<PAGE>
As Filed With the Securities and Exchange Commission on February 25, 1998
Registration No. 33-21119
811-5320
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 15 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 19 [x]
FLAG INVESTORS EMERGING GROWTH FUND, INC.
-----------------------------------------
(Exact Name of Registrant as Specified in Charter)
One South Street
Baltimore, Maryland 21202
--------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (410) 727-1700
--------------
Edward J. Veilleux
One South Street
Baltimore, Maryland 21202
-------------------------------------
(Name and Address of Agent for Service)
Copy to:
Richard W. Grant, Esquire
Morgan, Lewis & Bockius LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
_x_ on March 1, 1998 pursuant to paragraph (b)
___ 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
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Class A and Class B Shares)
Cross Reference Sheet
February 25, 1998
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- ------------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page ..................................... Cover Page
Item 2. Synopsis ..................................... Fund Expenses
Item 3. Condensed Financial Information ................ Financial Highlights
Item 4. General Description of Registrant .............. Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund .......................... Management of the Fund;
Investment Advisor;
Distributor; Custodian,
Transfer Agent and
ReAccounting 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 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 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Part B - Information Required in a Statement of Additional Information
- ------
<S> <C> <C>
Item 10. Cover Page ...................................... Cover Page
Item 11. Table of Contents ............................... Table of Contents
Item 12. General Information and History ................. General Information and
History
Item 13. Investment Objectives and Policies ............. Investment Objectives and
Policies
Item 14. Management of the Fund .......................... Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities ................................... Control Persons and Principal
Holders of Securities
Item 16. Investment Advisory and Other Services .......... Investment Advisory and
Other Services; Custodian,
Transfer Agent and
Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation ............................ Brokerage
Item 18. Capital Stock and Other Securities .............. Capital Shares; Semi-Annual
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>
[GRAPHIC OMITTED]
EMERGING GROWTH FUND, INC.
(Class A and Class B Shares)
Prospectus & Application -- March 1, 1998
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks long-term capital appreciation primarily
through investment in a diversified portfolio of small and mid-sized emerging
growth companies.
Shares of the Fund are available through your securities dealer or the Fund's
transfer agent. 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 you with alternatives as to sales load and
Fund expenses. (See "How to Invest in the Fund.")
This Prospectus sets forth basic information that you should know about the
Fund prior to investing. You should retain it for future reference. A Statement
of Additional Information dated March 1, 1998, 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.
TABLE OF CONTENTS
Fund Expenses ................................................... 1
Financial Highlights ............................................ 2
Investment Program .............................................. 4
Investment Restrictions ......................................... 5
How to Invest in the Fund ....................................... 5
How to Redeem Shares ............................................ 9
Telephone Transactions .......................................... 9
Dividends and Taxes ............................................. 10
Management of the Fund .......................................... 10
Investment Advisor .............................................. 11
Distributor ..................................................... 11
Custodian, Transfer Agent and
Accounting Services .......................................... 12
Performance Information ......................................... 12
General Information ............................................. 13
Application ..................................................... A-1
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.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
Initial Sales Deferred
Charge Sales Charge
Shareholder Transaction Expenses: 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
Maximum Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, whichever is lower) ................................... 0.50%* 4.00%**
Annual Fund Operating Expenses (as a percentage of average daily net assets):
Management Fees ................................................................ 0.85% 0.85%
12b-1 Fees ..................................................................... 0.25% 0.75%
Other Expenses (including a 0.25% shareholder servicing fee for Class B Shares) 0.34% 0.59%***
------ -----------
Total Fund Operating Expenses .................................................. 1.44% 2.19%
====== ===========
</TABLE>
- -----------
* If you purchase $1 million or more of Class A Shares, you will not have to
pay an initial sales charge. You may, however, be required to pay a
contingent deferred sales charge when you redeem your shares. (See "How to
Invest in the Fund -- Class A Shares.")
** You will be required to pay a contingent deferred sales charge if you
redeem your Class B Shares within six years of purchase. The amount of the
charge declines in relation to the time you hold your shares. 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 your securities
dealer and qualified banks for services provided and expenses incurred in
maintaining your account, responding to your inquiries and providing you
with information about your investment.
<TABLE>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------- -------- --------- --------- ---------
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption at
the end of each time period:
Class A Shares ......................................... $59 $89 $120 $ 210
Class B Shares ......................................... $62 $99 $137 $ 216*
You would pay the following expenses on the same invest-
ment, assuming no redempton:*
Class B Shares ......................................... $22 $69 $117 $ 216*
</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.
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above table is to describe the various costs and
expenses that you will bear directly or indirectly when you invest in the Fund.
If you purchase shares of either class through a financial institution, you may
be charged separate fees by that institution.
The rules of the SEC require that the maximum sales charge be reflected in
the above table. However, you may qualify for reduced sales charges or no sales
charge at all. (See "How to Invest in the Fund -- Class A Shares.") Due to the
continuous nature of Rule 12b-1 fees, you may pay more than the equivalent of
the maximum sales charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. if you hold your shares for a long time.
1
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by Coopers
& Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the fiscal year ended October 31, 1997 and the report
thereon of Coopers & Lybrand L.L.P. are included in the Statement of Additional
Information. Additional performance information is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1997, which can be obtained
at no charge by calling the Fund at (800) 767-FLAG.
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................................ $ 19.14 $ 17.09 $ 12.90
------- ------- -------
Income from Investment Operations:
Expenses in excess of income .......................................... ( 0.18) ( 0.15) ( 0.09)
Net realized and unrealized gain/(loss) on investments ................ 4.95 3.10 4.32
Effect of other capital share activity ................................ -- -- --
-------- ------- -------
Total from Investment Operations ...................................... 4.77 2.95 4.23
-------- ------- -------
Less Distributions:
Distributions from net investment income and short-term gains ......... ( 0.21) ( 0.30) --
Distributions from net realized mid-term and long-term gains .......... ( 0.53) ( 0.60) ( 0.04)
-------- ------- -------
Total distributions ................................................... ( 0.74) ( 0.90) ( 0.04)
-------- ------- -------
Net asset value at end of period ...................................... $ 23.17 $ 19.14 $ 17.09
======== ======= =======
Total Return(2) ........................................................ 25.93% 18.19% 32.92%
Ratios to Average Daily Net Assets:
Expenses .............................................................. 1.44% 1.50% 1.50%
Expenses in excess of income .......................................... (0.97)% (0.83)% (0.64)%
Supplemental Data:
Net assets at end of period (000): .................................... $71,123 $45,325 $38,127
Portfolio turnover rate ............................................... 42% 24% 39%
Average commissions per share(4) ...................................... $0.0736 $ 0.07 --
</TABLE>
- -----------
(1) Commencecement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
(4) Disclosure is required for fiscal years beginning on or after September 1,
1995. Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
2
<PAGE>
FINANCIAL HIGHLIGHTS (concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ---------------------------------------------------------------------------------- For the Period
For the Year Ended October 31, December 30, 1987(1)
- ---------------------------------------------------------------------------------- through
1994 1993 1992 1991 1990 1989 October 31, 1988
- ------------- ----------- ------------- ----------- ------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
$ 14.02 $ 13.53 $ 15.23 $ 8.93 $ 14.90 $ 10.87 $ 10.00
-------- ------- --------- ------- --------- ------- --------
( 0.08) ( 0.08) ( 0.16) ( 0.10) ( 0.11) ( 0.05) 0.10
0.47 1.20 ( 1.54) 6.40 ( 4.00) 4.13 ( 0.88)
-- -- -- -- -- -- 1.65
--------- ------- --------- ------- --------- ------- ---------
0.39 1.12 ( 1.70) 6.30 ( 4.11) 4.08 0.87
--------- ------- --------- ------- --------- ------- ---------
-- -- -- -- ( 1.86) ( 0.05) --
( 1.51) ( 0.63) -- -- -- -- --
--------- ------- --------- ------- --------- ------- ---------
( 1.51) ( 0.63) -- -- ( 1.86) ( 0.05) --
--------- ------- --------- ------- --------- ------- ---------
$ 12.90 $ 14.02 $ 13.53 $ 15.23 $ 8.93 $ 14.90 $ 10.87
========= ======= ========= ======= ========= ======= =========
3.75% 8.33% (11.16)% 70.55% (31.63)% 37.64% 8.80%
1.50% 1.50% 1.46% 1.50% 1.50% 1.49% 1.47%(3)
( 0.73)% ( 0.52)% ( 0.92)% ( 0.76)% ( 0.92)% ( 0.42)% 1.02%(3)
$ 23,302 $28,867 $ 38,924 $48,656 $ 31,678 $44,396 $ 26,159
86% 133% 69% 79% 82% 108% 110%
-- -- -- -- -- -- --
<CAPTION>
Class B
- -------------------------------------
For the Period
For the June 20, 1996(1)
Year Ended through
October 31, 1997 October 31, 1996
- ------------------ -----------------
<C> <C>
$ 19.10 $ 19.22
------- -------
( 0.18) ( 0.12)
4.70 --
-- --
-------- --------
4.52 ( 0.12)
-------- --------
( 0.21) --
( 0.53) --
-------- --------
( 0.74) --
-------- --------
$ 22.88 $ 19.10
======== ========
24.69% ( 0.62)%
2.19% 2.25%(3)
( 1.73)% ( 1.67)%(3)
$ 5,719 $ 772
42% 24%(3)
$ 0.0736 $ 0.07
</TABLE>
3
<PAGE>
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, 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. 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 (the "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 Advisor believes are
well managed and have experienced or have the potential to experience rapid
growth in revenues, earnings, assets and cash flow. As an additional attempt to
limit volatility, the Fund will invest in a broad cross-section of industries.
While the Fund's investments in particular industries will change from time to
time as investment opportunities change, it will invest primarily, but not
exclusively, in companies in the businesses of technology, health care,
business services, energy, transportation, financial services, consumer
products and services and capital goods.
The 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.
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 rated in one of the three highest rating categories of
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") (or, if unrated, determined by the Advisor to be of equivalent
quality), 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.
In addition, for temporary defensive purposes, the Fund may, without
limit, hold money market instruments that are rated in the top two categories
published by Moody's or S&P or, if unrated, of comparable quality as determined
by the Advisor.
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" in the
Statement of Additional Information). 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.
4
<PAGE>
1) Repurchase Agreements. The Fund may agree to purchase U.S. Government
securities from creditworthy financial institutions, such as banks and
broker-dealers, subject to the seller's agreement to repurchase the
securities at an established time and price. Default by or bankruptcy
proceedings with respect to the seller may, however, expose the Fund to
possible loss because of adverse market action or delay in connection with
the disposition of the underlying obligations.
2) Loans of Portfolio Securities. The Fund has the right to lend portfolio
securities to approved institutional borrowers for the purpose of
increasing its net investment income. These loans must be secured
continuously by cash or equivalent collateral, or by a letter of credit at
least equal to the market value of the securities loaned plus accrued
interest or income. There may be a risk of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund's custodian, or another affiliate
may act as securities lending agent.
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 have 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, you should not consider investing in
this Fund if you are unable or unwilling to assume the risk of loss inherent in
such a program, nor should you consider an investment in the Fund to be 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.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund is subject to a number of fundamental and non-fundamental
investment restrictions that are set forth in the Statement of Additional
Information.
HOW TO INVEST IN THE FUND
- --------------------------------------------------------------------------------
You may purchase Class A Shares and Class B Shares through your
securities dealer or through any financial institution that is authorized to
service shareholder accounts ("Shareholder Servicing Agents"). You may also
purchase shares of either class by completing the Application Form attached to
this Prospectus and returning it, together with payment of the purchase price,
to the address shown on the Application Form.
The Class A and Class B alternatives permit you to choose the method of
purchasing shares that is best for you given the amount of your purchase, the
length of time you expect to hold your shares, and other circumstances. You
should consider whether, during the anticipated life of your 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, if you plan to
purchase $100,000 or more of Fund shares you will pay lower aggregate charges
and expenses by purchasing Class A Shares. (See "Fee Table.") Your securities
dealer or Shareholder Servicing Agent and their investment representatives may
receive different levels of compensation depending on which class of shares you
buy.
Your initial investment in either class must be at least $2,000.
Subsequent investments must be at least $100. The following are exceptions to
these minimums:
o If you are investing in an IRA account, your initial investment may be
as low as $1,000.
5
<PAGE>
o If you are a shareholder of any other Flag Investors fund, your initial
investment in this Fund may be as low as $500.
o If you are a participant in the Fund's Automatic Investing Plan, your
initial investment may be as low as $250. Subsequent investments may
be as low as $100 if made monthly, but must be $250 if done
quarterly. (See "Purchases Through Automatic Investing Plan" below).
o There is no minimum investment requirement for qualified retirement
plans (i.e., 401(k) plans or pension and profit sharing plans).
You may purchase shares on any day on which the New York Stock Exchange
is open for business (a "Business Day"). Your purchase order will be executed
at a per share purchase price equal to the net asset value next determined
after it is received plus any applicable front-end sales charge (the "Offering
Price"). If your purchase is made by mail, it must be accompanied by payment of
the Offering Price. Purchases made through your securities dealer or
Shareholder Servicing Agent must be in accordance with their payment
procedures.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental
to the interests of the Fund's shareholders.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given their
market value which is normally based on current prices but which may be
determined according to "fair value" procedures approved by the Fund's Board of
Directors. Because the classes of shares have different distribution/service
fees, the net asset value per share of the classes differs at times.
Offering Price
Your share purchase is made at the Offering Price, which for Class A
Shares includes a sales charge that 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 in the following table:
Sales Charge Dealer
as % of Compensation
------------------------- as % of
Offering Net Amount Offering
Amount of Purchase Price Invested Price
- ----------------------------- ---------- ------------ -------------
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*
- --------------------------------------------------------------------------------
* If you purchase $1 million or more of Class A Shares, you will not have to
pay an initial sales charge. You may, however, be subject to a contingent
deferred sales charge when you redeem your shares. (See below.) The Fund's
distributor may make payments to your securities dealer or Shareholder
Servicing Agent in an amount up to 1.00% of the Offering Price.
You may obtain reduced sales charges as set forth in the table above by
accumulating purchase orders for, and existing investments in, Class A Shares
of this Fund and Class A or Class D shares of any other Flag Investors fund.
The applicable sales charge will be determined based on the total value of your
current purchases plus the value of your existing investments. (For this
purpose, existing investments will be valued at the higher of cost or current
value.) You may combine your purchases and investments with those of your
spouse and your children under the age of 21 for this purpose.
To obtain the reduced sales charge through this right of accumulation,
you must provide your securities dealer or Shareholder Servicing Agent with
sufficient information to verify that you have such a right. The Fund may amend
or terminate this right of accumulation at any time as to subsequent purchases.
<PAGE>
You may also obtain the reduced sales charges shown above by executing a
written Letter of Intent that states your 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 does not require that you 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 your name) to secure payment of
the higher sales charge applicable to the Class A Shares actually purchased if
you do not purchase the full amount. Such escrowed shares will be redeemed to
pay the additional sales charge, if necessary. When the full amount indicated
has been purchased, the escrowed shares will be released. If you wish to enter
into a Letter of Intent in conjunction with an investment in Class A Shares, you
may do so by completing the appropriate section of the Application Form attached
to this Prospectus.
6
<PAGE>
You will not be charged a sales charge on purchases of $1 million or more
of Class A Shares. You may, however, be required to pay a contingent deferred
sales charge if you redeem the purchased shares within 24 months. The charge
will be made at the rate of 0.50% 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 if your securities
dealer has agreed to return to the Fund's distributor (the "Distributor") any
payments received on the sale of such shares. In determining whether a
contingent deferred sales charge is payable and, if so, the amount of the
charge, it is assumed that shares not subject to such charge are the first
redeemed followed by other Class A Shares held for the longest period of time.
You may purchase Class A Shares at net asset value (without sales charge)
under the following circumstances:
1) If you are purchasing shares in any of the following types of accounts:
(i) A fiduciary or advisory account with a bank, bank trust department,
registered investment advisory company, financial planner or
securities dealer purchasing shares on your behalf. To qualify for
this provision you must be paying an account management fee for the
fiduciary or advisory services. You may be charged an additional fee
by your broker or agent if you purchase shares in this manner;
(ii) A qualified retirement plan;
(iii) A Flag Investors fund payroll savings plan program.
2) If you are reinvesting some or all of the proceeds of a redemption of Class
A Shares made within the last 90 days.
3) If you are exchanging an investment in another Flag Investors fund for an
investment in this Fund (see "Purchases by Exchange" for a full
description of the conditions).
4) If you are a current or retired Director of the Fund, a director, an
employee or a member of the immediate family of an employee of any of the
following or their respective affiliates: the Distributor, the Advisor
and any broker-dealer authorized to sell Class A Shares.
You may also purchase Class A Shares through a Systematic Purchase Plan.
Contact your securities dealer or Shareholder Servicing Agent for details.
Class B Shares
You will not be charged a sales charge at the time of purchase of Class B
Shares. However, you will be charged a contingent deferred sales charge on
certain Class B Shares redeemed within six years of your 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. No charge is
assessed on redemptions of Class B Shares derived from reinvestment of
dividends or capital gains distributions.
<PAGE>
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 first, you have redeemed
any Class B Shares in your account that represent reinvested dividends and
distributions and second, Class B Shares you held the longest during the
six-year period. The amount of the contingent deferred sales charge, if any,
will vary depending on the number of years since you purchased the shares (the
"holding period"). For purposes of determining this holding period, all
purchases 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.
Contingent Deferred Sales Charge
Year Since Purchase (as a percentage of the dollar
Payment was Made amount subject to charge)
- --------------------- ---------------------------------
First .............. 4.0%
Second ............. 4.0%
Third .............. 3.0%
Fourth ............. 3.0%
Fifth .............. 2.0%
Sixth .............. 1.0%
Thereafter ......... None*
- --------------------------------------------------------------------------------
* As described more fully below, Class B Shares automatically convert to Class
A Shares six years after the beginning of the calendar month of your
purchase.
Waiver of Contingent Deferred Sales Charge. The contingent deferred sales
charge will be waived: (i) following your death or initial determination of
disability (as defined in the Internal Revenue Code of 1986, as amended); or
(ii) to the extent that the redemption represents a minimum required
distribution from your individual retirement account or other retirement plan.
The waiver with respect to (i) above is only applicable in cases where your
account is registered (a) in your individual name, (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. You, or your
representative, must notify the Fund's transfer agent (the "Transfer Agent")
prior to the time of redemption if such circumstances exist and you are
eligible for this waiver. For information on the imposition and waiver of the
contingent deferred sales charge, contact the Transfer Agent.
Automatic Conversion to Class A Shares. Six years after the beginning of
the calendar month of your purchase, Class B Shares will automatically convert
to
7
<PAGE>
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 charge. The
conversion is not a taxable event to you.
For purposes of conversion to Class A Shares, shares received as
dividends and other distributions paid on Class B Shares in your account will
be considered to be held in a separate sub-account. Each time any Class B
Shares in your 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.
You may also purchase Class B Shares through a Systematic Purchase Plan.
Contact your securities dealer or Shareholder Servicing Agent for details.
Purchases by Exchange
You may exchange shares of any other Flag Investors fund with the same
sales charge structure for an equal dollar amount of Class A or Class B Shares,
as applicable, without payment of the sales charges described above or any other
charge. In addition, you may exchange Class A shares of any Flag Investors fund
with a lower sales charge (with the exception of Flag Investors Cash Reserve
Prime Class A Shares) for an equal dollar amount of Class A Shares if you have
owned the shares you are redeeming for at least 24 months. If you have owned
them for less than 24 months, you may exchange them for Class A Shares if you
pay the difference in sales charges. You may enter both your redemption and
purchase orders on the same Business Day or, if you have already redeemed the
shares of the other fund, you may enter your purchase order within 90 days of
the redemption.
When you acquire Fund shares through an exchange from another fund in the
Flag Investors family of funds, the period for which the original shares were
held prior to the exchange will be combined with the holding period of the
shares acquired in the exchange for purposes of determining what, if any,
contingent deferred sales charge is applicable when those shares are redeemed.
