
<TABLE>
<CAPTION>
For the For the Compounded
Six Months Ended Year Ended Three Years Ended
April 30, 1998 April 30, 1998 April 30, 1998
- -----------------------------------------------------------------------------------
<S><C>
Flag Investors Emerging Growth 12.5% 52.8% 28.0%
NASDAQ Industrials 9.5% 39.4% 19.6%
Frank Russell 2000 11.9% 42.4% 23.7%
Frank Russell Growth 10.0% 43.7% 20.1%
Lipper Small Company Growth 10.2% 42.4% 21.6%
S&P 500 22.5% 41.3% 32.1%
</TABLE>
For the three year period, small companies in general continued to
underperform large companies as measured by the Standard & Poor's 500. Thus,
while the environment was challenging, your Fund, compounding at 28% annually
was a clear winner in its class.
This performance through April 30, reflects strong year-to-year earnings
gains reported by virtually all portfolio companies. More specifically,
technology holdings, which had been weak in the closing months of calendar 1997,
performed well as they consistently demonstrated that "Asian Flu" was less
severe for them than for large multinational companies. Furthermore,
transportation holdings did well as oil prices--and thus the price of fuel,
their largest cost--declined. Yet, we saw good strength in other sectors as
well. Specialty retail and restaurants both seemed to attract more investor
attention than they had in recent quarters and helped performance.
In general, results continue to be driven by the high rate of earnings
growth of the companies that comprise your portfolio. We typically hold these
companies for many years and add to them when short-term considerations produce
share price weakness. Thus, over the long term, the value of the portfolio
actually reflects that high rate of earnings growth. Yet, over the shorter term,
in an emerging growth portfolio, short-term earnings surprises both positive and
negative are normal, they are not the exception. By nature, smaller companies'
growth rates vary from quarter to quarter around their long-term norm, which
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
- -------------------------------------------------------------------------------
in the case of your portfolio we estimate to be greater than 35% for the next
three to five years.
Consistent with this philosophy, we took advantage of overall market
weakness early in 1998 to add to a number of holdings. These companies had been
held in your portfolio for some time and we continued to analyze them and
increase our level of confidence in their ability to sustain their high growth.
We added to Coach USA, II Fornaio, Integrated Systems, Just For Feet,
O'Charley's, and Perclose, among others, at favorable prices.
Since April 30, prices of shares in general have declined. Your portfolio,
as well, has been impacted by this broad trend. It is important in market
declines to focus on the growth potential and financial strength of the
companies which comprise your portfolio. We think that such strength and growth
combined with the historically reasonable price earnings ratio (approximately 20
times next year's earnings) reflect excellent long-term value and opportunity.
Sincerely,
/s/ Frederick L. Meserve, Jr.
_____________________________
Frederick L. Meserve, Jr.
Portfolio Manager
2
<PAGE>
FIVE LARGEST HOLDINGS
- -------------------------------------------------------------------------------
Percent of
Company Net Assets
- -------------------------------------------------------------------------------
o Manugistics Group, Inc. 4.8%
Develops, markets and supports a line of business operations
software and services.
o QuickResponse Services, Inc. 4.4%
Provides a product information database and related network
services that automate and improve merchandise management.
o Synopsys, Inc. 4.3%
Develops, markets and supports high-level design automation
software for designers of integrated circuits and electronics
systems. The company has license agreements with over
400 customers, including major international semiconductor,
computer, communications, military and aerospace companies.
o Sipex Corp. 3.7%
Designs, manufactures, markets and sells analog integrated
circuits.
o Level One Communciations, Inc. 3.4%
Designs, develops and markets integrated circuit products for
high speed digital signal transmission and networking
connectivity applications.
- -------------------------------------------------------------------------------
3
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. The Securities
and Exchange Commission (SEC) requires that when we report such figures, we also
include the Fund's total return, according to a standardized formula, for
various time periods through the end of the most recent calendar quarter. The
SEC total return figures differ from those we reported because the time periods
may be different and because the SEC calculation includes the impact of the
currently effective 4.50% maximum sales charge for the Fund's Class A Shares and
4.00% maximum contingent deferred sales charge for the Fund's Class B Shares.