The net asset value of shares purchased and redeemed in an exchange
request received on the same Business Day will be determined on that 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.
Your partnership interest in EGC Limited Partnership may be exchanged for
an equal dollar amount of Class A Shares. The Distributor will tender your
partnership interest offered for exchange for redemption by the issuer and will
use the proceeds to purchase Class A Shares on your behalf. Class A Shares
issued pursuant to this offer will not be subject to the sales charges
described above or any other charge.
You may exercise this exchange privilege with respect to other Flag
Investors funds by telephone. (See "Telephone Transactions" below.)
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
You may elect to have a specified amount invested monthly or quarterly in
either Class A Shares or Class B Shares. The amount specified will be withdrawn
from your checking account using a pre-authorized check and will be invested in
the class of shares selected 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 you or the Fund upon 30 days'
prior written notice to the other party. If you wish to enroll in the Automatic
Investing Plan or if you wish to obtain additional information, complete the
appropriate section of the Application Form attached to this Prospectus.
Purchases Through Dividend Reinvestment
Unless you elect otherwise, all income dividends and capital gains
distributions will be reinvested in additional Fund shares of the same class at
net asset value. You may elect to receive your distributions in cash or to
terminate automatic reinvestment by completing the appropriate section of the
attached Application Form or by giving written notice to the Transfer Agent at
the address listed on the inside back cover of this Prospectus, either directly
or through your securities dealer or Shareholder Servicing Agent, at least five
days before the next date on which dividends or distributions will be paid.
You may also have your distributions invested in shares of other funds in
the Flag Investors family of funds. Call your securities dealer or the Transfer
Agent for additional information.
8
<PAGE>
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
You may redeem all or part of your investment on any Business Day through
your securities dealer, your Shareholder Servicing Agent or the Transfer Agent.
You may redeem up to $50,000 of either class by telephone. (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 your order (or, if stock certificates have been
issued for the shares to be redeemed, after you tender the stock certificates
for redemption). Redemption orders received after 4:00 p.m. (Eastern Time) or
the close of the New York Stock Exchange, whichever is earlier, will be
effected at the net asset value next determined on the following Business Day.
You will be paid for redeemed shares by check which will be mailed within seven
days after your redemption order is received in proper form.
The Transfer Agent, your securities dealer or your Shareholder Servicing
Agent may require the following documents in order to redeem your shares:
1) A letter of instructions, specifying your account number and the number of
shares or dollar amount to be redeemed, signed by all owners of the shares
in the exact names in which the account is maintained;
2) For redemptions in excess of $50,000, a guarantee of your signature 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.
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 your account have
been redeemed on a dividend payable date, the dividend will be remitted to you
by check.
The Fund has the power under its Articles of Incorporation to redeem your
account upon 60 days' written notice if its value falls below $500 due to your
redemptions.
Systematic Withdrawal Plan
If you hold Class A Shares or Class B Shares having a value of $10,000 or
more you may arrange to have a portion of your 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, your account may eventually be exhausted.
Because Class A Share purchases include a sales charge that you will not
recover at the time of redemption, you should not have a withdrawal plan in
effect at the same time you are making recurring purchases. In addition, you
may be subject to a contingent deferred sales charge upon redemption of Class B
Shares. (See "How to Invest in the Fund--Class B Shares.") If you wish to
participate in the Fund's Systematic Withdrawal Plan, complete the appropriate
section of the Application Form attached to this Prospectus.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
You may redeem shares of either class in amounts up to $50,000 or
exchange shares in any amount, by notifying the Transfer Agent by telephone on
any Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time).
Telephone transaction privileges are automatic unless you specifically request
that no telephone redemptions or exchanges be accepted for your account. 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 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) next determined on the following Business Day.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. These proce-
9
<PAGE>
dures include requiring you to provide certain personal identification
information at the time your account is opened and prior to effecting each
transaction requested by telephone. You may be required to provide additional
telecopied instructions. 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. Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may experience
difficulty in effecting telephone transactions. In such event, requests should
be made by 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.")
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.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences
affecting the Fund and its shareholders is based on current tax laws and
regulations, which may be changed by legislative, judicial, or administrative
action. No attempt has been made to present a detailed explanation of the
federal, state or local tax treatment of the Fund or the shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, you are urged to consult with your tax advisor regarding any
specific questions.
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. Unless
you are otherwise exempt, you will be generally subject to federal income tax
on the amounts distributed to you, regardless of whether such distributions are
paid in cash or reinvested in additional shares.
You will be taxed on distributions from the Fund out of net capital
gains, if any, as gains from the sale or exchange of a capital asset held for
more than one year regardless of the length of time you have held the shares.
You will be taxed on all other income distributions as ordinary income. If you
are a corporate shareholder, you may be entitled to the dividends received
deduction on a portion of dividends received from the Fund. You will be advised
annually as to the federal income tax status of all distributions.
Ordinarily, you should include all dividends 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 you and paid by the Fund in the year
in which the dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange, or redemption of Fund shares is a taxable event for
you.
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 distributor, custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Fund's
executive officers, to the Distributor and to the Advisor. A majority of the
Directors of the Fund have no affiliation with the Distributor or the Advisor.
10
<PAGE>
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp., the Fund's investment advisor ("ICC" or
the "Advisor"), is an indirect subsidiary of Bankers Trust New York Corporation
and an affiliate of BT Alex. Brown Incorporated. ("BT Alex Brown") Since the mid
1970's, BT Alex. Brown, through subsidiaries and affiliates, has provided
services to and in respect of emerging growth and later stage private companies
in the United States, including research and analysis, venture capital
participation, investment banking and investment advisory services. Subject to
review by the Board of Directors and to any limitations imposed by applicable
law, the Fund may purchase securities of such emerging growth companies. The
Advisor is also the investment advisor to other mutual funds in the Flag
Investors family of funds together with the fund and BT Alex. Brown Cash Reserve
Fund, Inc., which funds together with the Fund had approximately $7.3 billion of
assets as of December 31, 1997.
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.
As compensation for its services for the fiscal year ended October 31,
1997, the Advisor received from the Fund a fee equal to 0.85% 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. An affiliate of ICC provides custody
services to the Fund. (See "Custodian, Transfer Agent and Accounting
Services.")
Portfolio Manager
Frederick L. Meserve, Jr., a Managing Director of BT Alex. Brown, has had
primary responsibility for managing the Fund's assets since October of 1993. Mr.
Meserve joined BT Alex. Brown in 1977. He has been a member of BT 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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor of each class of the Fund's shares since August 31,
1997. ICC Distributors is a registered broker-dealer that offers distribution
services to a variety of registered investment companies including other funds
in the Flag Investors family of funds and BT Alex. Brown Cash Reserve Fund,
Inc. ICC Distributors is not affiliated with the Advisor.
The Fund has adopted two separate 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 Investment Company Act of 1940. In addition,
the Fund may enter into Shareholder Servicing Agreements with certain financial
institutions, including certain banks and BT Alex. Brown, to provide shareholder
services, pursuant to which the Distributor may allocate on a proportional basis
up to all of its distribution fee as compensation for such financial
institutions' ongoing shareholder services. Such financial institutions may
charge you separately for these services.
As compensation for providing distribution services for the Class A
Shares for the period from August 31, 1997 through October 31, 1997, the
Distributor received a fee equal to 0.25% (annualized) of the Class A Shares'
average daily net assets.
As compensation for providing distribution and shareholder servicing for
the Class B Shares for the period from August 31, 1997 through October 31,
1997, the Distributor received a distribution fee equal to 0.75% (annualized)
of the Class B Shares' average daily net assets and a shareholder servicing fee
equal to 0.25% (annualized) of the Class B Shares' average daily net assets.
The distribution fee is used to compensate the Distributor for its services and
expenses in distributing the Class B Shares. The shareholder servicing fee is
used to compensate the Distributor, securities dealers and Shareholder
Servicing Agents for services provided and expenses incurred in maintaining
your account, responding to your inquiries and providing you with information
on your investment.
11
<PAGE>
Payments under the Plans are made as described above, regardless of the
Distributor's actual cost of providing distribution services. If the cost of
providing distribution services is less than the payments received, the
Distributor may retain the unexpended portion of the distribution fee. The
Distributor or the Advisor, and their respective affiliates, may make payments
from their own resources to securities dealers or Shareholder Servicing Agents.
Payments by the Distributor will include additional discounts or promotional
incentives in the form of cash or other compensation (including merchandise or
travel).
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp., 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, 1997,
ICC received from the Fund a fee equal to 0.05% of the Fund's average daily net
assets. Bankers Trust Company, a subsidiary of Bankers Trust New York
Corporation, acts as custodian of the Fund's assets. (See the Statement of
Additional Information.)
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 Stock
Index, the Russell 2000 Index, the Dow Jones Industrial Average, and the NASDAQ
OTC Composite and OTC Industrial Indices. The Fund may also use total return
performance data as reported in national financial and industry publications
that monitor the performance of mutual funds such as Money Magazine, Forbes,
Business Week, Barron's, Investor's Daily, IBC/Donoghue's Money Fund Report and
The Wall Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the
Fund, operating expenses and market conditions. Any fees charged by your bank
with respect to the account through which your shares may be purchased,
although not included in calculations of performance, will reduce your
performance results.
12
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end, diversified management investment company
organized under the laws of the State of Maryland on July 2, 1987 and is
authorized to issue 20 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 two other classes of shares in
addition to the shares offered hereby: "Flag Investors Emerging Growth Fund
Institutional Shares" and "Alex. Brown Capital Advisory & Trust Emerging Growth
Shares." Additional information concerning the Fund's other classes of shares
may be obtained by calling the Fund 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 by 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
You will be furnished 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.
Shareholders Inquiries
If you have questions concerning your shares, you should contact the
Transfer Agent at (800) 553-8080, the Fund at (800) 767-FLAG, or your
securities dealer or Shareholder Servicing Agent.
13
<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:
For assistance in completing this Application please call: 1-800-553-8080,
Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
Flag Investors Funds To open an IRA account, please call
P.O. Box 419663 1-800-767-3524 to request an IRA Attn:
Kansas City, MO 64141-6663 Flag Investors Emerging Growth Fund, Inc.
information kit.
I wish to purchase the following class of shares of the Fund, in the amount
indicated below. (Please check the applicable box and indicate the 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 $____________
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
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
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
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., as shown below, 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)
List the Account numbers of other Flag Investors Funds that you or your
immediate family already own that qualify for this purchase.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Distribution Options
Please check the appropriate boxes. If none of the options are 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.
A-1
<PAGE>
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)
[ ] Quarterly ($250 minimum per class)
Please attach a voided check.
__________________________________ _________________________________________
Bank Name Depositor's Signature Date
__________________________________ _________________________________________
Existing Flag Investors Fund Account Depositor's Signature Date
No., if any (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 per class.)
Frequency (check one):
[ ] Monthly [ ] Quarterly (January, April, July, and October)
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: _____________________
___________________________
<PAGE>
Signature and Taxpayer Certification
- --------------------------------------------------------------------------------
The Fund may be required to withhold and remit to the U.S. Treasury 31% of any
taxable dividends, capital gains distributions and redemption proceeds paid to
any individual or certain other non-corporate shareholders who fail to provide
the information and/or certifications required below. This backup withholding
is not an additional tax, and any amounts withheld may be credited against
your ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
[ ] U.S. Citizen/Taxpayer:
[ ] I certify that (1) the number shown above on this form is the correct
Social Security Number or Tax ID Number and (2) I am not subject to any
backup withholding either because (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
[ ] If no Tax ID Number or Social Security Number has been provided above, I
have applied, or intend to apply, to the IRS or the Social Security
Administration for a Tax ID Number or a Social Security Number, and I
understand that if I do not provide either number to the Transfer
Agent within 60 days of the date of this Application or if I fail to
furnish my correct Social Security Number or Tax ID Number, I may be
subject to a penalty and a 31% backup withholding on distributions and
redemption proceeds. (Please provide either number on IRS Form W-9.
You may request such form by calling the Transfer Agent at
800-882-8585.)
<PAGE>
[ ] Non-U.S. Citizen/Taxpayer:
Indicated country of residence for tax purposes: _________________________
Under penalties of perjury, I certify that I am not a U.S. citizen or resident
and I am an exempt foreign person as defined by the Internal Revenue Service.
- --------------------------------------------------------------------------------
I have received a copy of the Fund's prospectus. 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.
- --------------------------------------------------------------------------------
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
- --------------------------------------------------------------------------------
__________________________________ __________________________________________
Signature Date Signature (if a joint account, Date
both must sign)
- --------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: _____________________ Dealer Code: ________________________
Dealer's Address: _____________________ Branch Code: ________________________
_____________________
Representative: _____________________ Rep. No.: ________________________
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Class A and Class B Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Distributor Independent Accountants
ICC DISTRIBUTORS, INC. COOPERS & LYBRAND L.L.P.
P.O. Box 7558 2400 Eleven Penn Center
Portland, Maine 04101 Philadelphia, Pennsylvania 19103
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 2000 One Logan Square
New York, New York 10006 Philadelphia, Pennsylvania 19103
Transfer Agent
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
1-800-553-8080
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Institutional Shares)
Cross Reference Sheet
February 25, 1998
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- ---------------------------- ------------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page .................................... Cover Page
Item 2. Synopsis ................................... Fund Expenses
Item 3. Condensed Financial Information ............... Financial Highlights
Item 4. General Description of Registrant ............. Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund ......................... Management of the Fund;
Investment Advisor;
Distributor; Custodian,
Transfer Agent and
Accounting Services
Item 5A. Management's Discussion of Fund
Performance..................................... *
Item 6. Capital Stock and Other Securities ............. Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being Offered ........... How to Invest in Institutional
Shares; Distributor
Item 8. Redemption or Repurchase ....................... How to Redeem Institutional
Shares
Item 9. Pending Legal Proceedings ..................... **
</TABLE>
- ----------------
* Information required by Item 5A is contained in Registrant's 1997 Annual
Report to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Part B - Information Required in a Statement of Additional Information
- ------
<S> <C> <C>
Item 10. Cover Page ...................................... Cover Page
Item 11. Table of Contents ............................... Table of Contents
Item 12. General Information and History ................. General Information
and History
Item 13. Investment Objectives and Policies ............. Investment Objectives and
Policies
Item 14. Management of the Fund .......................... Management of the
Fund
Item 15. Control Persons and Principal Holders
of Securities ................................... Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services .......... Investment Advisory
and Other Services;
Custodian, Transfer Agent
and Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation ............................ Brokerage
Item 18. Capital Stock and Other Securities .............. Capital Shares; Semi-Annual
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>
[FLAG LOGO GRAPHIC]
EMERGING GROWTH FUND, INC.
(Institutional Shares)
Prospectus & Application -- March 1, 1998
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks long-term capital appreciation primarily
through investment in a diversified portfolio of small and mid-sized emerging
growth companies.
Flag Investors Institutional Shares of the Fund ("Institutional Shares") are
available through your securities dealer or the Fund's transfer agent and may be
purchased only by eligible institutions or by clients of investment advisory
affiliates of BT Alex. Brown Incorporated ("BT Alex. Brown"). (See "How to
Invest in Institutional Shares.")
This Prospectus sets forth basic information that you should know about the
Fund prior to investing. You should retain it for future reference. A
Statement of Additional Information dated March 1, 1998 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.
TABLE OF CONTENTS
Fund Expenses ................................. 1
Financial Highlights .......................... 1
Investment Program ............................ 3
Investment Restrictions ....................... 4
How to Invest in Institutional Shares ......... 4
How to Redeem Institutional Shares ............ 5
Telephone Transactions ........................ 5
Dividends and Taxes ........................... 6
Management of the Fund ........................ 7
Investment Advisor ............................ 7
Distributor ................................... 7
Custodian, Transfer Agent and Accounting
Services ................................... 7
Performance Information ....................... 8
General Information ........................... 8
Application ................................... A-1
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.
Flag Investors Funds
P.O. Box 515
Baltimore, Maryland 21203
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases ............................................... None
Maximum Sales Charge Imposed on Reinvested Dividends .................................... None
Maximum Deferred Sales Charge .......................................................... None
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Management Fees ......................................................................... 0.85%
12b-1 Fees .............................................................................. None
Other Expenses .......................................................................... 0.34%
----
Total Fund Operating Expenses ........................................................... 1.19%
====
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Example: 1 year 3 years 5 years 10 years
- -------------------------------------------------------- -------- --------- --------- ---------
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: ............ $12 $38 $65 $144
</TABLE>
The Expenses and Example should not be considered a representation of future
expenses. Actual expenses may be greater or less than those shown.
The purpose of the above table is to describe the various costs and
expenses that you will bear indirectly when you invest in Institutional
Shares. If you purchase Institutional Shares through a financial institution
you may be charged separate fees by that institution.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by
Coopers & Lybrand L.L.P., independent accountants. The financial statements
and financial highlights for the fiscal year ended October 31, 1997 and the
report thereon of Coopers & Lybrand L.L.P. are included in the Statement of
Additional Information. Additional performance information is contained in the
Fund's Annual Report for the fiscal year ended October 31, 1997, which can be
obtained at no charge by calling the Fund at (800) 767-FLAG.
1
<PAGE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the For the Period
Year Ended November 2, 1995(1)
October 31, through October 31,
1997 1996
------------- --------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ............................... $ 19.15 $ 17.45
-------- --------
Income from Investment Operations:
Expenses in excess of income ......................................... (0.26) (0.12)
Net realized and unrealized gain on investments ...................... 5.10 2.72
--------- ---------
Total from Investment Operations ..................................... 4.84 2.60
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)
--------- ---------
Total distributions .................................................. (0.74) (0.90)
--------- ---------
Net asset value at end of period ..................................... $ 23.25 $ 19.15
========= =========
Total Return .......................................................... 26.36% 16.48%
Ratios to Average Daily Net Assets:
Expenses ............................................................. 1.19% 1.25%(2)
Expenses in excess of income ......................................... (0.74)% (0.61)%(2)
Supplemental Data:
Net assets at end of period (000) .................................... $ 13,068 $ 19,751
Portfolio turnover rate .............................................. 42% 24%(2)
Average commissions per share ........................................ $ 0.0736 $ 0.0700
</TABLE>
- -----------
(1) Commencement of operations.
(2) Annualized.
2
<PAGE>
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, 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. 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 (the
"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 Advisor believes are
well managed and have experienced or have the potential to experience rapid
growth in revenues, earnings, assets and cash flow. As an additional attempt
to limit volatility, the Fund will invest in a broad cross-section of
industries. While the Fund's investments in particular industries will change
from time to time as investment opportunities change, it will invest
primarily, but not exclusively, in companies in the businesses of technology,
health care, business services, energy, transportation, financial services,
consumer products and services and capital goods.
The 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.
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 rated in one of the three highest rating categories of
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") (or, if unrated, determined by the Advisor to be of equivalent
quality), 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.
In addition, for temporary defensive purposes, the Fund may, without
limit, hold money market instruments that are rated in the top two categories
published by Moody's or S&P or, if unrated, of comparable quality as
determined by the Advisor.
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" in the
Statement of Additional Information.) 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.
3
<PAGE>
1) Repurchase Agreements. The Fund may agree to purchase U.S. Government
securities from creditworthy financial institutions, such as banks and
broker-dealers, subject to the seller's agreement to repurchase the
securities at an established time and price. Default by or bankruptcy
proceedings with respect to the seller may, however, expose the Fund to
possible loss because of adverse market action or delay in connection
with the disposition of the underlying obligations.
2) Loans of Portfolio Securities. The Fund has the right to lend portfolio
securities to approved institutional borrowers for the purpose of
increasing its net investment income. These loans must be secured
continuously by cash or equivalent collateral, or by a letter of credit
at least equal to the market value of the securities loaned plus accrued
interest or income. There may be a risk of delay in recovery of the
securities or even loss of rights in the collateral should the borrower
of the securities fail financially. The Fund's custodian or another
affiliate may act as securities lending agent.
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 have 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, you should not consider investing in
this Fund if you are unable or unwilling to assume the risk of loss inherent in
such a program, nor should you consider an investment in the Fund 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.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund is subject to a number of fundamental and non-fundamental
investment restrictions that are set forth in the Statement of Additional
Information.
HOW TO INVEST IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
You may purchase Institutional Shares if you are either of the
following:
1. An eligible institution (e.g., a financial institution, corporation,
investment counselor, qualified retirement plan, trust, estate or
educational, religious or charitable institution). If you are a
qualified retirement plan, your initial investment must be at least
$1,000,000. If you are any of the other institutions listed, your
initial investment must be at least $500,000. You may purchase
Institutional Shares through your securities dealer or through any
financial institution that is authorized to service shareholder
accounts ("Shareholder Servicing Agents"). You may also purchase
Institutional Shares by completing the attached Application Form and
returning it, together with payment of the purchase price, as
instructed.
2. A client of an investment advisory affiliate of BT Alex. Brown
purchasing shares in your investment advisory account. Your initial
or subsequent investments may be in any amount. Your investment
advisor will assist you in purchasing Institutional Shares.
You may purchase Institutional Shares on any day on which the New York
Stock Exchange is open for business (a "Business Day"). Your purchase order
will be executed at a per share purchase price equal to the net asset value
next determined after it is received.
4
<PAGE>
Purchases made through your securities dealer or Shareholder Servicing Agent
must be in accordance with their payment procedures.
Your purchase order may not be accepted if the sale of Fund shares has
been suspended or if it is determined that your purchase would be detrimental
to the interests of the Fund's shareholders.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing
its share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing the resulting amount by the number of then outstanding
shares of the class. For this purpose, portfolio securities will be given
their market value which is normally based on current prices but which may be
determined according to "fair value" procedures approved by the Fund's Board
of Directors.
Purchases by Exchange
You may exchange Institutional shares of other Flag Investors funds that
you own for an equal dollar amount of Institutional Shares of the Fund by
notifying the Fund's transfer agent (the "Transfer Agent") by telephone on any
Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern time) (see
"Telephone Transactions" below) or by regular or express mail at the address
listed on the inside back cover of this Prospectus. If your shares are held in
an account with your securities dealer, Shareholder Servicing Agent or
investment advisor, ask them to effect the exchange for you.
The net asset value of Institutional 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.
The Fund may modify or terminate this offer of exchange at any time on
60 days' prior written notice to shareholders.
Other Information
In the interest of economy and convenience and because of the operating
procedures for the Institutional Shares, certificates representing such shares
will not be issued.
HOW TO REDEEM INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
You may redeem all or part of your investment on any Business Day through
your securities dealer, your Shareholder Servicing Agent or the Transfer Agent.
You may redeem up to $500,000 worth of Institutional Shares by telephone. (See
"Telephone Transactions" below.) A redemption order is effected at the net asset
value per share next determined after receipt of your order in proper form.
Redemption orders received after 4:00 p.m. (Eastern Time) or the close of the
New York Stock Exchange, whichever is earlier, will be effected at the net asset
value next determined on the following Business Day. You will be paid for
redeemed Institutional Shares by wire transfer of funds to your securities
dealer, Shareholder Servicing Agent or bank, upon receipt of a duly authorized
redemption request as promptly as feasible and, under most circumstances, within
three Business Days.
Dividends payable up to the date of redemption of Institutional Shares
will be paid on the next dividend payable date. If all of the Institutional
Shares in your account have been redeemed on a dividend payment date, the
dividend will be remitted by wire to your securities dealer, Shareholder
Servicing Agent or bank.
The Fund has the power, under its Articles of Incorporation, to redeem
your account upon 60 days' written notice if its value falls below $500 due to
your redemptions.
TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
You may redeem Institutional Shares in amounts up to $500,000, or exchange
Institutional shares of other Flag Investors funds in any amount by notifying
the Transfer Agent by telephone on any Business Day between the hours of 8:30
a.m. and 5:30 p.m. (Eastern Time). If your shares are held in an account with
your securities dealer, Shareholder Servicing Agent or investment advisor, ask
them to effect your transaction. Telephone transaction privileges are automatic
unless you specifically request that no telephone redemptions or exchanges be
accepted for your account. This election may be made on the Application Form or
at any time thereafter by
5
<PAGE>
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 effective
that day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be
effected at the net asset value next determined on the following 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 you to provide certain personal identification
information at the time your account is opened and prior to effecting each
transaction requested by telephone. You may be required to provide additional
telecopied instructions. 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. Your telephone transaction request will be
recorded.
During periods of extreme economic or market changes, you may experience
difficulty in effecting telephone transactions. In such event, requests should
be made by express mail or facsimile. (See "How to Invest in Institutional
Shares -- Purchases by Exchange" and "How to Redeem Institutional Shares.")
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 you elect otherwise, all income dividends and net capital gains
distributions, if any, will be reinvested in additional Institutional Shares
at net asset value. You may elect to terminate automatic reinvestment by
giving written notice to the Transfer Agent at the address listed on the
inside back cover of this Prospectus, either directly or through your
securities dealer or Shareholder Servicing Agent at least five days before the
next date on which dividends or distributions will be paid.
<PAGE>
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences
affecting the Fund and its shareholders is based on current tax laws and
regulations, which may be changed by legislative, judicial, or administrative
action. No attempt has been made to present a detailed explanation of the
federal, state or local tax treatment of the Fund or the shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, you are urged to consult with your tax advisor regarding specific
questions.
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. Unless
you are otherwise exempt, you will be generally subject to income tax on the
amounts distributed to you, regardless of whether such distributions are paid
in cash or reinvested in additional Institutional Shares.
You will be taxed on distributions from the Fund out of net capital
gains, if any, as gains from the sale or exchange of a capital asset held for
more than one year regardless of the length of time you have held the
Institutional Shares. You will be taxed on all other income distributions as
ordinary income. If you are a corporate Shareholder you may be entitled to the
dividends received deduction on a portion of dividends received from the Fund.
You will be advised annually as to the tax status of all distributions.
Ordinarily, you should include all dividends 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 you and paid by the Fund in
the year in which the dividends were declared.
The Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange, or redemption of Institutional Shares is a taxable
event for you.
6
<PAGE>
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 distributor, custodian and transfer
agent. The day-to-day operations of the Fund are delegated to the Fund's
executive officers, to the Distributor and to the Advisor. A majority of the
Directors of the Fund have no affiliation with the Distributor or the Advisor.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp., the Fund's investment advisor ("ICC" or
the "Advisor"), is an indirect subsidiary of Bankers Trust New York Corporation
and an affiliate of BT Alex. Brown. Since the mid 1970's, BT Alex. Brown,
through subsidiaries and affiliates, has provided services to and in respect of
emerging growth and later stage private companies in the United States,
including research and analysis, venture capital participation, investment
banking and investment advisory services. Subject to review by the Board of
Directors and to any limitations imposed by applicable law, the Fund may
purchase securities of such emerging growth companies. The Advisor is also the
investment advisor to other mutual funds in the Flag Investors family of funds
and BT Alex. Brown Cash Reserve Fund, Inc., which funds together with the Fund
had approximately $7.3 billion of assets as of December 31, 1997.
<PAGE>
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.
As compensation for its services for the fiscal year ended October 31,
1997, the Advisor received from the Fund a fee equal to 0.85% 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. An affiliate of ICC provides custody
services to the Fund (See "Custodian, Transfer Agent and Accounting
Services.")
Portfolio Manager
Frederick L. Meserve, Jr., a Managing Director of BT Alex. Brown, has had
primary responsibility for managing the Fund's assets since October of 1993.
Mr. Meserve joined BT Alex. Brown in 1977. He has been a member of BT 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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor of each class of the Fund's shares since August 31,
1997. ICC Distributors is a registered broker-dealer that offfers distribution
services to a variety of registered investment companies including other funds
in the Flag Investors family of funds and BT Alex. Brown Cash Reserve Fund,
Inc. ICC Distributors is not affiliated with the Advisor. ICC Distributors
receives no compensation for distributing the Institutional Shares.
The Distributor bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses
to individuals and entities other than Fund shareholders. The Advisor or its
affiliates may make payments from its own resources to securities dealers
and Shareholder Servicing Agents.
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp., 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, 1997,
ICC received from the Fund a fee equal to 0.05% of the Fund's average daily
net assets. Bankers Trust Company, a subsidiary of Bankers Trust New York
Corporation, acts as custodian of the Fund's assets. (See the Statement of
Additional Information.)
7
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one-, five- and ten-year periods or, if such periods
have not yet elapsed, shorter periods corresponding to the life of the Fund.
Such total return quotations will be computed by finding average annual
compounded rates of return over such periods that would equate an assumed
initial investment of $1,000 to the ending redeemable value according to the
required standardized calculation. The standardized calculation is required by
the SEC to provide consistency and comparability in investment company
advertising and is not equivalent to a yield calculation. If the Fund compares
its performance to other funds or to relevant indices, its performance will be
stated in the same terms in which such comparative data and indices are
stated, which is normally total return rather than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Standard & Poor's 500
Stock Index, the Russell 2000 Index, the Dow Jones Industrial Average, and the
NASDAQ OTC Composite and OTC Industrial Indices. The Fund may also use total
return performance data as reported in national financial and industry
publications that monitor the performance of mutual funds such as Money
Magazine, Forbes, Business Week, Barron's, Investor's Daily, IBC/Donoghue's
Money Fund Report and The Wall Street Journal.
Performance will fluctuate and any statement of performance should not
be considered as representative of the future performance of the Fund.
Performance is generally a function of the type and quality of instruments
held by the Fund, operating expenses and market conditions. Any fees charged
by your bank with respect to accounts through which your Institutional Shares
may be purchased, although not included in calculations of performance, will
reduce your performance results.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end diversified management investment company
organized under the laws of the State of Maryland on July 2, 1987 and is
authorized to issue 20 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 Institutional Shares." The Board has no present intention
of establishing any additional series of the Fund but the Fund does have three
other classes of shares in addition to the shares offered hereby: "Flag
Investors Emerging Growth Fund Class A Shares," "Flag Investors Emerging
Growth Fund Class B Shares" and "Alex. Brown Capital Advisory & Trust Emerging
Growth Shares." Additional information concerning the Fund's other classes of
shares may be obtained by calling the Fund 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
Institutional Shares. All classes of the Fund share a common investment
objective, portfolio of investments and advisory fee, but the classes may have
different distribution fees or sales load structures and the net asset value
per share of classes may differ at times.
Annual Meetings
Unless required by 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.
8
<PAGE>
Reports
You will be furnished 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.
Shareholder Inquiries
If you have questions concerning your Institutional Shares, you should
contact the Fund at (800) 767-FLAG, the Transfer Agent at (800) 553-8080 or
your securities dealer or Shareholder Servicing Agent.
9
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Send completed Application by overnight carrier to: For assistance in completing this Application please call: 1-800-553-
Flag Investors Funds 8080, Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
330 West 9th Street, First Floor
Kansas City, MO 64105
Attn: Flag Investors Emerging Growth Fund, Inc.
</TABLE>
If you are paying by check, make check payable to "Flag Investors Emerging
Growth Fund, Inc." and mail with this Application. If you are paying by wire,
see instructions below.
Your Account Registration (Please Print)
<TABLE>
<CAPTION>
<S> <C>
Name on Account Mailing Address
- ----------------------------------------- --------------------------------------------
Name of Corporation, Trust or Partnership Name of Individual to Receive Correspondence
- ----------------------------------------- --------------------------------------------
Tax ID Number Street
--------------------------------------------
/ / Corporation / / Partnership / / Trust City State Zip
/ / Non-Profit or Charitable Organization / / Other _______ --------------------------------------------
If a Trust, please provide the following: Daytime Phone
- -----------------------------------------------------------------------------------------------------------
Date of Trust For the Benefit of
- -----------------------------------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
</TABLE>
Initial Investment
The minimum initial purchase for the Institutional Shares of the Fund is
$500,000, except that the minimum initial purchase is $1,000,000 for qualified
retirement plans. There is no minimum for clients of investment advisory
affiliates of BT Alex. Brown Incorporated.
Indicate the amount to be invested and the method of payment:
- - A. By Mail: Enclosed is a check in the amount of $________ payable to Flag
Investors Emerging Growth Fund, Inc.
- - B. By Wire: A bank wire in the amount of $_______ has been sent
from __________________________ __________________________
Name of Bank Wire Control Number
Wire Instructions
Follow the instructions below to arrange for a wire transfer for initial
investment:
o Send completed Application by overnight carrier to Flag Investors Funds
at the address listed above.
o Call 1-800-553-8080 to obtain new investor's Fund account number.
o Wire payment of the purchase price to Investors Fiduciary Trust Company
("IFTC"), as follows:
IFTC
a/c Flag Investors Funds
Acct. # 7528183
ABA # 1010-0362-1
Kansas City, Missouri 64105
Please include the following information in the wire:
o Flag Investors Emerging Growth Fund, Inc. -- Institutional Shares
o "For further credit to _____________________________________."
(Investor's Fund Account Number)
<PAGE>
Distribution Options
Please check appropriate boxes. If none of the options are selected, all
distributions will be reinvested in additional Institutional Shares of the
Fund.
Income Dividends Capital Gains
[ ] Reinvested in additional shares [ ] Reinvested in additional shares
[ ] Paid in cash [ ] Paid in cash
Telephone Transactions
I understand that I will automatically have telephone redemption privileges
(for amounts up to $500,000) and exchange privileges (with respect to
Institutional Shares of other Flag Investors Funds) unless I mark one or both
of the boxes below:
No, I do not want: / / Telephone redemption privileges
/ / Telephone exchange privileges
Redemptions effected by telephone will be wired to the
bank account designated below.
Bank Account Designation
(This Section Must Be Completed)
Please attach a blank, voided check to provide account and bank
routing information.
- --------------------------------------------------------------------------------
Name of Bank Branch
- --------------------------------------------------------------------------------
Bank Address City/State/Zip
- --------------------------------------------------------------------------------
Name(s) on Account
- --------------------------------------------------------------------------------
Account Number A.B.A. Number
A-1
<PAGE>
Acknowledgement, Certificate and Signature
The Fund may be required to withhold and remit to the U.S. Treasury 31% of
any taxable dividends, capital gains distributions and redemption proceeds
paid to any individual or certain other non-corporate shareholders who fail
to provide the information and/or certifications required below. This backup
withholding is not an additional tax, and any amounts withheld may be
credited against the shareholder's ultimate U.S. tax liability.
By signing this Application, I hereby certify under penalties of perjury that
the information on this Application is complete and correct and that as
required by federal law: (Please check applicable boxes)
/ / U.S. Citizen/Taxpayer:
/ / I certify that (1) the number shown above on this form is the correct
Tax ID Number and (2) I am not subject to any backup withholding either
because (a) I am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to
backup withholding.
/ / If no Tax ID Number has been provided above, I have applied, or intend
to apply, to the IRS for a Tax ID Number, and I understand that if I do
not provide such number to the Transfer Agent within 60 days of the date
of this Application or if I fail to furnish my correct Tax ID Number, I
may be subject to a penalty and a 31% backup withholding on distributions
and redemption proceeds. (Please provide your Tax ID Number on IRS Form
W-9. You may request such form by calling the Transfer Agent at
800-553-8080.)
/ / Non-U.S. Citizen/Taxpayer: Indicated country of residence for tax
purposes:
Under penalties of perjury, I certify that I am not a U.S. citizen or
resident and I am an exempt foreign person as defined by the Internal
Revenue Service.
I have received a copy of the Fund's prospectus. 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.
The Internal Revenue Service does not require your consent to any provision
of this document other than the certifications required to avoid
backup withholding.
- --------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
- --------------------------------------------------------------------------------
Signature of Corporate Officer, General Partner, Trustee, etc. Date
Person(s) Authorized to Conduct Transactions
The following person(s) ("Authorized Person(s)") are currently officers,
trustees, general partners or other authorized agents of the investor. Any
___________* of the Authorized Person(s) is, by lawful and appropriate action of
the investor, a person entitled to give instructions regarding purchases and
redemptions or make inquiries regarding the Account.
- ------------------------------------ ------------------------------------
Name/Title Signature Date
- ------------------------------------ ------------------------------------
Name/Title Signature Date
- ------------------------------------ ------------------------------------
Name/Title Signature Date
- ------------------------------------ ------------------------------------
Name/Title Signature Date
The signature appearing to the right of each Authorized Person is that
person's signature. Investment Company Capital Corp. ("ICC") may, without
inquiry, act upon the instructions (whether verbal, written, or provided by
wire, telecommunication, or any other process) of any person claiming to be an
Authorized Person. Neither ICC nor any entity on behalf of which ICC is acting
shall be liable for any claims or expenses (including legal fees) or for any
losses resulting from actions taken upon any instructions believed to be
genuine. ICC may continue to rely on the instructions made by any person
claiming to be an Authorized Person until it is informed through an amended
Application that the person is no longer an Authorized Person and it has a
reasonable period (not to exceed one week) to process the amended Application.
Provisions of this Application shall be equally Applicable to any successor of
ICC.
* If this space is left blank, any one Authorized Person is authorized to give
instructions and make inquiries. Verbal instructions will be accepted from
any one Authorized Person. Written instructions will require signatures of
the number of Authorized Persons indicated in this space.
Certificate of Authority
Investors must complete one of the following two Certificates of Authority.
Certificate A: FOR CORPORATIONS AND UNINCORPORATED ASSOCIATIONS (With a Board
of Directors or Board of Trustees.)
I _____________________, Secretary of the above-named investor, do hereby
certify that at a meeting on ______________, at which a quorum was present
throughout, the Board of Directors (Board of Trustees) of the investor duly
adopted a resolution which is in full force and effect and in accordance with
the investor's charter and by-laws, which resolution did the following: (1)
empowered the officers/trustees executing this Application (or amendment) to
do so on behalf of the investor; (2) empowered the above-named Authorized
Person(s) to effect securities transactions for the investor on the terms
described above; (3) authorized the Secretary to certify, from time to time,
the names and titles of the officers of the investor and to notify ICC when
changes in officers occur; and (4) authorized the Secretary to certify that
such a resolution has been duly adopted and will remain in full force and
effect until ICC receives a duly-executed amendment to the Certification form.
Witness my hand and seal on behalf of the investor:
This ____ day of ______, 199_ Secretary___________________________________
The undersigned officer (other than the Secretary) hereby certifies that the
foregoing instrument has been signed by the Secretary of the investor.
- --------------------------------------------------------------------------------
Signature and title Date
Certificate B: FOR PARTNERSHIPS AND TRUSTS (Even if you are the sole trustee)
The undersigned certify that they are all general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust instrument: (1) empowered the general
partner/trustee executing this Application (or amendment) to do so on behalf
of the investor; (2) empowered the above-named Authorized Person(s) to effect
securities transactions for the investor on the terms described above; (3)
authorized the Secretary to certify, from time to time, the names of the
general partners/trustees of the investor and to notify ICC when changes in
general partners/trustees occur. This authorization will remain in full force
and effect until ICC receives a further duly-executed certification. (If there
are not enough spaces here for all necessary signatures, complete a separate
certificate containing the language of this Certificate B and attach it to the
Application).
- --------------------------------------------------------------------------------
Signature and title Date
- --------------------------------------------------------------------------------
Signature and title Date
A-2
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Distributor Transfer Agent
ICC DISTRIBUTORS, INC. INVESTMENT COMPANY CAPITAL CORP.
P.O. Box 7558 One South Street
Portland, Maine 04101 Baltimore, Maryland 21202
1-800-553-8080
Independent Accountants Custodian
COOPERS & LYBRAND L.L.P. BANKERS TRUST COMPANY
2400 Eleven Penn Center 130 Liberty Street
Philadelphia, Pennsylvania 19103 New York, New York 10006
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(ABCAT Shares)
Cross Reference Sheet
February 25, 1998
<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Heading
- --------------------------- -------------
<S> <C> <C>
Part A - Information Required in a Prospectus
- ------
Item 1. Cover Page .................................... Cover Page
Item 2. Synopsis ................................... Fund Expenses
Item 3. Condensed Financial Information ............... Financial Highlights
Item 4. General Description of Registrant ............. Investment Program;
Investment Restrictions;
General Information
Item 5. Management of the Fund ......................... Management of the Fund;
Investment Advisor;
Distributor; Custodian,
Transfer Agent and
Accounting Services
Item 5A. Management's Discussion of Fund
Performance..................................... *
Item 6. Capital Stock and Other Securities ............. Cover Page; Dividends and
Taxes; General Information
Item 7. Purchase of Securities Being Offered ........... How to Invest in ABCAT
Shares; Distributor
Item 8. Redemption or Repurchase ....................... How to Redeem ABCAT
Shares
Item 9. Pending Legal Proceedings ..................... **
- ----------------
</TABLE>
* Information required by Item 5A is contained in Registrant's Annual Report
to Shareholders.