Average Annual Total Return
Periods Ended 3/31/98 1 Year 5 Years Since Inception*
---------------------------------------------------------------------------
Class A Shares 49.56% 18.21% 12.96%
Class B Shares 51.53% -- 19.83%
Institutional Shares 57.10% -- 24.46%
ABCAT Shares -- -- 43.43%**
*Inception dates: Class A 6/15/88, Class B 6/20/96, Institutional 11/2/95,
ABCAT 5/9/97.
**Cumulative
The Fund's total returns correspond to those experienced by individual
shareholders only if their shares were purchased on the first day of each time
period and the maximum sales charge was paid. Any performance figures shown are
for the full period indicated. Since investment return and principal value will
fluctuate, an investor's shares may be worth more or less than their original
cost when redeemed. Past performance is not an indicator of future results.
4
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Statement of Net Assets April 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Value Percent of
Shares Security (Note 1) Net Assets
- --------------------------------------------------------------------------------------
<S><C>
COMMON STOCKS: 93.5%
Business Services: 20.4%
77,650 AHL Services, Inc.* $ 2,649,806 1.8%
145,100 Central Garden and Pet Co.* 4,969,675 3.3
88,100 Dialogic Corp.* 3,292,738 2.2
119,800 Manugistics Group, Inc.* 7,188,000 4.8
66,300 Memberworks, Inc.* 2,038,725 1.3
140,300 QuickResponse Services, Inc.* 6,594,100 4.4
167,450 Wilmar Industries, Inc.* 3,997,869 2.6
----------- ----
30,730,913 20.4
----------- ----
Capital Goods: 4.7%
91,100 Advanced Lighting Technologies, Inc.* 2,528,025 1.7
45,000 Aspect Development, Inc.* 2,849,063 1.9
46,900 Harbinger Corp.* 1,705,987 1.1
----------- ----
7,083,075 4.7
----------- ----
Consumer Services: 18.8%
87,638 Apollo Group, Inc.* 3,001,584 2.0
271,850 Apple South, Inc. 4,281,638 2.8
67,300 II Fornaio America Corp.* 908,550 0.6
212,300 Just For Feet, Inc.* 4,670,600 3.1
192,075 O'Charleys, Inc.* 3,865,509 2.6
58,425 Papa John's International, Inc.* 2,439,244 1.6
290,300 PETsMART, Inc.* 3,411,025 2.3
63,350 Starbucks Corp.* 3,048,719 2.0
54,950 Sylvan Learning Systems, Inc.* 2,713,156 1.8
----------- ----
28,340,025 18.8
----------- ----
Health Care Services: 15.2%
147,000 Access Health, Inc.* 4,961,250 3.3
279,900 American Oncology Resources, Inc.* 4,198,500 2.8
127,375 Genesis Health Ventures, Inc.* 3,367,476 2.2
33,600 Guilford Pharmaceuticals, Inc.* 667,800 0.4
181,425 PhyCor, Inc.* 4,127,419 2.7
215,550 PSS World Medical, Inc.* 4,836,403 3.2
38,700 Transition Systems, Inc.* 870,750 0.6
----------- ----
23,029,598 15.2
----------- ----
</TABLE>
5
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Statement of Net Assets (concluded)
(Unaudited)
<TABLE>
<CAPTION>
Value Percent of
Shares Security (Note 1) Net Assets
- --------------------------------------------------------------------------------------
<S><C>
COMMON STOCKS: concluded
Health Equipment and Services: 3.3%
52,000 Bionx Implants, Inc.* $ 1,092,000 0.7%
36,200 Heartport, Inc.* 384,625 0.3
113,475 Perclose, Inc.* 3,446,803 2.3
----------- ----
4,923,428 3.3
----------- ----
Media/Communications: 0.5%
31,700 Getty Images, Inc.* 725,138 0.5
----------- ----
Technology -- Software/Services: 9.5%
263,225 Integrated Systems, Inc.* 4,968,372 3.3
101,050 MAPICS, Inc.* 1,793,638 1.2
65,900 Summit Design, Inc.* 1,017,331 0.7
152,446 Synopsys, Inc.* 6,555,178 4.3
----------- ----
14,334,519 9.5
----------- ----
Technology -- Systems/Semiconductors: 10.9%
70,000 Applied Digital Access, Inc.* 481,250 0.3
119,100 Itron, Inc.* 1,823,718 1.2
167,325 Level One Communications, Inc.* 5,207,991 3.4
141,700 Security Dynamics Technologies, Inc.* 3,418,512 2.3
281,500 Sipex Corp.* 5,594,813 3.7
----------- ----
16,526,284 10.9
----------- ----
Telecommunications -- Long Distance: 2.4%
57,500 Geotel Communications Corp.* 1,588,438 1.0
36,750 Pacific Gateway Exchange, Inc.* 2,094,750 1.4
----------- ----
3,683,188 2.4
----------- ----
Transportation: 7.5%
77,375 Atlantic Coast Airlines, Inc.* 4,376,523 2.9
98,250 Coach USA, Inc.* 4,660,734 3.1
66,575 Landair Services, Inc.* 2,205,297 1.5
----------- ----
11,242,554 7.5
----------- ----
Total Common Stocks
(Cost $93,534,575) 140,618,722 93.2
----------- ----
</TABLE>
6
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value Percent of
Shares Security (Note 1) Net Assets
- --------------------------------------------------------------------------------------
<S><C>
REPURCHASE AGREEMENT: 5.1%
$7,690,000 Goldman Sachs & Co., 5.1%
Dated 4/30/98, to be repurchased
on 5/1/98, collateralized by U.S.
Treasury Bonds with a market
value of $7,748,610.
(Cost $7,690,000) $ 7,690,000 5.1%
------------ -----
Total Investment in Securities**
(Cost $101,224,575) 148,308,722 98.3
Other Assets in Excess of Liabilities, Net 2,509,511 1.7
------------ -----
Net Assets $150,818,233 100.0%
============ =====
Net Asset Value and Redemption Price Per:
Class A Share
($84,233,358 / 3,394,148 shares outstanding) $24.82
======
Class B Share
($7,032,660 / 288,162 shares outstanding) $24.41**
======
Institutional Share
($8,362,730 / 335,778 shares outstanding) $24.91
======
ABCAT Share
($51,189,485 / 2,053,816 shares outstanding) $24.92
======
Maximum Offering Price Per:
Class A Share
($24.82 / .955) $25.99
======
Class B Share $24.41
======
Institutional Share $24.91
======
ABCAT Share $24.92
======
</TABLE>
- -----------
* Non-income producing security.
** Redemption value is $23.43 following 4% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
7
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Statement of Operations
For the
Period Ended
April 30,
- -------------------------------------------------------------------------------
1998(1)
Investment Income:
Interest $ 264,366
Dividends 3,910
-----------
Total investment income 268,276
-----------
Expenses:
Investment advisory fee 564,175
Distribution fee 124,940
Legal 33,711
Registration fees 34,674
Accounting fee 29,793
Transfer agent fee 32,155
Printing and postage 16,766
Custodian fee 11,041
Miscellaneous 17,904
Directors' fees 12,341
-----------
Total expenses 877,500
-----------
Expenses in excess of income (609,224)
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 3,510,098
Change in unrealized appreciation/depreciation
of investments 13,737,318
-----------
Net gain on investments 17,247,416
-----------
Net increase in net assets resulting from operations $16,638,192
===========
- ----------
(1) Unaudited.
See Notes to Financial Statements.
8
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the Year
Period Ended Ended
April 30, October 31,
- ------------------------------------------------------------------------------------
1998(1) 1997
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Expenses in excess of income $ (609,224) $ (831,973)
Net realized gain from security transactions 3,510,098 6,273,549
Change in unrealized appreciation/
depreciation from investments 13,737,318 17,299,788
------------ ------------
Net increase in net assets resulting
from operations 16,638,192 22,741,364
Dividends to Shareholders from:
Net realized short-term gains:
Class A Shares (655,545) (509,733)
Class B Shares (117,815) (12,155)
Institutional Shares (53,761) (262,737)
ABCAT Shares (320,098) --
Net realized mid-term and long-term gains:
Class A Shares (2,622,180) (1,286,527)
Class B Shares (471,259) (28,797)
Institutional Shares (215,043) (663,099)
ABCAT Shares (1,280,392) --
------------ ------------
Total distributions (5,736,093) (2,763,048)
------------ ------------
Capital Share Transactions:
Proceeds from sale of shares 24,718,112 77,654,561
Value of shares issued in
reinvestment of dividends 5,494,066 2,667,198
Cost of shares repurchased (15,858,567) (40,585,610)
------------ ------------
Increase in net assets derived from capital
share transactions 14,353,611 39,736,149
------------ ------------
Total increase in net assets 25,255,710 59,714,465
Net Assets:
Beginning of period 125,562,523 65,848,058
------------ ------------
End of period (including undistributed net
investment income/(loss) of ($609,224) and
$0, respectively) $150,818,233 $125,562,523
============ ============
</TABLE>
- ----------
(1) Unaudited.