** Omitted since the answer is negative or the item is not applicable.
<PAGE>
<TABLE>
<CAPTION>
Part B - Information Required in a Statement of Additional Information
- ------
<S> <C> <C>
Item 10. Cover Page ...................................... Cover Page
Item 11. Table of Contents ............................... Table of Contents
Item 12. General Information and History ................. General Information
and History
Item 13. Investment Objectives and Policies ............. Investment Objectives and
Policies
Item 14. Management of the Fund .......................... Management of the
Fund
Item 15. Control Persons and Principal Holders
of Securities ................................... Control Persons and
Principal Holders of
Securities
Item 16. Investment Advisory and Other Services .......... Investment Advisory
and Other Services;
Custodian, Transfer Agent
and Accounting Services;
Independent Accountants
Item 17. Brokerage Allocation ............................ Brokerage
Item 18. Capital Stock and Other Securities .............. Capital Shares; Semi-Annual
Reports
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered ....................... Valuation of
Shares and Redemption
Item 20. Tax Status ...................................... Federal Tax Treatment of
Dividends and Distributions
Item 21. Underwriters .................................... Distribution of Fund
Shares
Item 22. Calculation of Performance Data ................. Performance Information
Item 23. Financial Statements ............................ Financial Statements (relating
to the Fund's other classes)
Part C - Other Information
- ------
Part C contains the information required by the items contained therein under the
items set forth in the form.
</TABLE>
<PAGE>
[GRAPHIC OMITTED]
ALEX. BROWN CAPITAL ADVISORY & TRUST EMERGING GROWTH SHARES
(A Class of Flag Investors Emerging Growth Fund, Inc.)
Prospectus -- March 1, 1998
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks long-term capital appreciation primarily
through investment in a diversified portfolio of small and mid-sized emerging
growth companies.
Alex. Brown Capital Advisory & Trust Shares of the Fund ("ABCAT Shares") are
available solely for the discretionary accounts of Alex. Brown Capital Advisory
& Trust Company and its affiliates. (See "How to Invest in ABCAT Shares.")
This Prospectus sets forth basic information that investors should know about
the Fund prior to investing and should be retained for future reference. A
Statement of Additional Information dated March 1, 1998 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 Alex.
Brown Capital Advisory & Trust Company.
TABLE OF CONTENTS
Fund Expenses .......................................................... 1
Financial Highlights ................................................... 1
Investment Program ..................................................... 3
Investment Restrictions ................................................ 4
How to Invest in ABCAT Shares .......................................... 4
How to Redeem ABCAT Shares ............................................. 5
Dividends and Taxes .................................................... 5
Management of the Fund ................................................. 6
Investment Advisor ..................................................... 6
Distributor ............................................................ 6
Custodian, Transfer Agent and Accounting................................
Services ............................................................ 7
Performance Information ................................................ 7
General Information .................................................... 7
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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
FUND EXPENSES
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on Purchases .................... None
Maximum Sales Charge Imposed on Reinvested Dividends ......... None
Maximum Deferred Sales Charge ................................ None
Annual Fund Operating Expenses:
(as a percentage of average daily net assets)
Management Fees .............................................. 0.85%
12b-1 Fees ................................................... None
Other Expenses ............................................... 0.34%
-----
Total Fund Operating Expenses ................................ 1.19%*
=====
- -----------
*Alex. Brown Capital Advisory & Trust Company intends to waive its advisory fee
at the account level for client assets invested in ABCAT Shares.
<TABLE>
<CAPTION>
Example: 1 year 3 years 5 years 10 years
- -------------------------------------------------------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment, assuming (1) 5% annual return and (2) redemption
at the end of each time period: ....................... $12 $38 $65 $144
</TABLE>
The Expenses and 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 indirectly. A person who
purchases ABCAT Shares through a financial institution may be charged a
separate fee by the financial institution.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights included in this table are a part of the Fund's
financial statements for the periods indicated and have been audited by Coopers
& Lybrand L.L.P., independent accountants. The financial statements and
financial highlights for the fiscal year ended October 31, 1997 and the report
thereon of Coopers & Lybrand L.L.P. are included in the Statement of Additional
Information. Additional performance information is contained in the Fund's
Annual Report for the fiscal year ended October 31, 1997, which can be obtained
at no charge by calling the Fund at (800) 767-3524.
1
<PAGE>
FINANCIAL HIGHLIGHTS (concluded)
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
May 9, 19971 through
October 31, 1997
---------------------
<S> <C>
Per Share Operating Performance:
Net asset value at beginning of period .................. $ 18.64
--------
Income from Investment Operations:
Expenses in excess of income ............................ ( 0.06)
Net realized and unrealized gain on investments ......... 4.66
Total from Investment Operations ........................ 4.60
---------
Net asset value at end of period ......................... $ 23.24
=========
Total Return ............................................. 24.68 %
Ratios to Average Daily Net Assets:
Expenses ................................................ 1.19%2
Expenses in excess of income ............................ ( 0.69)%2
Supplemental Data:
Net assets at end of period (000) ....................... $ 36,653
Portfolio turnover rate ................................. 42%
Average commissions per share ........................... $ 0.0736
</TABLE>
- -----------
1 Commencement of operations.
2 Annualized.
2
<PAGE>
INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
Investment Objective, 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. 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 (the "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 Advisor believes are
well managed and have experienced or have the potential to experience rapid
growth in revenues, earnings, assets and cash flow. As an additional attempt to
limit volatility, the Fund will invest in a broad cross-section of industries.
While the Fund's investments in particular industries will change from time to
time as investment opportunities change, it will invest primarily, but not
exclusively, in companies in the businesses of technology, health care,
business services, energy, transportation, financial services, consumer
products and services and capital goods.
The 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.
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.
<PAGE>
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 rated in one of the three highest rating categories of
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's") (or, if unrated, determined by the Advisor to be of equivalent
quality), 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.
In addition, for temporary defensive purposes, the Fund may, without
limit, hold money market instruments that are rated in the top two categories
published by Moody's or S&P or, if unrated, of comparable quality as determined
by the Advisor.
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" in the
Statement of Additional Information.) 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.
3
<PAGE>
1) Repurchase Agreements. The Fund may agree to purchase U.S. Government
securities from credit- worthy financial institutions, such as banks and
broker-dealers, subject to the seller's agreement to repurchase the
securities at an established time and price. Default by or bankruptcy
proceedings with respect to the seller may, however, expose the Fund to
possible loss because of adverse market action or delay in connection with
the disposition of the underlying obligations.
2) Loans of Portfolio Securities. The Fund has the right to lend portfolio
securities to approved institutional borrowers for the purpose of
increasing its net investment income. These loans must be secured
continuously by cash or equivalent collateral, or by a letter of credit at
least equal to the market value of the securities loaned plus accrued
interest or income. There may be a risk of delay in recovery of the
securities or even loss of rights in the collateral should the borrower of
the securities fail financially. The Fund's custodian or another affiliate
may act as securities lending agent.
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 have 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.
<PAGE>
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund is subject to a number of fundamental and non-fundamental
investment restrictions that are set forth in the Statement of Additional
Information.
HOW TO INVEST IN ABCAT SHARES
- --------------------------------------------------------------------------------
Alex. Brown Capital Advisory & Trust Company and its affiliates may acquire
ABCAT Shares on behalf of their discretionary accounts by placing orders with
the Fund's distributor (the "Distributor"). Beneficial ownership of ABCAT
Shares will be reflected on books maintained by Alex. Brown Capital Advisory &
Trust Company or an affiliate. There is no minimum for initial or subsequent
investments in ABCAT Shares.
It is the responsibility of Alex. Brown Capital Advisory & Trust Company
and its affiliates to transmit orders for ABCAT Share purchases and to deliver
required funds to the Distributor. Orders for purchases of ABCAT Shares are
accepted on any day on which the New York Stock Exchange is open for business
(a "Business Day"). Purchase orders for ABCAT Shares will be executed at a per
share purchase price equal to the net asset value next determined after receipt
of the purchase order and immediately available funds. The Fund reserves the
right to suspend the sale of ABCAT Shares at any time or reject any order.
The net asset value per share is determined daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on each
Business Day. Net asset value per share of a class is calculated by valuing its
share of the Fund's assets, deducting all liabilities attributable to that
class, and dividing
4
<PAGE>
the resulting amount by the number of then outstanding shares of the class. For
this purpose, portfolio securities will be given their market value which is
normally based on current prices but which may be determned according to "fair
value" procedures approved by the Fund's Board of Directors.
In the interest of economy and convenience and because of the operating
procedures for the ABCAT Shares, certificates representing such shares will not
be issued. Beneficial owners of ABCAT Shares ("Shareholders") will have the
same rights and ownership with respect to such shares as if certificates had
been issued.
HOW TO REDEEM ABCAT SHARES
- --------------------------------------------------------------------------------
ABCAT Shares may be redeemed by, or at the direction of, Alex. Brown Capital
Advisory & Trust Company or an affiliate, as appropriate, on any Business Day
by transmission of a redemption order through the Distributor, or by regular or
express mail to the Fund's transfer agent (the "Transfer Agent") at its address
listed on the inside back cover of this Prospectus. A redemption order is
effected at the net asset value per share next determined after receipt of the
order in proper form. Redemption orders received after 4:00 p.m. (Eastern
Time), or the close of the New York Stock Exchange,
whichever is earlier, will be effected at the net asset value next determined
on the following Business Day. Payment for redeemed ABCAT Shares will be made
to, or at the direction of, Alex. Brown Capital Advisory & Trust Company or an
affiliate, as appropriate, for the benefit of Shareholders. Payment will be
made as promptly as feasible and, under most circumstances, within three
Business Days.
Dividends payable up to the date of the redemption of ABCAT Shares will
be paid on the next dividend payment date.
<PAGE>
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income (consisting of dividend and interest income
and the excess, if any, of net short-term capital gains over net long-term
capital losses) in the form of annual dividends. The Fund anticipates that it
will distribute substantially all of its "net capital gain" income (the excess
of net long-term capital gains over net short-term capital losses) for each
taxable year as a capital gains distribution.
Unless other arrangements are made, all income dividends and net capital
gains distributions, if any, will be reinvested in additional ABCAT Shares at
net asset value.
Tax Treatment of Dividends and Distributions
The following summary of certain federal income tax consequences
affecting the Fund and its Shareholders is based on current tax laws and
regulations, which may be changed by legislative, judicial, or administrative
action. No attempt has been made to present a detailed explanation of the
federal, state or local tax treatment of the Fund or the Shareholders, and the
discussion here is not intended as a substitute for careful tax planning.
Accordingly, Shareholders are advised to consult their tax advisors regarding
specific questions as to federal, state and local income taxes.
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.
Shareholders, unless otherwise exempt, generally will be subject to income tax
on the amounts so distributed, regardless of whether such distributions are
paid in cash or reinvested in additional ABCAT Shares.
Distributions from the Fund out of net capital gains, if any, will be
taxed to Shareholders as gains from the sale or exchange of a capital asset
held for more than one year regardless of the length of time a Shareholder has
held the ABCAT 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.
The Fund will provide advice annually as to the federal income tax status of
all distributions.
5
<PAGE>
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 Fund intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for federal excise tax.
The sale, exchange, or redemption of ABCAT Shares is a taxable event for
the Shareholder.
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, includ-ing the Fund's
agreements with the Advisor and with its distributor, custodian and transfer
agent. The day-to- day operations of the Fund are delegated to the Fund's
executive officers, to the Distributor and to the Advisor. A majority of the
Directors of the Fund have no affiliation with the Distributor or the Advisor.
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
Investment Company Capital Corp., the Fund's investment advisor ("ICC" or the
"Advisor"), is an indirect subsidiary of Bankers Trust New York Corporation and
an affiliate of both BT Alex. Brown Incorporated ("BT Alex Brown") and Alex.
Brown Capital Advisory & Trust Company. Since the mid 1970's, BT Alex. Brown,
through subsidiaries and affiliates, has provided services to and in respect of
emerging growth and later stage private companies in the United States,
including research and analysis, venture capital participation, investment
banking and investment advisory services. Subject to review by the Board of
Directors and to any limitations imposed by applicable law, the Fund may
purchase securities of such emerging growth companies. ICC is also the
investment advisor to other mutual funds in the Flag Investors family of funds
together with the Fund and BT Alex. Brown Cash Reserve Fund, Inc., which funds
had approximately $7.3 billion of assets as of December 31, 1997.
<PAGE>
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.
As compensation for its services for the fiscal year ended October 31,
1997, the Advisor received from the Fund a fee equal to 0.85% 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. An affiliate of ICC provides custody
services to the Fund. (See "Custodian, Transfer Agent and Accounting
Services.")
Portfolio Manager
Frederick L. Meserve, Jr., a Managing Director of BT Alex. Brown, has had
primary responsibility for managing the Fund's assets since October of 1993. Mr.
Meserve joined BT Alex. Brown in 1977. He has been a member of BT 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.
DISTRIBUTOR
- --------------------------------------------------------------------------------
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") has
served as distributor of each class of the Fund's shares since August 31, 1997.
ICC Distributors is a registered broker-dealer that offers distribution
services to a variety of registered investment companies including other funds
in the Flag Investors family of funds and BT Alex. Brown Cash Reserve Fund,
Inc. The Distributor is not affiliated with the Advisor. The Distributor
receives no compensation for distributing the ABCAT Shares.
The Distributor bears all expenses associated with advertisements,
promotional materials, sales literature and printing and mailing prospectuses
to individuals and entities other than the Fund shareholders.
6
<PAGE>
CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------------------------------------------------
Investment Company Capital Corp. 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, 1997,
ICC received from the Fund a fee equal to 0.05% of the Fund's average daily net
assets. Bankers Trust Company, a subsidiary of Bankers Trust New York
Corporation, acts as custodian of the Fund's assets. (See the Statement of
Additional Information.)
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its performance including
comparisons to other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the average
annual total return over one-, five- and ten-year periods or, if such periods
have not yet elapsed, shorter periods corresponding to the life of the Fund.
Such total return quotations will be computed by finding average annual
compounded rates of return over such periods that would equate an assumed
initial investment of $1,000 to the ending redeemable value according to the
required standardized calculation. The standardized calculation is required by
the SEC to provide consistency and comparability in investment company
advertising and is not equivalent to a yield calculation. If the Fund compares
its performance to other funds or to relevant indices, its performance will be
stated in the same terms in which such comparative data and indices are stated,
which is normally total return rather than yield.
The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Standard & Poor's 500 Stock
Index, the Russell 2000 Index, the Dow Jones Industrial Average, and the NASDAQ
OTC Composite and OTC Industrial Indices. The Fund may also use total return
performance data as reported in national financial and industry publications
that monitor the performance of mutual funds such as Money Magazine, Forbes,
Business Week, Barron's, Investor's Daily, IBC/Donoghue's Money Fund Report and
The Wall Street Journal.
Performance will fluctuate and any statement of performance should not be
considered as representative of the future performance of the Fund. Performance
is generally a function of the type and quality of instruments held by the
Fund, operating expenses and market conditions. Any fees charged by banks with
respect to customer accounts through which ABCAT Shares may be purchased,
although not included in calculations of performance, will reduce performance
results.
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Description of Shares
The Fund is an open-end diversified management investment company
organized under the laws of the State of Maryland on July 2, 1987 and is
authorized to issue 20 million shares of capital stock, with a par value of
$.001 per share. Shares have equal rights with respect to voting. Voting rights
are not cumulative, so the holders of more than 50% of the outstanding shares
voting together for the election of Directors may elect all the members of the
Board of Directors of the Fund. In the event of liquidation or dissolution of
the Fund, each share is entitled to its pro rata portion of the Fund's assets
after all debts and expenses have been paid. The fiscal year-end of the Fund is
October 31.
The Board of Directors is authorized to establish additional series of
shares of capital stock, each of which would evidence interests in a separate
portfolio of securities, and separate classes of each series of the Fund. The
shares offered by this Prospectus have been designated "Alex. Brown Capital
Advisory & Trust Emerging Growth Shares." The Board has no present intention of
establishing any additional series of the Fund but the Fund does have three
other classes of shares in addition to the shares offered hereby: "Flag
Investors Emerging Growth Fund Class A Shares," "Flag Investors Emerging Growth
Fund Class B Shares" and "Flag Investors Emerging Growth Fund Institutional
Shares." Additional information concerning the Fund's other classes of shares
may be obtained
7
<PAGE>
by calling the Fund at (800) 767-3524. Different classes of the Fund may be
offered to certain investors and holders of such shares may be entitled to
certain exchange privileges not offered to ABCAT Shares. All classes of the
Fund share a common investment objective, portfolio of investments and advisory
fee, but the classes may have different distribution fees or sales load
structures and the net asset value per share of classes may differ at times.
Annual Meetings
Unless required by Maryland law, the Fund does not expect tohold 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 semi-annual reports containing information about the
Fund and its operations, including a list of investments held in the Fund's
port-folio and financial statements. The annual financial statements are
audited by the Fund's independent accountants, Coopers & Lybrand L.L.P.
Shareholder Inquiries
Shareholders with inquiries concerning their ABCAT Shares should contact
their account manager at Alex. Brown Capital Advisory & Trust Company.
8
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(ABCAT Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Distributor Transfer Agent
ICC DISTRIBUTORS, INC. INVESTMENT COMPANY CAPITAL CORP.
P.O. Box 7558 One South Street
Portland, Maine 04101 Baltimore, Maryland 21202
1-800-553-8080
Independent Accountants Custodian
COOPERS & LYBRAND L.L.P. BANKERS TRUST COMPANY
2400 Eleven Penn Center 130 Liberty Street
Philadelphia, Pennsylvania 19103 New York, New York 10006
Fund Counsel
MORGAN, LEWIS & BOCKIUS LLP
2000 One Logan Square
Philadelphia, Pennsylvania 19103
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------
FLAG INVESTORS EMERGING GROWTH FUND, INC.
One South Street
Baltimore, Maryland 21202
-----------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION
IS NOT A PROSPECTUS. IT SHOULD BE READ IN
CONJUNCTION WITH A PROSPECTUS WHICH MAY BE
OBTAINED FROM YOUR PARTICIPATING DEALER OR SHAREHOLDER
SERVICING AGENT OR BY WRITING OR CALLING THE FUND, ONE
SOUTH STREET, BALTIMORE, MARYLAND 21202, (800)
767-FLAG.
Statement of Additional Information Dated: March 1, 1998
Relating to Prospectuses dated March 1, 1998 for:
Flag Investors Class A and Flag Investors Class B Shares
Flag Investors Institutional Shares
and
Alex. Brown Capital Advisory & Trust Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. General Information and History............................... 1
2. Investment Objectives and Policies............................ 2
3. Valuation of Shares and Redemption............................ 4
4. Federal Tax Treatment of Dividends and
Distributions............................................... 5
5. Management of the Fund........................................ 8
6. Investment Advisory and Other Services........................ 13
7. Distribution of Fund Shares................................... 14
8. Brokerage..................................................... 17
9. Capital Shares................................................ 19
10. Semi-Annual Reports........................................... 20
11. Custodian, Transfer Agent and Accounting Services ............ 20
12. Independent Accountants....................................... 20
13. Performance Information....................................... 21
14. Control Persons and Principal Holders of
Securities.................................................. 23
15. Financial Statements ......................................... 23
<PAGE>
1. GENERAL INFORMATION AND HISTORY
Flag Investors Emerging Growth Fund, Inc. (the "Fund") is an open-end
management investment company. Under the rules and regulations of the Securities
and Exchange Commission (the "SEC"), all mutual funds are required to furnish
prospective investors with certain information concerning the activities of the
company being considered for investment. The Fund currently offers four classes
of shares: Flag Investors Emerging Growth Fund Class A Shares (the "Flag
Investors Class A Shares"), Flag Investors Emerging Growth Fund Class B Shares
(the "Flag Investors Class B Shares"), Flag Investors Emerging Growth Fund
Institutional Shares (the "Flag Investors Institutional Shares") and Alex. Brown
Capital Advisory & Trust Emerging Growth Shares (the "ABCAT Shares")
(collectively, the "Shares").