See Notes to Financial Statements.
9
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
For the
Period Ended
April 30,
- -------------------------------------------------------------------------------
1998(1)
Per Share Operating Performance:
Net asset value, beginning of period $ 23.17
-------
Income from Investment Operations:
(Expenses in Excess of Income) (0.11)
Net realized and unrealized gain on investments 2.81
-------
Total from Investment Operations 2.70
-------
Less Distributions:
Distributions from net realized short-term gains (0.21)
Distributions from net realized mid-term and
long-term gains (0.84)
-------
Total distributions (1.05)
-------
Net asset value, end of period $ 24.82
=======
Total Return(2) 12.55%
Ratios to Average Net Assets:
Expenses 1.38%(3)
(Expenses in Excess of Income) (0.98)%(3)
Supplemental Data:
Net assets, end of period (000's) $84,233
Portfolio turnover rate 13%
- ----------
(1) Unaudited.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
See Notes to Financial Statements.
10
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
For the Year Ended October 31,
- --------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S><C>
Per Share Operating Performance:
Net asset value, beginning of period $ 19.14 $ 17.09 $ 12.90 $ 14.02 $ 13.53
------- ------- ------- ------- -------
Income from Investment Operations:
(Expenses in Excess of Income) (0.18) (0.15) (0.09) (0.08) (0.08)
Net realized and unrealized gain on investments 4.95 3.10 4.32 0.47 1.20
------- ------- ------- ------- -------
Total from Investment Operations 4.77 2.95 4.23 0.39 1.12
------- ------- ------- ------- -------
Less Distributions:
Distributions from net realized short-term gains (0.21) (0.30) -- -- --
Distributions from net realized mid-term and
long-term gains (0.53) (0.60) (0.04) (1.51) (0.63)
------- ------- ------- ------- -------
Total distributions (0.74) (0.90) (0.04) (1.51) (0.63)
------- ------- ------- ------- -------
Net asset value, end of period $ 23.17 $ 19.14 $ 17.09 $ 12.90 $ 14.02
======= ======= ======= ======= =======
Total Return(2) 25.93% 18.19% 32.92% 3.75% 8.33%
Ratios to Average Net Assets:
Expenses 1.44% 1.50% 1.50% 1.50% 1.50%
(Expenses in Excess of Income) (0.97)% (0.83)% (0.64)% (0.73)% (0.52)%
Supplemental Data:
Net assets, end of period (000's) $71,123 $45,325 $38,127 $23,302 $28,867
Portfolio turnover rate 42% 24% 39% 86% 133%
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the For the June 20, 1996(2)
Period Ended Year Ended through
April 30, October 31, October 31,
- ---------------------------------------------------------------------------------------
1998(1) 1997 1996
<S><C>
Per Share Operating Performance:
Net asset value, beginning
of period $22.88 $19.10 $19.22
------ ------ ------
Income from Investment Operations:
(Expenses in Excess of Income) (0.18) (0.18) (0.12)
Net realized and unrealized gain
on investments 2.76 4.70 --
------ ------ ------
Total from Investment Operations 2.58 4.52 (0.12)
------ ------ ------
Less Distributions:
Distributions from net realized
short-term gains (0.21) (0.21) --
Distributions from net realized
mid-term and long-term gains (0.84) (0.53) --
------ ------ ------
Total distributions (1.05) (0.74) 0.00
------ ------ ------
Net asset value, end of period $24.41 $22.88 $19.10
====== ====== ======
Total Return(3) 12.17% 24.69% (0.62)%
Ratios to Average Net Assets:
Expenses 2.13%(4) 2.19% 2.25%(4)
(Expenses in Excess of Income) (1.73)%(4) (1.73)% (1.67)%(4)
Supplemental Data:
Net assets, end of period (in 000's) $7,033 $5,719 $ 772
Portfolio turnover rate 13% 42% 24%
</TABLE>
- ----------
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
See Notes to Financial Statements.