There are three separate prospectuses for the Fund's shares: one for the
Flag Investors Class A and Flag Investors Class B Shares, one for the Flag
Investors Institutional Shares and one for the ABCAT Shares. Each prospectus
contains important information concerning the classes of shares offered by the
Fund and may be obtained without charge from the Fund's distributor (the
"Distributor") or, with respect to each class except the ABCAT Shares class,
from Participating Dealers that offer such Shares to prospective investors.
Prospectuses for the Flag Investors Class A Shares, Flag Investors Class B
Shares and Flag Investors Institutional Shares may also be obtained from
Shareholder Servicing Agents. As used herein, the term "Prospectus" describes
information common to the prospectuses of the four classes of the Fund's Shares,
unless the term "Prospectus" is modified by the appropriate class designation.
As used herein, the "Fund" refers to Flag Investors Emerging Growth Fund, Inc.,
and specific references to any class of the Fund's Shares will be made using the
name of such class. Some of the information required to be in this Statement of
Additional Information is also included in the Fund's current Prospectuses. To
avoid unnecessary repetition, references are made to related sections of the
Prospectuses. In addition, the Prospectuses and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the registration statement respecting the Fund and its Shares filed
with the SEC. Copies of the registration statement as filed, including such
omitted items, may be obtained from the SEC by paying the charges prescribed
under its rules and regulations.
The Fund was incorporated under the laws of the State of Maryland on
July 2, 1987. The Fund filed a registration statement with the SEC registering
itself as an open-end diversified management investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act") and
its Shares under the Securities Act of 1933, as amended. The Fund's registration
statement was declared effective by the SEC on June 15, 1988 and the Fund
commenced operations as an open-end diversified management investment company.
The Fund has offered the Flag Investors Class A Shares since its inception on
December 30, 1987, the Flag Investors Institutional Shares since November 2,
1995, the Flag Investors Class B Shares since June 20, 1996 and the ABCAT Shares
since May 9, 1997.
Under a license agreement dated December 29, 1987 between the Fund and
Alex. Brown Incorporated (now BT Alex. Brown Incorporated), BT Alex. Brown
Incorporated licenses to the Fund the "Flag Investors" name and logo but retains
the rights to that name and logo, including the right to permit other investment
companies to use them.
Size of the Fund
The allocation of the Fund's assets in emerging growth companies
requires substantial research and analysis in respect of such companies and the
Fund's management believes that the size of the Fund should be limited so that
the investment advisor can perform the appropriate research and analysis of
investment opportunities. Accordingly, at such time as the assets of the Fund
are in excess of $400 million, the Fund will accept Share purchases only from
existing shareholders (including reinvestment of dividends and capital gains
distributions). Further, at such time as the assets of the Fund are in excess of
-1-
<PAGE>
$500 million, the Fund will discontinue sales of Shares with the exception of
purchases made by pre-existing IRA accounts.
2. INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
The Fund's investment objective and its general investment policies are
described in the Prospectus. As stated in the Prospectus, the Fund's investment
objective is long-term capital appreciation. Realization of income is not a
significant investment consideration and any income realized on the Fund's
investments therefore will be incidental to the Fund's objective. There can be
no assurance that the Fund will, in fact, achieve its objective. The Fund's
investment objective may not be changed by the Board of Directors without
shareholder approval.
The Prospectus discusses the types of securities in which the Fund will
invest, the portfolio policies and techniques and the size of the Fund. This
Statement of Additional Information describes other investment practices in
which the Fund may engage, including making loans of the Fund's portfolio
securities, purchasing securities for future delivery, and entering into
repurchase agreements. The Fund's investment objective may not be changed by the
Board of Directors without shareholder approval.
Other Investment Practices
Except as described in the section of the Prospectus entitled
"Investment Restrictions" and below under "Investment Restrictions," the
investment policies described in the Prospectus and in this Statement of
Additional Information are not fundamental, and the Board of Directors may
change such policies without shareholder approval.
As described in the Prospectus, the Fund may invest up to 20% of its net
assets in securities convertible into the common stock of high quality growth
companies. In general, the market value of a convertible security is at least
the higher of its "investment value" (i.e., its value as a fixed-income
security) or its "conversion value" (i.e., the value of the underlying shares of
common stock if the security is converted). As a fixed-income security, a
convertible security tends to increase in market value when interest rates
decline and tends to decrease in value when interest rates rise. However, the
price of a convertible security also is influenced by the market value of the
security's underlying common stock. Thus, the price of a convertible security
tends to increase as the market value of the underlying stock increases, whereas
it tends to decrease as the market value of the underlying stock declines.
Investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.
Repurchase Agreements
The Fund may agree to purchase U.S. Government securities from
creditworthy financial institutions, such as banks and broker-dealers, subject
to the seller's agreement to repurchase the securities at an established time
and price. The collateral for these repurchase agreements will be held by the
Fund's custodian or by a duly appointed sub-custodian. The Fund will enter into
repurchase agreements only with banks and broker-dealers that have been
determined to be creditworthy by the Fund's Board of Directors under criteria
established with the assistance of the Fund's investment advisor (the
"Advisor"). The list of approved banks and broker-dealers will be monitored
regularly by the Advisor and reviewed at least quarterly by the Fund's Board of
Directors. The seller under a repurchase agreement would be required to maintain
the value of the securities subject to the repurchase agreement at not less than
the repurchase price. Default by the seller would, however, expose the Fund to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying obligations. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security, the Fund
may be delayed or limited in its ability to sell the collateral.
-2-
<PAGE>
Loans of Portfolio Securities
The Fund may lend its investment securities to approved institutional
borrowers who need to borrow securities in order to complete certain
transactions, such as covering short sales, avoiding failures to deliver
securities or completing arbitrage operations. By lending its investment
securities, the Fund attempts to increase its net investment income through the
receipt of interest on the loan. Any gain or loss in the market price of the
securities loaned that might occur during the term of the loan would be for the
account of the Fund. The Fund may lend its investment securities so long as the
terms, structure and the aggregate amount of such loans are not inconsistent
with the Investment Company Act of 1940, as amended (the "1940 Act") or the
Rules and Regulations or interpretations of the SEC thereunder, which currently
require that (a) the borrower pledge and maintain with the Fund collateral
consisting of liquid, unencumbered assets having a value at all times not less
than 100% of the value of the securities loaned, (b) the borrower add to such
collateral whenever the price of the securities loaned rises (i.e., the borrower
"marks to the market" on a daily basis), (c) the loan be made subject to
termination by the Fund at any time, and (d) the Fund receive reasonable
interest on the loan (which may include the Fund investing any cash collateral
in interest bearing short-term investments), and distributions on the loaned
securities and any increase in their market value. There may be risks of delay
in recovery of the securities or even loss of rights in the collateral should
the borrower of the securities fail financially. However, loans will only be
made to borrowers deemed by the Advisors to be of good standing and when, in the
judgment of the Advisors, the consideration which can be earned currently from
such securities loans justifies the attendant risk. All relevant facts and
circumstances, including the creditworthiness of the borrower, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Board of Directors of the Fund.
At the present time, the staff of the SEC does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's Board of Directors. In addition, voting
rights may pass with the loaned securities, but if a material event will occur
affecting an investment on loan, the loan must be called and the securities
voted.
Investment Restrictions
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as federal regulatory
limitations. The investment restrictions recited below are in addition to those
described in the Fund's Prospectus, and are matters of fundamental policy which
may not be changed without the affirmative vote of a majority of the Fund's
outstanding Shares. Accordingly, the Fund will not:
1) 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 equaling 5% or more of the Fund's total assets
are outstanding, the Fund will not purchase securities;
2) 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);
3) 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-
<PAGE>
5) 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;
6) Invest in real estate or mortgages on real estate except that
the Fund may invest in the securities of companies that invest in real
estate or mortgages;
7) Purchase or sell commodities or commodities contracts;
8) Act as an underwriter of securities within the meaning of the
federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired
within the limitation on purchases of restricted securities;
9) Issue senior securities;
10) Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objective and policies,
and may lend portfolio securities and enter into repurchase agreements
as described in the Registration Statement;
11) Effect short sales of securities;
12) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions); or
13) Purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs.
The following are investment restrictions that may be changed by a vote
of the majority of the Board of Directors. The percentage limitations contained
in these restrictions apply at the time of purchase of securities. The Fund will
not:
1) Invest in shares of any other investment company registered
under the Investment Company Act, except as a temporary investment in an
investment company that invests only in securities the Fund could
purchase directly for temporary investment, provided that the Fund will
pay any sales charges in connection with such purchases without
reduction to the sales charges on purchases of Shares, and provided
further, that the Fund shall acquire not more than 3% of the total
outstanding voting stock of such company, or invest more than 5% of the
Fund's assets in any one such company or 10% of the Fund's assets in all
such investment companies, and only as otherwise permitted by law. (The
Fund might incur sales charges, management fees and other expenses in
connection with any such investment, which charges would be a Fund
expense and accordingly might have some impact on the Fund's net asset
value);
2) 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.
3. VALUATION OF SHARES AND REDEMPTION
Valuation of Shares
The net asset value per Share is determined daily as of the close of
the New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time) on
each day on which the New York Stock Exchange is open for business (a "Business
Day"). The New York Stock Exchange is open for business on all weekdays except
for the following holidays: New Year's Day, Martin Luther King, Jr. Day,
-4-
<PAGE>
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The Fund may enter into agreements that allow a third party, as
agent for the Fund, to accept orders from its customers up until the Fund's
close of business which is ordinarily 4:00 p.m. (Eastern Time). So long as a
third party receives an order prior to the Fund's close of business, the order
is deemed to have been received by the Fund and, accordingly, may receive the
net asset value computed at the close of business that day. These "late day"
agreements are intended to permit shareholders placing orders with a third party
to place orders up to the same time as other shareholders.
Redemption
The Fund may suspend the right of redemption or postpone the date of
payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.
Under normal circumstances, the Fund will redeem Flag Investors Class A
Shares and Flag Investors Class B Shares by check, Flag Investors Institutional
Shares by wire transfer of funds, and ABCAT Shares by wire transfer of funds by,
or at the direction of, Alex. Brown Capital Advisory & Trust Company or an
affiliate, as described in the Prospectus relating to each class of Shares.
However, if the Board of Directors determines that it would be in the best
interests of the remaining shareholders of the Fund to make payment of the
redemption price in whole or in part by a distribution in kind of readily
marketable securities from the portfolio of the Fund in lieu of cash, in
conformity with applicable rules of the SEC, the Fund will redeem Shares by
distributions in kind. If Shares are redeemed in kind, a redeeming shareholder
will incur brokerage costs when the assets are later converted into cash. The
valuation of portfolio securities, by the method described under "How to Invest"
in each Prospectus will be made as of the same time the redemption price is
determined. The Fund's ability to make payment of the redemption price by
distribution in kind is further limited because the Fund has elected to be
governed by Rule 18f-1 under the Investment Company Act pursuant to which the
Fund is obligated to redeem Shares solely in cash up to the lesser of $250,000
or 1% of the net asset value of the Fund during any 90-day period for any one
shareholder.
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following discussion of federal income tax consequences is based on
the Code and the regulations issued thereunder as in effect on the date of this
Statement of Additional Information. New legislation, as well as administrative
changes or court decisions, may significantly change the conclusions expressed
herein, and may have a retroactive effect with respect to the transactions
contemplated herein.
The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund expects to be taxed as a regulated investment company ("RIC")
under Subchapter M of the Code. However, in order to qualify as a RIC for any
taxable year, the Fund must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from sale or other disposition of stock or securities or foreign currencies, and
other income (including but
-5-
<PAGE>
not limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "Income Requirement").
The Fund must also diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. government securities, securities of other
RICs, and other securities (so long as such other securities with respect to any
issuer do not constitute more than 5% of the total assets of the Fund or more
than 10% of the outstanding voting securities of such issuer), and (ii) not more
than 25% of the value of its total assets is invested in the securities (other
than U.S. government securities or the securities of other RICs) of any one
issuer or of two or more issuers which the Fund controls and which are engaged
in the same or similar trades or businesses or related trades or businesses (the
"Asset Diversification Test"). The Fund will not lose its status as a RIC if it
fails to meet the Asset Diversification Test solely as a result of a fluctuation
in value of portfolio assets not attributable to a purchase. The Fund may
curtail its investments in and trading of other securities where the application
thereto of the Asset Diversification Test is uncertain.
Under Subchapter M, the Fund is exempt from federal income tax on its
net investment income and capital gains which it distributes to shareholders,
provided that it distributes at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gains
over net long-term capital losses) for the year (the "Distribution Requirement")
and complies with the other requirements of the Code described above.
Distributions of investment company taxable income made during the taxable year
or, under certain specified circumstances, within twelve months after the close
of the taxable year, will satisfy the Distribution Requirement. The Distribution
Requirement for any year may be waived if a RIC establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for federal excise tax (discussed below).
Although the Fund intends to distribute substantially all of its net
investment income and capital gains for any taxable (i.e., fiscal) year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
The foregoing requirements of the Code may inhibit the Fund in its
efforts to achieve its investment objectives.
Fund Distributions
The Fund anticipates that it will distribute substantially all of its
investment company taxable income for each taxable year. Distributions of
investment company taxable income will be taxable to shareholders as ordinary
income, regardless of whether such distributions are paid in cash or are
invested in additional Shares.
The Fund also anticipates that it will distribute substantially all of
its "net capital gains" income (the excess of net long-term capital gains over
net short-term capital losses) for each taxable year as a capital gains
distribution. Such a distribution, whether paid in cash or reinvested in Shares,
is taxable to shareholders as long-term capital gains, regardless of the length
of time a shareholder has held Fund Shares or whether such gains were reflected
in the price paid for the Shares. The aggregate amount of distributions
designated by the Fund as capital gains distributions may not exceed the net
capital gains of the Fund for any taxable year, determined by excluding any net
capital losses or net long-term capital losses attributable to transactions
occurring after October 31 of such year and by treating any such losses as if
they arose on the first day of the following taxable year.
Shareholders who invest either distributions of investment company
taxable income or capital gains in additional Shares will generally be treated
as receiving a distribution in an amount equal to the fair market value,
determined as of the payment date, of the Shares received. Such shareholders
will have a
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<PAGE>
cost basis in each Share received equal to the fair market value of a Share of
the Fund on the payment date.
Ordinary income dividends paid by the Fund to corporate shareholders
will be eligible for the 70% dividends received deduction to the extent of the
gross amount of qualified dividends received by the Fund for the year.
Generally, and subject to certain limitations, a dividend is a qualified
dividend if it is received from a domestic corporation. The Fund will provide a
statement annually to shareholders of the amount of dividends eligible for the
deduction. The dividends received deduction is not available for capital gains
distributions.
For purposes of the alternative minimum tax and the environmental tax,
corporate shareholders will generally be required to take the full amount of any
dividend received from the Fund into account in determining their "alternative
minimum taxable income."
Investors should be careful to consider the tax implications of buying
Shares just prior to the next record date for any ordinary income dividend or
capital gains distribution. Those purchasing just prior to an ordinary income
dividend or capital gains distribution will be taxable on the entire amount of
the dividend or distribution received even though the net asset value per share
on the date of purchase reflected the amount of such distribution.
If, for any taxable year, the Fund does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to shareholders as ordinary dividends to the extent of the Fund's
current and accumulated earnings and profits. Such distributions generally will
be eligible for the dividends received deduction in the case of corporate
shareholders.
The Fund generally will be required in certain cases to withhold tax at
the rate of 31% with respect to distributions payable to any shareholder (1) who
has provided either an incorrect tax identification number or no number at all,
(2) who is subject to backup withholding by the Internal Revenue Service for
failure to report the receipt of interest or dividend income properly, or (3)
who has failed to certify to the Fund that the shareholder is not subject to
backup withholding or that he is an "exempt recipient."
Federal Excise Tax; Miscellaneous Considerations; Effect of Future Legislation
The Code imposes a nondeductible 4% federal excise tax on RICs that do
not distribute in each calendar year an amount equal to 98% of their ordinary
income for the calendar year plus 98% of their capital gain net income for the
one-year period ending on October 31 of such calendar year. The excise tax is
imposed on the undistributed part of this required distribution. In addition,
the balance of such income must be distributed during the next calendar year to
avoid liability for the excise tax in that year. For the foregoing purposes, a
company is treated as having distributed any amount on which it is subject to
income tax for any taxable year ending in such calendar year. For this purpose,
in determining its capital gain net income for the one-year period ending on
October 31 of such calendar year the Fund must reduce its capital gain net
income by the amount of any net ordinary loss for the calendar year (but not
below the net capital gains for the one-year period ending on October 31).
Because the Fund intends to distribute all of its income currently (or to
retain, at most, its "net capital gains" and pay tax thereon), the Fund does not
anticipate incurring any liability for this excise tax. However, the Fund may in
certain circumstances be required to liquidate portfolio investments in order to
make sufficient distributions to avoid excise tax liability.
Generally, gain or loss on the sale, exchange or redemption of Shares
will be capital gain or loss, which will be long-term capital gain or loss if
the Shares have been held for eighteen months or more, mid-term capital gain if
the Shares have been held for more than twelve, but less than eighteen months,
and otherwise will be short-term capital gain or loss. However, if a shareholder
realizes a loss on the sale, exchange or redemption of a Share held for six
months or less, such loss will be treated as a loss from the
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<PAGE>
sale of a capital asset held for more than one year to the extent that any
capital gains distributions have been paid with respect to such Share (or any
undistributed net capital gains of the Fund with respect to such Share have been
included in determining the shareholder's long-term capital gains). In addition,
any loss realized on a sale or other disposition of Shares will be disallowed to
the extent an investor repurchases (or enters into a contract or option to
repurchase) Shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the Shares). This loss disallowance rule
will apply to Shares received through the reinvestment of dividends or
distributions during the 61-day period.
Rules of state and local taxation of dividend and capital gains
distributions from RICs often differ from the rules for federal income taxation
described above. Shareholders are urged to consult their tax advisors as to the
consequences of federal, state and local tax rules affecting an investment in
the Fund.
5. MANAGEMENT OF THE FUND
Directors and Officers
The Directors and executive officers of the Fund, their respective dates
of birth and their principal occupations for the last five years are set forth
below. Unless otherwise indicated, the address of each Director and executive
officer is One South Street, Baltimore, Maryland 21202.
*TRUMAN T. SEMANS, Chairman and Director (10/27/26)
Managing Director Emeritus, BT Alex. Brown Incorporated; Formerly, Vice
Chairman, Alex. Brown & Sons Incorporated (now BT Alex. Brown
Incorporated); Vice Chairman, Alex. Brown Capital Advisory & Trust
Company; and Director, Investment Company Capital Corp. (registered
investment advisor)).
*RICHARD T. HALE, Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor) and
Chartered Financial Analyst.
JAMES J. CUNNANE, Director (3/11/38)
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141.
Managing Director, CBC Capital (merchant banking), 1993-Present;
Formerly, Senior Vice President and Chief Financial Officer, General
Dynamics Corporation (defense), 1989-1993 and Director, The Arch Fund
(registered investment company).
JOHN F. KROEGER, Director (8/11/24)
37 Pippins Way, Morristown, New Jersey 07960. Director/Trustee, AIM
Funds (registered investment companies); Formerly, Consultant, Wendell
& Stockel Associates, Inc. (consulting firm) and General Manager, Shell
Oil Company.