12
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the For the November 2, 1995(2)
Period Ended Year Ended through
April 30, October 31, October 31,
- -----------------------------------------------------------------------------------------
1998(1) 1997(1) 1996
<S><C>
Per Share Operating Performance:
Net asset value, beginning
of period $23.25 $19.15 $17.45
------ ------ ------
Income from Investment Operations:
(Expenses in excess of income) (0.13) (0.26) (0.12)
Net realized and unrealized gain
on investments 2.84 5.10 2.72
------ ------ ------
Total from Investment Operations 2.71 4.84 2.60
------ ------ ------
Less Distributions:
Distributions from net realized
short-term gains (0.21) (0.21) (0.30)
Distributions from net realized
mid-term and long-term gains (0.84) (0.53) (0.60)
------ ------ ------
Total distributions (1.05) (0.74) (0.90)
------ ------ ------
Net asset value, end of period $24.91 $23.25 $19.15
====== ====== ======
Total Return 12.54% 26.36% 16.48%
Ratios to Average Net Assets:
Expenses 1.33%(3) 1.19% 1.25%(3)
(Expenses in excess of income) (0.72)%(3) (0.74)% (0.61)%(3)
Supplemental Data:
Net assets, end of period (in 000's) $8,363 $13,068 $19,751
Portfolio turnover rate 13% 42% 24%
</TABLE>
- ----------
(1) Unaudited.
(2) Commencement of operations.
(3) Annualized.
See Notes to Financial Statements.
13
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Financial Highlights -- ABCAT Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the May 9, 1997(1)
Period Ended through
April 30, October 31,
- ------------------------------------------------------------------------------------
1998(2) 1997
<S><C>
Per Share Operating Performance:
Net asset value, beginning of period $ 23.24 $ 18.64
------- -------
Income from Investment Operations:
(Expenses in excess of income) (0.07) (0.06)
Net realized and unrealized gain
on investments 2.80 4.66
------- -------
Total from Investment Operations (2.73) 4.60
------- -------
Less Distributions:
Distributions from net realized short-term gains (0.21) --
Distributions from net realized mid-term and
long-term gains (0.84) --
------- -------
Total distributions (1.05) 0.00
------- -------
Net asset value, end of period $ 24.92 $ 23.24
======= =======
Total Return 12.64% 24.68%
Ratios to Average Net Assets:
Expenses 1.13%(3) 1.19%(3)
(Expenses in excess of income) (0.74)%(3) (0.69)%(3)
Supplemental Data:
Net assets, end of period (in 000's) $51,189 $35,653
Portfolio turnover rate 13% 42%
</TABLE>
- ----------
(1) Commencement of operations.
(2) Unaudited.
(3) Annualized.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Notes to Financial Statements
NOTE 1--Significant Accounting Policies
Flag Investors Emerging Growth Fund, Inc. (the "Fund"), which was organized
as a Maryland Corporation on July 2, 1987 and commenced operations December 30,
1987, is registered under the Investment Company Act of 1940 as a diversified,
open-end investment management company. Its objective is to seek long-term
capital appreciation primarily through investment in a diversified portfolio of
small and mid-sized emerging growth companies.
The Fund consists of four share classes: Class A Shares, which commenced
June 15, 1988; Institutional Shares, which commenced November 2, 1995; Class B
Shares, which commenced June 20, 1996; and Alex. Brown Capital Advisory & Trust
Shares (ABCAT Shares), which commenced May 9, 1997.
The Class A and Class B Shares are subject to different sales charges and
distribution fees. The Class A Shares have a front-end sales charge and the
Class B Shares have a contingent deferred sales charge. The Institutional Shares
and ABCAT Shares do not have a front-end sales charge, a contingent deferred
sales charge or a distribution fee.
When preparing the Fund's financial statements, management makes estimates
and assumptions to comply with generally accepted accounting principles. These
estimates affect 1) the assets and liabilities that we report at the date of the
financial statements; 2) the contingent assets and liabilities that we disclose
at the date of the financial statements; and 3) the revenues and expenses that
we report for the period. Our estimates could be different from the actual
results. The Fund's significant accounting policies are:
A. Security Valuation -- The Fund values a portfolio security that is
primarily traded on a national exchange by using the last price reported
for the day. If there are no sales or the security is not traded on a
listed exchange, the Fund values the security at the average of the last
bid and asked prices in the over-the-counter market. When a market
quotation is unavailable, the Investment Advisor determines a fair value
using procedures that the Board of Directors establishes and monitors.