LOUIS E. LEVY, Director (11/16/32)
26 Farmstead Road, Short Hills, New Jersey 07078. Director,
Kimberly-Clark Corporation (personal consumer products) and Household
International (finance and banking); Chairman of the Quality Control
Inquiry Committee, American Institute of Certified Public Accountants;
Formerly, Trustee, Merrill Lynch Funds for Institutions, 1991-1993;
Adjunct Professor, Columbia University-Graduate School of Business,
1991-1992 and Partner, KPMG Peat Marwick, retired 1990.
EUGENE J. MCDONALD, Director (7/14/32)
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main
Street, Durham, North Carolina 27705. President, Duke Management
Company (investments); Executive Vice President, Duke University
(education, research and healthcare); Director, Central Carolina Bank &
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Trust (banking), Key Funds (registered investment companies) and DP
Mann Holdings (insurance). Formerly, Director, AMBAC Treasurers Trust
(registered investment company).
REBECCA W. RIMEL, Director (4/10/51)
The Pew Charitable Trusts, One Commerce Square, 2005 Market Street,
Suite 1700, Philadelphia, Pennsylvania 19103-7017; President and Chief
Executive Officer, The Pew Charitable Trusts; Director and Executive
Vice President, The Glenmede Trust Company; Formerly, Executive
Director, The Pew Charitable Trusts.
CARL W. VOGT, Esq., Director (4/20/36)
Fulbright & Jaworski L.L.P., 801 Pennsylvania Avenue, N.W., Washington,
D.C. 20004-2604. Senior Partner, Fulbright & Jaworski L.L.P. (law);
Director, Yellow Corporation (trucking) and American Science &
Engineering (x-ray detection equipment); Formerly, Chairman National
Transportation Safety Board; Director, National Railroad Passenger
Corporation (Amtrak) and Member, Aviation System Capacity Advisory
Committee (Federal Aviation Administration).
HARRY WOOLF, President (8/12/23)
Institute for Advanced Study, Olden Lane, Princeton, New Jersey 08540.
Professor-at-Large Emeritus, Institute for Advanced Study; Director,
ATL and Spacelabs Medical Corp. (medical equipment) and Family Health
International (non-profit research and education); Director, Research
America (non-profit medical research); Formerly, Trustee, Rockefeller
Foundation; Director, Merrill Lynch Cluster C Funds (registered
investment companies); Trustee, Reed College (education) and Director,
Flag Investors/ISI and BT Alex. Brown, Family of Funds.
JOSEPH A. FINELLI, Treasurer (1/24/57)
Vice President, BT Alex. Brown Incorporated and Vice President,
Investment Company Capital Corp. (registered investment advisor),
September 1995-Present; Formerly, Vice President and Treasurer, The
Delaware Group of Funds (registered investment companies) and Vice
President, Delaware Management Company Inc. (investments), 1980-August
1995.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, June 1997-Present.
Formerly, Senior Manager, Coopers & Lybrand L.L.P., September 1988 -
June 1997.
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, July
1996-Present; Formerly, Manager and Foreign Markets Specialist, Putnam
Investments Inc. (registered investment companies), April 1994-July
1996; Supervisor, Brown Brothers Harriman & Co. (domestic and global
custody), August 1991-April 1994.
- --------------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered or advised
by BT Alex. Brown Incorporated ("BT Alex. Brown") or its affiliates. There are
currently 13 funds in the Flag Investors/ISI Funds and BT Alex. Brown Cash
Reserve Fund, Inc. fund complex (the "Fund Complex"). Mr. Semans serves as
Chairman of five funds and as a Director of six other funds in the Fund Complex.
Mr. Hale serves as Chairman of four funds and as a Director of eight other funds
in the Fund Complex. Messrs. Cunnane, Kroeger, Levy and McDonald serve as
Directors of each fund in the Fund Complex. Ms. Rimel and Mr. Vogt serve as
Directors of 11 funds in the Fund Complex. Mr. Woolf serves as President of
seven funds in the Fund Complex. Mr. Finelli serves as Treasurer, Ms. Olmert
serves as Secretary and Mr. Liotta serves as Assistant Secretary, respectively,
of each of the funds in the Fund Complex.
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<PAGE>
Some of the Directors of the Fund are customers of, and have had normal
brokerage transactions with, BT Alex. Brown in the ordinary course of business.
All such transactions were made on substantially the same terms as those
prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.
With the exception of the Fund's President, officers of the Fund receive
no direct remuneration in such capacity from the Fund. Officers and Directors of
the Fund who are officers or directors of BT Alex. Brown or the Advisor may be
considered to have received remuneration indirectly. As compensation for his or
her services as director, each Director who is not an "interested person" of the
Fund (as defined in the Investment Company Act) (an "Independent Director") and
Mr. Woolf, the Fund's President, receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection with
his or her attendance at board and committee meetings) from all Flag
Investors/ISI Funds and BT Alex. Brown Cash Reserve Fund, Inc. for which he or
she serves. In addition, the Chairman of the Fund Complex's Audit Committee
receives an aggregate annual fee from the Fund Complex. Payment of such fees and
expenses is allocated among all such funds described above in direct proportion
to their relative net assets. For the fiscal year ended October 31, 1997,
Independent Directors' fees attributable to the assets of the Fund totalled
$3,303. The following table shows aggregate compensation payable to each of the
Fund's Directors by the Fund and the Fund Complex, respectively, and pension or
retirement benefits accrued as part of Fund expenses in the year ended October
31, 1997.
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<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------
Name of Person, Position Aggregate Compensation Pension or Retirement Total Compensation
From the Fund for Benefits Accrued as from the Fund and Fund
the Fiscal Year Ended Part of Fund Complex Payable to
October 31, 1997 Expenses Directors for the Fiscal
Year Ended
October 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Truman T. Semans, Chairman(1) $0 $0 $0
Charles W. Cole, Jr., Director(1,2) $0 $0 $0
Richard T. Hale, Director(1) $0 $0 $0
W. James Price, Director(1,3) $0 $0 $0
$542(4) (5) $39,000 for service on 13
James J. Cunnane, Director Boards in the Fund Complex
$681(4) (5) $49,000 for service on 13
John F. Kroeger, Director Boards in the Fund Complex
$542(4) (5) $39,000 for service on 13
Louis E. Levy, Director Boards in the Fund Complex
$542(4) (5) $39,000 for service on 13
Eugene J. McDonald, Director Boards in the Fund Complex
$439(4) (5) $39,000 for service on 11(6)
Rebecca W. Rimel, Director Boards in the Fund Complex
Carl W. Vogt, Esq., Director $443(4) (5) $39,000 for service on 11(6)
Boards in the Fund Complex
Harry Woolf, Director(3) $113(4) (5) $9,750 for service on 12
Boards in the Fund Complex
</TABLE>
- ----------
(1) Denotes an individual who is an "interested person" as defined in the
Investment Company Act.
(2) Resigned as Director effective September 1, 1997.
(3) Retired as Director of the Fund on December 31, 1996. Mr. Woolf was
appointed President of the Fund effective September 1, 1997. For
serving as President, Mr. Woolf receives compensation from the Fund and
certain other funds in the Fund Complex, in addition to his retirement
benefits.
(4) Of amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald, Vogt
and Woolf and Ms. Rimel, $542, $0, $0, $542, $443, $113 and $439,
respectively, was deferred pursuant to a Deferred Compensation Plan.
(5) The Fund Complex has adopted a Retirement Plan for eligible Directors,
as described below. The actuarially computed pension expense allocated
to the Fund for the fiscal year ended October 31,1997 was approximately
$1,993.
(6) Ms. Rimel and Mr. Vogt receive proportionally higher compensation from
each fund for which they serve.
The Fund Complex has adopted a retirement plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's Advisor or their
respective affiliates (the "Participants"). After completion of six years of
service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by the Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by the
Participant in his or her last year of service. The fee will be paid quarterly,
for life, by each Fund for which he or she serves. The Retirement Plan is
unfunded and unvested. Mr. Kroeger has qualified but has not
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received benefits. The Fund has two Participants, a Director who retired
effective December 31, 1994 and Mr. Woolf who retired effective December 31,
1996, who have qualified for the Retirement Plan by serving thirteen years and
fourteen years, respectively, as Directors in the Fund Complex and each of whom
will be paid a quarterly fee of $4,875 by the Fund Complex for the rest of his
life. Such fees are allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described above. The approximate credited years of service for each
Participant at December 31, 1997, are as follows: for Mr. Cunnane, 3 years; for
Mr. Kroeger, 15 years; for Mr. Levy, 2 years; for Mr. McDonald, 5 years; for Ms.
Rimel, 2 years; and for Mr.
Vogt, 2 years.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairman of Audit Committee Other Participants
--------------------------- ------------------
<S> <C> <C>
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
</TABLE>
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, or up to all, of his annual compensation pursuant to a Deferred
Compensation Plan. Messrs. Cunnane, Levy, McDonald and Vogt and Ms. Rimel have
each executed a Deferred Compensation Agreement. Currently, the deferring
Directors may select from among various Flag Investors funds and BT Alex. Brown
Cash Reserve Fund, Inc. in which all or part of their deferral account shall be
deemed to be invested. Distributions from the deferring Directors' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of ten years.
Code of Ethics
The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act. The Code of Ethics
applies to the personal investing activities of all directors and officers of
the Fund, as well as to designated officers, directors and employees of the
Advisor and the Distributor. As described below, the Code of Ethics imposes
significant restrictions on the Advisor's investment personnel, including the
portfolio managers and employees who execute or help execute a portfolio
manager's decisions or who obtain contemporaneous information regarding the
purchase or sale of a security by the Fund.
The Code of Ethics requires that any officer, director, or employee of
the Fund or the Advisor or, if they are access persons in the case of the
Distributor, preclear personal securities investments (with certain exceptions,
such as non-volitional purchases or purchases which are part of an automatic
dividend reinvestment plan). The preclearance requirement and associated
procedures are designed to identify any substantive prohibition or limitation
applicable to the proposed investment. The substantive restrictions applicable
to investment personnel include a ban on acquiring any securities in an initial
public offering, a prohibition from profiting on short-term trading in
securities and special preclearance of the acquisition of securities in private
placements. Furthermore, the Code of Ethics provides for trading "blackout
periods" that prohibit trading by investment personnel and certain other
employees within periods of trading by the Fund in the same security. Trading by
investment personnel and certain other employees of the Advisor would be exempt
from this "blackout period" provided that (1) the market
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<PAGE>
capitalization of a particular security exceeds $2 billion; and (2) orders of
the Advisor do not exceed ten percent of the daily average trading volume of the
security for the prior 15 days. Officers, directors and employees of the Advisor
and the Distributor may comply with codes of ethics instituted by those entities
so long as they contain similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
The Advisor
On June 17, 1997 the Board of Directors of the Fund, including a
majority of the Independent Directors, approved an Investment Advisory Agreement
between the Fund and Investment Company Capital Corp. ("ICC" or the "Advisor").
The Investment Advisory Agreement was approved by a vote of shareholders of the
Fund on August 14, 1997. ICC is an indirect subsidiary of Bankers Trust New York
Corporation. ICC is also the investment advisor to other funds in the Flag
Investors family of funds and BT Alex. Brown Cash Reserve Fund, Inc.
ICC (a) formulates and implements continuing programs for the purchases
and sales of securities, (b) determines what issuers and securities (and in what
proportion) shall be represented in the Fund's portfolio, (c) provides the
Fund's Board of Directors regular financial reports and analyses respecting the
Fund's portfolio investments and operations, and the operations of comparable
investment companies, (d) obtains and evaluates economic, statistical and
financial information pertinent to the Fund, (e) takes, on behalf of the Fund,
all actions which appear necessary to the Fund to carry into effect its purchase
and sale programs, (f) supervises all aspects of the Fund's management, (g)
arranges, but does not pay for, the printing and mailing of prospectuses, proxy
materials and shareholder reports, (h) prepares and files federal and state tax
returns, (i) prepares and files registration statements and reports regarding
the sale of shares and (j) maintains books and records respecting its
activities. Any investment program undertaken by ICC will at all times be
subject to policies and control of the Fund's Board of Directors. ICC shall not
be liable to the Fund or its shareholders for any act or omission by ICC or any
losses sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence, or reckless disregard of duty. ICC is
free to render similar services to others.
The Investment Advisory Agreement provides for a maximum annual fee,
payable monthly, representing .85% of the Fund's average daily net assets.
However, the actual amount of the fee is contractually limited to an amount that
would result in total expenses on Flag Investors Class A Shares of no more than
1.50% of the Flag Investors Class A Shares' average daily net assets.
The Advisory Agreement will continue in effect for an initial term of
two years and from year to year thereafter as specifically approved (a) at least
annually by the Fund's Board of Directors or by a vote of a majority of the
outstanding Shares of the Fund and (b) by the affirmative vote of a majority of
the Independent Directors who have no direct or indirect financial interest in
the Advisory Agreement by votes cast in person at a meeting called for such
purpose.
Advisory fees paid by the Fund to ICC for the last three fiscal years
were as follows:
- --------------------------------------------------------------------------------
Fiscal Year Ended October 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
$ 782,095 $ 381,086 $ 201,199
- --------------------------------------------------------------------------------
ICC also serves as the Fund's transfer and dividend disbursing agent
and provides accounting services to the Fund. An affiliate of ICC serves as the
Fund's custodian. See "Custodian, Transfer Agent and Accounting Services."
-13-
<PAGE>
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as the distributor of each class of the Fund's Shares pursuant to a Distribution
Agreement (the "Distribution Agreement") effective August 31, 1997. Prior to
August 31, 1997, Alex. Brown & Sons Incorporated ("Alex. Brown") was distributor
of the Fund's Shares for the same rate of compensation and on substantially the
same terms and conditions as ICC Distributors.
The Distribution Agreement provides that ICC Distributors shall; (i)
use reasonable efforts to sell Shares upon the terms and conditions contained in
the Distribution Agreement and the Fund's then current Prospectus; (ii) use its
best efforts to conform with the requirements of all federal and state laws
relating to the sale of the Shares; (iii) adopt and follow procedures as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. and any other applicable self-regulatory organization;
(iv) perform its duties under the supervision of and in accordance with the
directives of the Fund's Board of Directors and the Fund's Articles of
Incorporation and By-Laws; and (v) provide the Fund's Board of Directors with a
written report of the amounts expended in connection with the Distribution
Agreement. ICC Distributors shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of ICC Distributors are not exclusive and ICC Distributors
shall not be liable to the Fund or its shareholders for any error of judgment or
mistake of law, for any losses arising out of any investment, or for any action
or inaction of ICC Distributors in the absence of bad faith, willful misfeasance
or gross negligence in the performance of ICC Distributors' duties or
obligations under the Distribution Agreement or by reason of ICC Distributors'
reckless disregard of its duties and obligations under the Distribution
Agreement. The Distribution Agreement further provides that the Fund and ICC
Distributors will mutually indemnify each other for losses relating to
disclosures in the Fund's registration statement.
The Distribution Agreement may be terminated at any time upon 60 days'
written notice by the Fund, without penalty, by the vote of a majority of the
Fund's Independent Directors or by a vote of a majority of the Fund's
outstanding Shares of the related class (as defined under "Capital Stock") or
upon 60 days' written notice by the Distributor and shall automatically
terminate in the event of an assignment. The Distribution Agreement has an
initial term of one year from the date of effectiveness. It shall continue in
effect thereafter with respect to each class of the Fund provided that it is
approved at least annually by (i) a vote of a majority of the outstanding voting
securities of the related class of the Fund or (ii) a vote of a majority of the
Fund's Board of Directors including a majority of the Independent Directors and,
with respect to each class of the Fund for which there is a plan of
distribution, so long as such plan of distribution is approved at least annually
by the Independent Directors in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement, including the form of
Sub-Distribution Agreement, was initially approved by the Board of Directors,
including a majority of the Independent Directors, on August 4, 1997.
With respect to the Flag Investors Class A, Flag Investors Class B and
Institutional Shares, ICC Distributors and Participating Dealers ("Participating
Dealers") have entered into Sub-Distribution Agreements under which such
Participating Dealers have agreed to process investor purchase and redemption
orders and respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. It is not currently anticipated that
ICC Distributors will enter into Sub-Distribution Agreements for the ABCAT
Shares. Any Sub-Distribution Agreement may be terminated in the same manner as
the Distribution Agreement at any time and shall automatically terminate in the
event of an assignment.
In addition, with respect to the Flag Investors Class A or Flag
Investors Class B Shares, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as BT Alex. Brown and
certain banks, to act as Shareholder Servicing Agents, pursuant to which ICC
Distributors will allocate a portion of its distribution fee as compensation for
such financial institutions' ongoing shareholder
-14-
<PAGE>
services. The Fund may also enter into Shareholder Servicing Agreements pursuant
to which the Advisor or its affiliates will provide compensation out of its own
resources for ongoing shareholder services. Although banking laws and
regulations prohibit banks from distributing shares of open-end investment
companies such as the Fund, according to interpretations by various bank
regulatory authorities, financial institutions are not prohibited from acting in
other capacities for investment companies, such as the shareholder servicing
capacities described above. Should future legislative, judicial or
administrative action prohibit or restrict the activities of the Shareholder
Servicing Agents in connection with the Shareholder Servicing Agreements, the
Fund may be required to alter materially or discontinue its arrangements with
the Shareholder Servicing Agents. Any Shareholder Servicing Agreement may be
terminated at any time, without penalty, upon 10 days' notice and shall
automatically terminate in the event of an assignment.
As compensation for providing distribution and related administrative
services for the Flag Investors Class A Shares as described above, ICC
Distributors receives an annual fee, calculated and paid monthly, equal to .25%
of the average daily net assets of the Flag Investors Class A Shares. ICC
Distributors expects to allocate a substantial portion of its annual fee to
Participating Dealers and Shareholder Servicing Agents. As compensation for
providing distribution services for the Flag Investors Class B Shares as
described above, ICC Distributors receives an annual fee, calculated and paid
monthly, equal to .75% of the average daily net assets of the Flag Investors
Class B Shares. ICC Distributors expects to retain the entire distribution fee
as reimbursement for front-end payments to Participating Dealers. In addition,
with respect to the Flag Investors Class B Shares, the Fund will pay ICC
Distributors a shareholder servicing fee at an annual rate equal to .25% of the
Flag Investors Class B Shares' average daily net assets. ICC Distributors
expects to allocate most of its shareholder servicing fee to Participating
Dealers and Shareholder Servicing Agents. ICC Distributors receives no
compensation for distributing the Flag Investors Institutional Shares or the
ABCAT Shares.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributor received fees
in the following amounts:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
- ---------------------------------------------------------------------------------------------------------------------
Class 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12b-1 Fee $ 161,564(1) $ 100,956(3) $ 74,697(3)
- ---------------------------------------------------------------------------------------------------------------------
Class B Shareholder Servicing Fee $ 6,398(2) $ 255(3,4) N/A
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $124,346 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $37,218.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $4,330 and ICC Distributors, the Fund's distributor
effective August 31, 1997, received $2,068.
(3) Fees received by Alex. Brown, the Fund's distributor for the fiscal
years ended October 31, 1996 and October 31, 1995.
(4) For Flag Investors Class B Shares, amounts represent fees received for
the period from June 20, 1996 (commencement of offering of Flag
Investors Class B Shares) through October 31, 1996.
Pursuant to Rule 12b-1 under the Investment Company Act, which provides
that investment companies may pay distribution expenses, directly or indirectly,
only pursuant to a plan adopted by the investment company's board of directors
and approved by its shareholders, the Fund has adopted two separate Plans of
Distribution, one for the Flag Investors Class A Shares (the "Flag Investors
Class A Plan") and one for the Flag Investors Class B Shares (the "Flag
Investors Class B Plan") (collectively, the "Plans"). Under the Plans, the Fund
pays a fee to ICC Distributors for distribution and other shareholder servicing
assistance as set forth in Distribution Agreement, and ICC Distributors is
authorized to make
-15-
<PAGE>
payments out of its fee to Participating Dealers and Shareholder Servicing
Agents. The Plans will remain in effect from year to year thereafter if
specifically approved at least annually by the Fund's Board of Directors and by
the affirmative vote of a majority of the Independent Directors, by votes cast
in person at a meeting called for such purpose. The Plans were most recently
approved by the Board of Directors, including a majority of the Independent
Directors, on September 16, 1997.