The Fund values short-term obligations with maturities of 60 days or
less at amortized cost.
B. Repurchase Agreements -- The Fund may enter into tri-party repurchase
agreements with broker-dealers and domestic banks. A repurchase
agreement is a short-term investment in which the Fund
15
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1--concluded
buys a debt security that the broker agrees to repurchase at a set time
and price. The third party, which is the broker's custodial bank, holds
the collateral in a separate account until the repurchase agreement
matures. The agreement ensures that the collateral's market value,
including any accrued interest, is sufficient if the broker defaults.
The Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes -- The Fund determines its distributions according
to income tax regulations, which may be different from generally
accepted accounting principles. As a result, the Fund occasionally makes
reclassifications within its capital accounts to reflect income and
gains that are available for distribution under income tax regulations.
The Fund is organized as a regulated investment company. As long as
it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net realized
capital gains, it will be exempt from most, if not all, federal income
and excise taxes. As a result, the Fund has made no provisions for
federal income taxes.
D. Securities Transactions, Investment Income, Distributions and Other --
The Fund uses the trade date to account for security transactions and
the specific identification method for financial reporting and income
tax purposes to determine the cost of investments sold or redeemed.
Interest income is recorded on an accrual basis and includes the pro
rata scientific method for amortization of premiums and accretion of
discounts when appropriate. Income and common expenses are allocated to
each class based on its respective average net assets. Class specific
expenses are charged directly to each class. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
NOTE 2--Investment Advisory Fees, Transactions with Affiliates and Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor. The Advisory Agreement
provides for ICC to receive a maximum annual fee equal to 0.85% of the Fund's
average daily net assets. However, the actual amount of the fee
16
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
NOTE 2--concluded
is contractually limited to an amount that would result in total expenses on
Class A Shares of no more than 1.50%. The Fund paid ICC $564,175 in fees, which
was equal to 0.85% of the Fund's average daily net assets, for advisory services
for the period ended April 30, 1998.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor.
As compensation for its accounting services, the Fund pays ICC an annual
fee that is calculated daily and paid monthly from the Fund's average daily net
assets. The Fund paid ICC $29,793 for accounting services for the period ended
April 30, 1998.
As compensation for its transfer agent services, the Fund pays ICC a per
account fee that is calculated and paid monthly. The Fund paid ICC $32,155 for
transfer agent services for the period ended April 30, 1998.
Effective September 22, 1997, Bankers Trust Corporation became the Fund's
custodian. Prior to September 22, 1997, PNCBank served as the Fund's custodian.
For the six-month period ended April 30, 1998, the Fund accrued $11,041 in
custody fees.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICCDistributors"), which ICC is not related to, an annual
fee that is calculated daily and paid monthly. This fee is paid at an annual
rate equal to 0.25% of the Class A Shares' average daily net assets and 1.00%
(including a 0.25% shareholder servicing fee) of the Class B Shares' average
daily net assets. For the period ended April 30, 1998, distribution fees
aggregated $124,940, of which $94,141 was attributable to the Class A Shares and
$30,799 was attributable to the Class B Shares. No distribution fees were
charged to the Institutional and ABCATShares.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the period ended
April 30, 1998 was $1,310, and the accrued liability was $5,542.
NOTE 3--Capital Share Transactions
The Fund is authorized to issue up to 20 million shares of $.001 par value
capital stock (8 million Class A, 1 million Class B, 5 million Institutional,
17
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 3--concluded
5 million Alex. Brown Capital Advisory and Trust and 1 million undesignated).
Transactions in shares of the Fund are listed below.
Class A Shares
--------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 Oct. 31, 1997
-------------- -------------
Shares sold 429,122 1,220,895
Shares issued to shareholders on
reinvestment of dividends 148,041 92,972
Shares redeemed (252,042) (612,803)
----------- ------------
Net increase in shares outstanding 325,121 701,064
=========== ============
Proceeds from sale of shares $ 9,815,819 $ 24,515,195
Value of reinvested dividends 3,068,894 1,709,779
Cost of shares redeemed (5,868,821) (12,465,235)
----------- ------------
Net increase from capital share
transactions $ 7,015,892 $ 13,759,739
=========== ============
Class B Shares
--------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 Oct. 31, 1997
-------------- -------------
Shares sold 39,327 234,480
Shares issued to shareholders on
reinvestment of dividends 12,906 2,231
Shares redeemed (14,057) (27,166)
--------- ----------
Net increase in shares outstanding 38,176 209,545
========= ==========
Proceeds from sale of shares $ 889,675 $5,012,881
Value of reinvested dividends 263,666 40,890
Cost of shares redeemed (323,343) (564,373)
--------- ----------
Net increase from capital share
transactions $ 829,998 $4,489,398
========= ==========
18
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
NOTE 3--concluded
Institutional Shares
--------------------------------
For the For the
Period Ended Year Ended
April 30, 1998 Oct. 31, 1997
-------------- -------------
Shares sold 20,028 834,599
Shares issued to shareholders on
reinvestment of dividends 27,198 49,811
Shares redeemed (273,490) (1,353,795)**
----------- ------------
Net increase/(decrease) in shares outstanding (226,264) 469,385
=========== ============
Proceeds from sale of shares $ 508,820 $ 16,289,665
Value of reinvested dividends 566,256 916,529
Cost of shares redeemed (6,695,535) (26,372,242)**
----------- ------------
Net increase/(decrease) from capital
share transactions $(5,620,459) $ (9,166,048)
=========== ============
ABCAT Shares
--------------------------------
For the For the Period
Period Ended May 9, 1997* to
April 30, 1998 Oct. 31, 1997
-------------- -------------
Shares sold 568,924 1,587,453***
Shares issued to shareholders on
reinvestment of dividends 76,695 --
Shares redeemed (125,695) (53,561)
----------- -----------
Net increase in shares outstanding 519,924 1,533,892
=========== ===========
Proceeds from sale of shares $13,503,798 $31,836,820***
Value of reinvested dividends 1,595,250 --
Cost of shares redeemed (2,970,868) (1,183,760)
----------- -----------
Net increase from capital share
transactions $12,128,180 $30,653,060
=========== ===========
- ----------
* Commencement of operations.
** The number of shares redeemed and cost of shares redeemed for the year
ended October 31, 1997 include the exchange from Institutional Shares into
ABCAT Shares.
*** The number of shares sold and proceeds from sale of shares for the for the
year ended October 31, 1997 include the exchange from Institutional Shares
into ABCAT Shares.
19
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4--Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $26,814,383 and sales of investment securities aggregated $16,863,589
for the period ended April 30, 1998.
On April 30, 1998, aggregate net unrealized appreciation over tax cost for
portfolio securities was $46,854,534, of which $49,127,664 related to
appreciated securities and $2,273,130 related to depreciated securities.
NOTE 5--Net Assets
On April 30, 1998, net assets consisted of:
Paid-in capital:
Class A Shares $ 48,408,332
Class B Shares 6,096,297
Institutional Shares 3,966,981
ABCAT Shares 42,781,240
Accumulated net realized gain from security transactions 3,051,284
Unrealized appreciation of investments 47,123,323
Undistributed net investment income (609,224)
------------
$150,818,233
============
20
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- -------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE HARRY WOOLF
Director President
RICHARD T. HALE AMY M. OLMERT
Director Secretary
JOHN F. KROEGER JOSEPH A. FINELLI
Director Treasurer
LOUIS E. LEVY SCOTT J. LIOTTA
Director Assistant Secretary
EUGENE J. MCDONALD
Director
REBECCA W. RIMEL
Director
CARL W. VOGT, ESQ.
Director
Investment Objective
An open-end mutual fund seeking long-term growth of capital through investment
in a diversified portfolio of small and mid-sized emerging growth companies.
21
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
---------------------------------------------------------------
This report is prepared for the general information of
shareholders. It is authorized for distribution to
prospective investors only when preceded or accompanied by an
effective prospectus.
For more complete information regarding any of the Flag
Investors Funds, including charges and expenses, obtain a
prospectus from your investment representative or directly
from the Fund at 1-800-767-FLAG. Read it carefully before you
invest.
---------------------------------------------------------------
<PAGE>
[FLAG LOGO]
FLAG INVESTORS
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Equity Income
Flag Investors Real Estate Securities Fund
Flag Investors Communications Fund
(formerly Flag Investors Telephone Income Fund)
Balanced
Flag Investors Value Builder Fund
Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Flag Investors Maryland Intermediate Tax-Free Income Fund
Current Income
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC DISTRIBUTORS, INC.