In approving the Plans, the Directors concluded, in the exercise of
reasonable business judgment, that there was a reasonable likelihood that the
Plans would benefit the Fund and its shareholders. The Plans will be renewed
only if the Directors make a similar determination in each subsequent year. The
Plans may not be amended to increase materially the fee to be paid pursuant to
the Distribution Agreement without the approval of the shareholders of the
related class. The Plans may be terminated at any time upon sixty days' notice,
in either case without penalty, by the vote of a majority of the Fund's
Independent Directors or by a vote of a majority of the outstanding shares (as
defined under "Capital Shares") of the related class.
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, with a written report
concerning the payments made under the Plans to ICC Distributors pursuant to the
Distribution Agreement, to broker-dealers pursuant to Sub-Distribution
Agreements and to Shareholder Servicing Agents pursuant to Shareholder Servicing
Agreements. Such reports shall be made by the persons authorized to make such
payments. In addition, during the continuance of the Plans, the selection and
nomination of the Fund's Independent Directors shall be committed to the
discretion of the Independent Directors then in office.
Under the Plans, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to ICC Distributors
under the Plans with respect to shares held by or on behalf of customers of such
entities. Payments under the Plans are made as described above regardless of ICC
Distributors' actual cost of providing distribution services and may be used to
pay ICC Distributors' overhead expenses. If the cost of providing distribution
services to the Fund in connection with the sale of the Flag Investors Class A
Shares is less than .25% of the Flag Investors Class A Shares' average daily net
assets for any period or in connection with the sale of the Flag Investors Class
B Shares is less than .75% of the Flag Investors Class B Shares' average daily
net assets for any period, the unexpended portion of the distribution fee may be
retained by ICC Distributors. The Plans do not provide for any charges to the
Fund for excess amounts expended by ICC Distributors and, if either Plan is
terminated in accordance with its terms, the obligation of the Fund to make
payments to ICC Distributors pursuant to such Plan will cease and the Fund will
not be required to make any payments past the date the Distribution Agreement
terminates with respect to the related class of the Fund. In return for payments
received pursuant to the Plans for the last three fiscal years, the Fund's
distributor paid the distribution related expenses of the related classes
including one or more of the following: printing and mailing of prospectuses to
other than current shareholders; compensation to dealers and sales personnel;
and interest, carrying, or other financing charges.
The Fund's distributor received commissions on the sale of the Flag
Investors Class A Shares and contingent deferred sales loads on the Flag
Investors Class B Shares and retained in the following amounts:
-16-
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended October 31,
- ---------------------------------------------------------------------------------------------------------------------
Class 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Received Retained Received Retained Received Retained
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A $ 343,650(1) $325,322(3) $210,390(5) $201,445(5) $153,431(5) $106,239(5)
Commissions
- ---------------------------------------------------------------------------------------------------------------------
Class B $ 182,686(2) $135,546(4) $29,712(5,6) $29,712(5,6) N/A N/A
Contingent
Deferred Sales
Charge
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received ________ and ICC Distributors, the Fund's distributor
effective August 31, 1997 received _________.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received ________ and ICC Distributors, the Fund's distributor
effective August 31, 1997 received _________.
(3) Of commissions received, Alex. Brown retained _____________ and ICC
Distributors retained ______, respectively.
(4) Of sales charges received, Alex. Brown retained _____________ and ICC
Distributors retained ______, respectively.
(5) By Alex. Brown, the Fund's distributor for the fiscal years ended
October 31, 1996 and October 31, 1995.
(6) For the period from June 20, 1996 (commencement of offering of Flag
Investors Class B Shares) through October 31, ____________ 1996.
Except as described elsewhere, the Fund pays or causes to be paid all
continuing expenses of the Fund, including, without limitation: investment
advisory and distribution fees; the charges and expenses of any registrar, any
custodian or depositary appointed by the Fund for the safekeeping of cash,
portfolio securities and other property, and any transfer, dividend or
accounting agent or agents appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions; all
taxes, including securities issuance and transfer taxes, and corporate fees
payable by the Fund to federal, state or other governmental agencies; the costs
and expenses of engraving or printing of certificates representing Shares; all
costs and expenses in connection with the maintenance of registration of the
Fund and its Shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing proxy statements and reports to shareholders;
fees and travel expenses of Independent Directors and Independent Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the Independent
Directors, and independent accountants, in connection with any matter relating
to the Fund; membership dues of industry associations; interest payable on Fund
borrowings; postage; insurance premiums on property or personnel (including
officers and Directors) of the Fund which inure to its benefit; extraordinary
expenses (including, but not limited to, legal claims and liabilities and
litigation costs and indemnification related thereto); and all other charges and
cost of the Fund's operation unless otherwise explicitly assumed by ICC or ICC
Distributors.
<PAGE>
8. BROKERAGE
Purchases and sales of securities on a securities exchange are effected
through brokers who charge a commission for their services. These brokerage
commissions are subject to negotiation between ICC and the broker-dealer. ICC
may direct purchase and sale orders to any broker-dealer, including, to the
extent and in the manner permitted by applicable law, its affiliates and ICC
Distributors.
In over-the-counter transactions, orders are placed directly with a
principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with the
Advisor or its affiliates in any transaction in which the Advisor or its
affiliates serves as a principal.
If the Advisor or its affiliates is participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with rules of the SEC. While the Fund
-17-
<PAGE>
believes that the limitation will not significantly affect its ability to carry
out its present investment objective, the Fund may be at a disadvantage in the
future in comparison to other funds which have similar investment objectives,
but which are not subject to such limitations.
ICC's primary consideration in effecting securities transactions is to
obtain, on an overall basis, the best price and execution of orders. As
described below, however, to the extent that the price and execution offered by
more than one broker-dealer are comparable, ICC may, in its discretion, effect
transactions with broker-dealers that furnish statistical, research or other
information or services which are deemed by ICC to be beneficial to the Fund's
investment program. ICC is also authorized to pay higher commissions on
brokerage transactions for the Fund to non-affiliated brokers in order to secure
research and investment services described below, subject to periodic review by
the Fund's Board of Directors. Research services may include the following:
statistical and background information on the U.S. economy, industry groups and
individual small and mid-sized companies; forecasts and interpretations with
respect to specific industry groups and individual small and mid-sized
companies; information on federal, state, local and foreign political
developments; portfolio management strategies; performance information on
securities, indices and investment accounts; information concerning prices of
securities; provision of equipment used to communicate research information;
arrangement of meetings with management of companies; and provision of access to
consultants who supply research information. Certain research services furnished
by broker-dealers may be useful to ICC with clients other than the Fund.
Similarly, any research services received by ICC through placement of portfolio
transactions of other clients may be of value to ICC in fulfilling its
obligations to the Fund. No specific value can be determined for research and
statistical services furnished without cost to ICC by a broker-dealer. ICC is of
the opinion that because the material must be analyzed and reviewed by its
staff, its receipt does not tend to reduce expenses, but may be beneficial in
supplementing ICC's research and analysis. Therefore, it may tend to benefit the
Fund by improving ICC's investment advice. ICC's policy is to pay a
broker-dealer higher commissions for particular transactions than might be
charged if a different broker-dealer had been chosen when, in ICC's opinion,
this policy furthers the overall objective of obtaining the best price and
execution. The allocation of orders among broker-dealers and the commission
rates paid by the Fund will be reviewed periodically by the Board.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through the Advisor or its affiliates pursuant to certain policies and
procedures incorporating the standards of Rule 17e-1 under the Investment
Company Act which requires that the commissions paid the Advisor or its
affiliates must be "reasonable and fair compared to the commission, fee or other
remuneration received or to be received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time." Rule 17e-1 also contains requirements for the review of such
transactions by the Board of Directors and requires ICC to furnish reports and
to maintain records in connection with such reviews.
ICC directed transactions to broker-dealers and paid related
commissions because of research services in the following amounts:
- --------------------------------------------------------------------------------
Fiscal Year Ended October 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Transactions Directed $ $ 4,091,824 $25,120,072
- --------------------------------------------------------------------------------
Commissions Paid $ $ 11,346 $ 12,495
- --------------------------------------------------------------------------------
For the period from September 1, 1997 through December 31, 1997, the
Fund did not pay brokerage commissions to BT Alex. Brown or its affiliates. For
the period from January 1, 1997 through August 31, 1997 and for the fiscal years
ended December 31, 1996 and December 31, 1995, the Fund did not pay brokerage
commissions to Alex. Brown. The Fund is required to identify any securities of
its
-18-
<PAGE>
"regular brokers or dealers" (as such term is defined in the Investment Company
Act) which the Fund has acquired during its most recent fiscal year. As of
October 31, 1997, the Fund held a 5.60% repurchase agreement issued by Goldman
Sachs & Co. valued at $12,102,152. Goldman Sachs & Co. is a "regular broker or
dealer" of the Fund.
ICC manages other investment accounts and it is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ICC. ICC may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.
9. CAPITAL SHARES
The Fund is authorized to issue 20 million Shares of capital stock, par
value of $.001 per Share, all of which Shares are designated common stock. The
Board of Directors may increase or decrease the number of authorized Shares
without shareholder approval.
The Fund's Articles of Incorporation provide for the establishment of
separate series and separate classes of Shares by the Directors at any time
without shareholder approval. The Fund currently has one Series and the Board
has designated four classes of shares: Flag Investors Emerging Growth Fund Class
A Shares (formerly known as the Flag Investors Emerging Growth Fund Shares),
Flag Investors Emerging Growth Fund Class B Shares, Flag Investors Emerging
Growth Fund Institutional Shares and Alex. Brown Capital Advisory & Trust
Emerging Growth Shares. The Flag Investors Institutional Shares are offered only
to certain eligible institutions and to clients of investment advisory
affiliates of BT Alex. Brown. The ABCAT Shares are offered only to clients of
Alex. Brown Capital Advisory & Trust Company and its affiliates. In the event
separate series are established, all Shares of the Fund, regardless of series or
class would have equal rights with respect to voting, except that with respect
to any matter affecting the rights of the holders of a particular series or
class, the holders of each series or class would vote separately. In general,
each series would be managed separately and shareholders of each series would
have an undivided interest in the net assets of that series. For tax purposes,
the series would be treated as separate entities. Generally, each class of
Shares would be identical to every other class in a particular series and
expenses of the Fund (other than 12b-1 and any applicable service fees) would be
prorated between all classes of a series based upon the relative net assets of
each class. Any matters affecting any class exclusively will be voted on by the
holders of such class.
Shareholders of the Fund do not have cumulative voting rights, and,
therefore, the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. The Fund's issued and outstanding Shares are fully paid
and non-assessable. Each Share has one vote and shall be entitled to dividends
and distributions when and if declared by the Fund. There are no preemptive,
conversion or exchange rights applicable to any of the Shares. In the event of
liquidation or dissolution of the Fund, each Share is entitled to its pro rata
portion of the Fund's assets (or the assets allocated to a separate series of
shares if there is more than one series) after all debts and expenses have been
paid.
As used in this Statement of Additional Information, the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more
-19-
<PAGE>
than 50% of the outstanding Shares are present or represented by proxy, or (ii)
more than 50% of the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Effective September 22, 1997, Bankers Trust Company ("Bankers Trust")
has been retained to act as custodian of the Fund's investments. Bankers Trust
receives such compensation from the Fund for its services as custodian as may be
agreed to from time to time by Bankers Trust and the Fund. For the period from
September 22, 1997 through October 31, 1997, Bankers Trust accrued fees of
$2,440. Investment Company Capital Corp. has been retained to act as the Fund's
transfer and dividend disbursing agent. As compensation for providing these
services, the Fund pays ICC up to $10.12 per account per year, plus
reimbursement for out-of-pocket expenses. For the fiscal year ended October 31,
1997, such fees totalled $52,448.
ICC also provides certain accounting services to the Fund under a
Master Services Agreement effective January 1, 1994 between the Fund and ICC. As
compensation for these services, ICC is entitled to receive an annual fee,
calculated daily and paid monthly as shown below.
Average Daily Net Assets Incremental Annual Accounting Fee
------------------------ ---------------------------------
$ 0 - $ 10,000,000 $ 13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%
In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services under the Master Services Agreement: express delivery service,
independent pricing and storage. ICC also serves as the Fund's investment
advisor.
As compensation for providing accounting services for the fiscal year
ended October 31, 1997, ICC received fees of $53,054.
12. INDEPENDENT ACCOUNTANTS
The annual financial statements of the Fund are audited by Coopers &
Lybrand L.L.P. whose report thereon appears elsewhere herein, and has been
included herein in reliance upon the report of such firm of accountants given on
their authority as experts in accounting and auditing. Coopers & Lybrand L.L.P.
has offices at 2400 Eleven Penn Center, Philadelphia, PA 19103.
-20-
<PAGE>
13. PERFORMANCE INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other open-end diversified management investment companies and to stock
or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return, rather than
in terms of yield. The total return quotations, under the rules of the SEC, must
be calculated according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1,
5, or 10 year periods (or fractional portion
thereof) of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year
periods.
Under the foregoing formula the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one, five and ten year periods or a shorter period dating from the
effectiveness of the Fund's registration statement (or the later commencement of
operations of the series or class). During its first year of operations the Fund
may, in lieu of annualizing its total return, use an aggregate total return
calculated in the same manner. In calculating the ending redeemable value for
the Flag Investors Class A Shares, the maximum sales load (4.5%) is deducted
from the initial $1,000 payment and all dividends and distributions by the Fund
are assumed to have been reinvested at net asset value as described in the
Prospectus on the reinvestment dates during the period. In calculating
performance for the Flag Investors Class B Shares, the applicable contingent
deferred sales charge (4.0% for the one-year period, 2.0% for the five-year
period and no sales charge thereafter) is deducted from the ending redeemable
value and all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the Prospectus on the reinvestment
dates during the period. "T" in the formula above is calculated by finding the
average annual compounded rate of return over the period that would equate an
assumed initial payment of $1,000 to the ending redeemable value. Any sales
loads that might in the future be made applicable at the time to reinvestments
would be included as would any recurring account charges that might be imposed
by the Fund.
Calculated according to SEC rules, the ending redeemable value and
average annual total return of a hypothetical $1,000 investment for the periods
ended October 31, 1997 were as follows:
-21-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
One-Year Period Ended Five-Year Period Ended
October 31, 1997 October 31, 1997 Since Inception
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Ending Annual Ending Annual Ending Annual
Class Redeemable Total Redeemable Total Redeemable Total
Value Return Value Return Value Return
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
*December 30, 1987 $1,202.60 20.26% $1,987.08 16.25% $3,293.97 12.89%
- ------------------------------------------------------------------------------------------------------------------------------------
Class B
*June 20, 1996 $1,206.92 20.69% N/A N/A $1,198.49 14.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional
*November 2, 1995 $1,263.58 26.36% N/A N/A $1,471.84 17.3%
- ------------------------------------------------------------------------------------------------------------------------------------
ABACAT Shares
*May 9, 1997 N/A N/A N/A N/A $1,246.78 24.68%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------
* Inception Date
** Aggregate Annual Total Return
The Fund may also from time to time include in such advertising total
return figures that are not calculated according to the formula set forth above
to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., the Fund calculates its aggregate
and average annual total return for the specified periods of time by assuming
the investment of $10,000 in Shares and assuming the reinvestment of each
dividend or other distribution at net asset value on the reinvestment date.
For this alternative computation, the Fund assumes that the $10,000
invested in Shares is net of all sales charges. The Fund will, however, disclose
the maximum sales charges and will also disclose that the performance data do
not reflect sales charges and that inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
The Fund's annual portfolio turnover rate (the lesser of the value of
the purchases or sales for the year divided by the average monthly market value
of the portfolio during the year, excluding securities with maturities of one
year or less) may vary from year to year, as well as within a year, depending on
market conditions. The Fund's portfolio turnover rate in fiscal year 1997 was
42% and in fiscal year 1996 was 24%. A high level of portfolio turnover may
generate relatively high transaction costs and may increase the amount of taxes
payable by the Fund's shareholders. (See "Dividends and Taxes".)
-22-
<PAGE>
14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
To Fund management's knowledge, the following persons owned of record
or beneficially 5% or more of the Fund's outstanding Shares, as of February 2,
1998.
Name & Address % Ownership
-------------- -----------
T. Rowe Price, Trustee 13.74%
Alex. Brown & Sons Inc. Plan #100460
Flag Investors Emerging Growth
Attn: Asset Recon
P.O. Box 17215
Baltimore, MD 21297
* As of such date, to Fund management's knowledge, BT
Alex. Brown Incorporated owned beneficially less than
1% of such shares.
To Fund management's knowledge, the Directors and Officers of the Fund
as a group (12 persons) beneficially owned approximately less than 1% of the
Fund's total outstanding shares, as of February 2, 1998.
15. FINANCIAL STATEMENTS
See next page.
-23-
<PAGE>
Alex Brown FI Emerging Growth Fund AR
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1997
<TABLE>
<CAPTION>
Value Percent of
Shares Security (Note 1) Net Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS: 90.3%
Business Services: 21.4%
58,000 AHL Services, Inc.* $ 1,036,750 0.8%
134,900 Central Garden and Pet Co.* 3,541,125 2.8
207,700 Cidco, Inc.* 3,868,413 3.1
81,900 Dialogic Corp.* 3,378,375 2.7
103,050 Energy Biosystems Corp.* 515,250 0.4
168,000 Manugistics Group, Inc.* 5,985,000 4.8
137,050 QuickResponse Services, Inc.* 4,454,125 3.5
155,650 Wilmar Industries, Inc.* 4,085,812 3.3
----------- ----
26,864,850 21.4
----------- ----
Capital Goods: 6.9%
84,700 Advanced Lighting Technologies, Inc.* 1,704,588 1.4
41,800 Aspect Development, Inc.* 1,954,150 1.5
21,200 Harbinger Corp.* 630,700 0.5
166,775 Itron, Inc.* 3,418,888 2.7
74,900 Xeikon N.V. ADR* 1,020,512 0.8
----------- ----
8,728,838 6.9
----------- ----
Consumer Services: 16.7%
54,325 Apollo Group, Inc.* 2,295,231 1.8
190,300 Apple South, Inc. 3,544,338 2.8
60,700 Just For Feet, Inc.* 899,119 0.7
178,575 O'Charleys, Inc.* 3,303,638 2.6
113,343 Pacific Sunwear of California* 3,131,100 2.5
54,325 Papa John's International, Inc.* 1,605,983 1.3
269,700 PETsMART, Inc.* 2,056,462 1.7
58,950 Starbucks Corp.* 1,945,350 1.6
51,750 Sylvan Learning Systems, Inc.* 2,179,969 1.7
----------- ----
20,961,190 16.7
----------- ----
Health Care Services: 14.1%
136,700 Access Health, Inc.* 4,750,325 3.8
109,300 American Oncology Resources, Inc.* 1,598,512 1.3
117,775 Genesis Health Ventures, Inc.* 2,885,488 2.3
31,300 Guilford Pharmaceuticals, Inc.* 762,938 0.6
120,325 PhyCor, Inc.* 2,774,995 2.2
200,350 Physician Sales and Service, Inc.* 4,908,575 3.9
----------- ----
17,680,833 14.1
----------- ----
</TABLE>
- 24 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) October 31, 1997
<TABLE>
<CAPTION>
Value Percent of
Shares Security (Note 1) Net Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCKS (concluded)
Health Equipment and Services: 2.5%
34,000 Heartport, Inc.* $ 854,250 0.7%
90,975 Perclose, Inc.* 2,228,887 1.8
------------ ----
3,083,137 2.5
------------ ----
Media/Communications: 0.4%
29,800 Getty Communications plc ADR* 439,550 0.4
------------ ----
Technology -- Software/Services: 9.7%
244,725 Integrated Systems, Inc.* 4,313,278 3.4
93,650 MAPICS, Inc.* 1,065,269 0.8
79,600 Marcam Solutions, Inc.* 820,875 0.7
56,800 SELECT Software Tools ADR* 457,950 0.4
141,646 Synopsys, Inc.* 5,506,488 4.4
------------ ----
12,163,860 9.7
------------ ----
Technology -- Systems/Semiconductors: 13.2%
127,250 Level One Communications, Inc.* 5,726,250 4.5
89,000 Security Dynamics Technologies, Inc.* 3,014,875 2.4
240,650 Sipex Corp.* 7,911,369 6.3
------------ ----
16,652,494 13.2
------------ ----
Telecommunications -- Long Distance: 0.8%
27,750 Pacific Gateway Exchange, Inc.* 1,061,437 0.8
------------ ----
Transportation: 4.6%
92,775 Atlantic Coast Airlines, Inc.* 1,959,872 1.5
61,950 Coach USA, Inc.* 1,843,013 1.5
80,875 Landair Services, Inc.* 1,981,437 1.6
------------ ----
5,784,322 4.6
------------ ----
Total Common Stocks
(Cost $80,034,506) 113,420,511 90.3
</TABLE>
- 25 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value Percent of
(000) Security (Note 1) Net Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENT: 9.5%
$11,864 Goldman Sachs & Co., 5.60%
Dated 10/31/97, to be repurchased
on 11/3/97, collateralized by U.S.
Treasury Bonds with a market
value of $12,102,152.
(Cost $11,864,000) $ 11,864,000 9.5%
------------ -----
Total Investment in Securities**
(Cost $91,898,506) 125,284,511 99.8
Other Assets in Excess of Liabilities, Net 278,012 0.2
------------ -----
Net Assets $125,562,523 100.0%
============ =====
Net Asset Value and Redemption Price Per:
Class A Share
($71,122,649 / 3,069,025 shares outstanding) $23.17
======
Class B Share
($5,719,048 / 249,987 shares outstanding) $22.88***
======
Institutional Share
($13,068,162 / 562,042 shares outstanding) $23.25
======
ABCAT Share
($35,652,664 / 1,533,892 shares outstanding) $23.24
======
Maximum Offering Price Per:
Class A Share
($23.17 / 0.955) $24.26
======
Class B Share $22.88
======
Institutional Share $23.25
======
ABCAT Share $23.24
======
</TABLE>
- ---------
* Non-income producing security.
** Aggregate cost for federal tax purposes was $92,295,138.
*** Redemption value is $21.96 following a 4% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
- 26 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
October 31,
- --------------------------------------------------------------------------------
1997
Investment Income (Note 1):
Interest $ 415,195
Dividends 17,121
-----------
Total income 432,316
-----------
Expenses:
Investment advisory fee (Note 2) 782,095
Distribution fee (Note 2) 167,962
Legal 64,158
Registration fees 54,754
Accounting fee (Note 2) 53,054
Transfer agent fee (Note 2) 52,448
Printing and postage 29,132
Audit 25,314
Custodian fee (Note 2) 22,843
Miscellaneous 9,245
Directors' fees 3,284
-----------
Total expenses 1,264,289
-----------
Expenses in excess of income (831,973)
-----------
Realized and unrealized gain/(loss) on investments:
Net realized gain from security transactions 6,273,549
Change in unrealized appreciation or depreciation
of investments 17,299,788
-----------
Net gain on investments 23,573,337
-----------
Net increase in net assets resulting from operations $22,741,364
===========
See Notes to Financial Statements.
- 27 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended October 31,
- -----------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
Increase/(Decrease) in Net Assets:
Operations:
Expenses in excess of income $ (831,973) $ (402,217)
Net realized gain from security transactions 6,273,549 3,148,580
Change in unrealized appreciation or
depreciation of investments 17,299,788 4,422,457
------------ -----------
Net increase in net assets resulting
from operations 22,741,364 7,168,820
------------ -----------
Dividends to Shareholders from:
Net realized short-term gains:
Class A Shares (509,733) (614,007)
Class B Shares (12,155) --
Institutional Shares (262,737) (60,009)
Net realized mid-term and long-term gains:
Class A Shares (1,286,527) (1,228,016)
Class B Shares (28,797) --
Institutional Shares (663,099) (120,017)
------------ -----------
Total distributions (2,763,048) (2,022,049)
------------ -----------
Capital Share Transactions (Note 3):
Proceeds from sale of shares 77,654,561 34,395,004
Value of shares issued in
reinvestment of dividends 2,667,198 1,913,272
Cost of shares repurchased (40,585,610) (13,733,625)
------------ -----------
Increase in net assets derived from capital
share transactions 39,736,149 22,574,651
------------ -----------
Total increase in net assets 59,714,465 27,721,422
Net Assets:
Beginning of year 65,848,058 38,126,636
------------ -----------
End of year $125,562,523 $65,848,058
============ ===========
</TABLE>
See Notes to Financial Statements.
- 28 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each year)
For the
Year Ended
October 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of year $ 19.14
-------
Income from Investment Operations:
Expenses in excess of income (0.18)
Net realized and unrealized gain on investments 4.95
-------
Total from Investment Operations 4.77
Less Distributions:
Distributions from net realized short-term gains (0.21)
Distributions from net realized mid-term and long-term gains (0.53)
-------
Total distributions (0.74)
-------
Net asset value end of year $ 23.17
=======
Total Return(1) 25.93%
Ratios to Average Daily Net Assets:
Expenses 1.44%
Expenses in excess of income (0.97)%
Supplemental Data:
Net assets at end of year (000) $71,123
Portfolio turnover rate 42%
Average commissions per share(2) $0.0736
- --------
(1) Total return excludes the effect of sales charge.
(2) Disclosure is required for fiscal year beginning on or after September 1,
1995. Represents average commission rate per share charged to the Fund on
purchases and sales of investments during the period.
- 29 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended October 31,
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $ 17.09 $ 12.90 $ 14.02 $ 13.53
------- ------- ------- -------
Income from Investment Operations:
Expenses in excess of income (0.15) (0.09) (0.08) (0.08)
Net realized and unrealized gain on investments 3.10 4.32 0.47 1.20
------- ------- ------- -------
Total from Investment Operations 2.95 4.23 0.39 1.12
Less Distributions:
Distributions from net realized short-term gains (0.30) -- -- --
Distributions from net realized mid-term and long-term gains (0.60) (0.04) (1.51) (0.63)
------- ------- ------- -------
Total distributions (0.90) (0.04) (1.51) (0.63)
------- ------- ------- -------
Net asset value end of year $ 19.14 $ 17.09 $ 12.90 $ 14.02
======= ======= ======= =======
Total Return(1) 18.19% 32.92% 3.75% 8.33%
Ratios to Average Daily Net Assets:
Expenses 1.50% 1.50% 1.50% 1.50%
Expenses in excess of income (0.83)% (0.64)% (0.73)% (0.52)%
Supplemental Data:
Net assets at end of year (000) $45,325 $38,127 $23,302 $28,867
Portfolio turnover rate 24% 39% 86% 133%
Average commissions per share(2) $0.0700 -- -- --
</TABLE>
See Notes to Financial Statements.
- 30 -
<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 June 20, 1996(1)
Year Ended through
October 31, October 31,
- -------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 19.10 $ 19.22
------- -------
Income from Investment Operations:
Expenses in excess of income (0.18) (0.12)
Net realized and unrealized gain/(loss)
on investments 4.70 --
------- -------
Total from Investment Operations 4.52 (0.12)
Less Distributions:
Distributions from net realized short-term gains (0.21) --
Distributions from net realized mid-term and
long-term gains (0.53) --
------- -------
Total distributions (0.74) --
------- -------
Net asset value at end of period $ 22.88 $ 19.10
======= =======
Total Return(2) 24.69% (0.62)%
Ratios to Average Daily Net Assets:
Expenses 2.19% 2.25%(3)
Expenses in excess of income (1.73)% (1.67)%(3)
Supplemental Data:
Net assets at end of period (000) $ 5,719 $ 772
Portfolio turnover rate 42% 24%
Average commissions per share $0.0736 $0.0700
</TABLE>
- --------
(1) Commencement of operations.
(2) Total return excludes the effect of sales charge.
(3) Annualized.
See Notes to Financial Statements.
- 31 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the November 2, 1995(1)
Year Ended through
October 31, October 31,
- -------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 19.15 $ 17.45
------- -------
Income from Investment Operations:
Expenses in excess of income (0.26) (0.12)
Net realized and unrealized gain
on investments 5.10 2.72
------- -------
Total from Investment Operations 4.84 2.60
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)
------- -------
Total distributions (0.74) (0.90)
------- -------
Net asset value at end of period $ 23.25 $ 19.15
======= =======
Total Return 26.36% 16.48%
Ratios to Average Daily Net Assets:
Expenses 1.19% 1.25%(2)
Expenses in excess of income (0.74)% (0.61)%(2)
Supplemental Data:
Net assets at end of period (000) $13,068 $19,751
Portfolio turnover rate 42% 24%
Average commissions per share $0.0736 $0.0700
</TABLE>
- --------
(1) Commencement of operations.
(2) Annualized.
See Notes to Financial Statements.
- 32 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- ABCAT Shares
(For a share outstanding throughout each year)
For the Period
May 9, 1997(1)
through
October 31,
- --------------------------------------------------------------------------------
1997
Per Share Operating Performance:
Net asset value at beginning of period $ 18.64
-------
Income from Investment Operations:
Expenses in excess of income (0.06)
Net realized and unrealized gain on investments 4.66
-------
Total from Investment Operations 4.60
-------
Net asset value at end of period $ 23.24
=======
Total Return 24.68%
Ratios to Average Daily Net Assets:
Expenses 1.19%(2)
Expenses in excess of income (0.69)%(2)
Supplemental Data:
Net assets at end of period (000) $35,653
Portfolio turnover rate 42%
Average commissions per share $0.0736
- ---------
(1) Commencement of operations.
(2) Annualized.
See Notes to Financial Statements.
- 33 -
<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
- 34 -
<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 New York 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
- 35 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTE 2 -- concluded
the fee 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 $782,095 in
fees, which was equal to 0.85% of the Fund's average daily net assets, for
advisory services for the year ended October 31, 1997.
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 $53,054 for accounting services for the year ended
October 31, 1997.
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 $52,448 for
transfer agent services for the year ended October 31, 1997.
Effective September 22, 1997, Bankers Trust Company became the Fund's
custodian. Prior to September 22, 1997, PNC Bank served as the Fund's custodian.
From September 22, 1997 to October 31, 1997, the Fund accrued $2,440 in custody
expenses.
As compensation for providing distribution services, the Fund pays ICC
Distributors, Inc. ("ICC Distributors"), a member of the Forum Financial Group
of companies, 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 year ended October 31, 1997,
distribution fees aggregated $167,962, of which $142,369 was attributable to the
Class A Shares and $25,593 was attributable to the Class B Shares. No
distribution fees were charged to the Institutional and ABCAT Shares. Prior to
September 1, 1997, Alex. Brown & Sons Incorporated served as the Fund's
distributor for the same compensation and on substantially the same terms as ICC
Distributors.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the year ended
October 31, 1997 was $1,993, and the accrued liability was $5,287.
- 36 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
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, 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
Year Ended Year Ended
Oct. 31, 1997 Oct. 31, 1996
------------- -------------
Shares sold 1,220,895 706,114
Shares issued to shareholders on
reinvestment of dividends 92,972 106,529
Shares redeemed (612,803) (675,793)
------------ ------------
Net increase in shares outstanding 701,064 136,850
============ ============
Proceeds from sale of shares $ 24,515,195 $ 13,138,521
Value of reinvested dividends 1,709,779 1,733,222
Cost of shares redeemed (12,465,235) (11,827,481)
------------ ------------
Net increase from capital share
transactions $ 13,759,739 $ 3,044,262
============ ============
Class B Shares
---------------------------------
For the For the Period
Year Ended June 20, 1996* to
Oct. 31, 1997 Oct. 31, 1996
------------- -----------------
Shares sold 234,480 40,579
Shares issued to shareholders on
reinvestment of dividends 2,231 --
Shares redeemed (27,166) (137)
---------- --------
Net increase in shares outstanding 209,545 40,442
========== ========
Proceeds from sale of shares $5,012,881 $779,667
Value of reinvested dividends 40,890 --
Cost of shares redeemed (564,373) (2,766)
---------- --------
Net increase from capital share
transactions $4,489,398 $776,901
========== ========
- ---------
*Commencement of operations.
- 37 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Institutional Shares
----------------------------------
For the For the Period
Year Ended Nov. 2, 1995* to
Oct. 31, 1997 Oct. 31, 1996
------------- ----------------
Shares sold 834,599 1,127,123
Shares issued to shareholders on
reinvestment of dividends 49,811 11,073
Shares redeemed (1,353,795)** (106,769)
------------ -----------
Net increase/(decrease) in shares
outstanding (469,385) 1,031,427
============ ===========
Proceeds from sale of shares $ 16,289,665 $20,476,816
Value of reinvested dividends 916,529 180,050
Cost of shares redeemed (26,372,242)** (1,903,378)
------------ -----------
Net increase/(decrease) from capital share
transactions $ (9,166,048) $18,753,488
============ ===========
ABCAT Shares
---------------
For the Period
May 9, 1997* to
Oct. 31, 1997
---------------
Shares sold 1,587,453***
Shares issued to shareholders on reinvestment of dividends --
Shares redeemed (53,561)
-----------
Net increase in shares outstanding 1,533,892
===========
Proceeds from sale of shares $31,836,820***
Value of reinvested dividends --
Cost of shares redeemed (1,183,760)
-----------
Net increase from capital share transactions $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
year ended October 31, 1997 include the exchange from Institutional Shares
into ABCAT Shares.
- 38 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $63,082,113 and sales of investment securities aggregated $35,363,293
for the year ended October 31, 1997.
On October 31, 1997, aggregate net unrealized appreciation over tax cost
for portfolio securities was $32,989,373, of which $35,959,081 related to
appreciated securities and $2,969,708 related to depreciated securities.
NOTE 5 -- Net Assets
On October 31, 1997, net assets consisted of:
Paid-in capital:
Class A Shares $ 41,392,440
Class B Shares 5,266,299
Institutional Shares 9,587,440
ABCAT Shares 30,653,060
Accumulated net realized gain from security transactions 5,277,279
Unrealized appreciation of investments 33,386,005
------------
$125,562,523
============
NOTE 6 -- Tax Information (Unaudited)
The following information summarizes all per share distributions paid by
the Fund during the taxable period ending October 31, 1997.
Total
Record Payable Ordinary Long-Term
Date Date Income Capital Gains
------ ------- -------- -------------
12/20/96 12/30/96 $0.21 $0.53
NOTE 7 -- Shareholder Meeting
Alex. Brown Incorporated, which was the parent corporation of the Fund's
investment advisor, merged into a subsidiary of Bankers Trust New York
Corporation on September 1, 1997. Due to the change in control of Alex. Brown
Incorporated, the Flag Investors Emerging Growth Fund held a special meeting for
its shareholders on August 14, 1997. During the meeting, shareholders approved a
new Investment Advisory Agreement between the Fund and ICC. The new agreement is
substantially the same as the former agreement.
- 39 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Emerging Growth Fund, Inc.:
We have audited the accompanying statement of net assets of Flag Investors
Emerging Growth Fund, Inc. as of October 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the respective periods presented herein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Flag Investors Emerging Growth Fund, Inc. as of October 31, 1997, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the respective periods presented herein, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
November 26, 1997
- 40 -
<PAGE>
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits.
---------------------------------
List all financial statements and exhibits filed as part of the
Registration Statement.
(a) Financial statements:
(1) Included in Part A of the Registration Statement:
- Financial Highlights for the Flag Investors Class A
Shares for the fiscal years ended October 31, 1997,
October 31, 1996, October 31, 1995, October 31, 1994,
October 31, 1993, October 31, 1992, October 31, 1991,
October 31, 1990 and October 31, 1989 and for the
period from December 30, 1987 (commencement of
operations) through October 31, 1988
- Financial Highlights for the Flag Investors
Institutional Shares for the fiscal year ended October
31, 1997 and for the period from November 2, 1995
(commencement of operations) through October 31, 1996
- Financial Highlights for the ABCAT Shares for the
period from May 9, 1997
(commencement of operations) through October 31, 1997.
(2) Included in Part B of the Registration Statement:
- Statement of Net Assets as of October 31, 1997
- Statement of Operations for the fiscal year ended
October 31, 1997
- Statement of Changes in Net Assets for the fiscal
years ended October 31, 1997 and October 31, 1996
- Financial Highlights for the fiscal years ended
October 31, 1997, October 31, 1996, October 31, 1995,
October 31, 1994 and October 31, 1993.
- Notes to the Financial Statements
- Report of Independent Accountants
(3) All required financial statements are included in Parts A and
B of the Registration Statement. All other financial
statements and schedules are inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation.(1)
(b) Articles of Amendment.(1)
(c) Articles Supplementary.(1)
(d) Articles Supplementary.(2)
C-1
<PAGE>
(e) Articles Supplementary with respect to the creation of
the ABCAT Shares Class.(3)
(2) By-Laws as amended through December 18, 1996.(3)
(3) None.
(4) Specimen Security with respect to Flag Investors Shares.(4)
(5) Investment Advisory Agreement between Registrant and Investment
Company Capital Corp., filed herewith.
(6) (a) Distribution Agreement dated as of August 31, 1997
between Registrant and ICC Distributors, Inc., filed
herewith.
(b) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers,
filed herewith.
(c) Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents, filed herewith.
(7) None.
(8) Form of Custodian Agreement between Registrant and Bankers Trust
Company, filed herewith.
(9) (a) Master Services Agreement between Registrant and
Investment Company Capital Corp. with Appendices for the
provision of Transfer Agency and Accounting Services.(1)
(10) Opinion of Counsel(1)
(11) Consent of Coopers & Lybrand L.L.P., filed herewith.
(12) None.
(13) Subscription Agreements between Registrant and Investors.(1)
(14) None.
(15) (a) Distribution Plan with respect to Flag Investors Emerging
Growth Fund Class A Shares.(1)
(b) Distribution Plan with respect to Flag Investors Emerging
Growth Fund Class B Shares.(5)
(c) Amended Distribution Plan with respect to Flag Investors
Emerging Growth Fund Class A Shares, filed herewith.
(d) Amended Distribution Plan with respect to Flag Investors
Emerging Growth Fund Class B Shares, filed herewith.
C-2
<PAGE>
(16) Schedule of Computation of Performance Data (unaudited).(1)
(18) (a) Rule 18f-3 Plan.(6)
(b) Rule 18f-3 Plan, as amended through March 26, 1997.(3)
(c) Amended Rule 18f-3 Plan, filed herewith.
(24) Powers of Attorney, filed herewith.
(27) Financial Data Schedule, filed herewith.
- --------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
August 18, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
February 28, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
February 26, 1997.
(4) Incorporated herein by reference to Exhibit 1 (Articles of Incorporation)
as amended to date, filed as part of Post-Effective Amendments Nos. 10, 11
and 14, to Registrant's Registration Statement on Form N-1A (Registration
No. 33-12179) filed with the Securities and Exchange Commission via EDGAR
on August 18, 1995, February 28, 1996 and February 26, 1997, respectively,
and Exhibit 2 (By-Laws) as amended to date, filed as part of
Post-Effective Amendment No. 14 to such Registration Statement filed with
the Securities and Exchange Commission via EDGAR on February 26, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
March 25, 1996.
(6) Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
October 18, 1996.
Item 25. Persons Controlled by or under Common Control with Registrant.
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant and as to each such person
indicate (1) if a company, the state or other sovereign power under the laws of
which it is organized, and (2) the percentage of voting securities owned or
other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities.
-------------------------------
C-3
<PAGE>
State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders of each
class of securities of the Registrant.
The following information is given as of February 2, 1998.
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock Flag Investors Class A Shares 2,347
-----
Flag Investors Class B Shares 337
-----
Flag Investors Institutional Shares 93
-----
Alex. Brown Capital Advisory & Trust 14
Company Shares -----
Item 27. Indemnification.
---------------
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.
Section 17(h) of the Investment Company Act of 1940, as amended (the "1940
Act"), MD Corps. & Ass'ns Code Ann. Section 2-418 (1985 repl. vol.) and Article
VIII of Registrant's Articles of Incorporation, provide that in certain
situations the Registrant may indemnify any person who was or is a director,
officer or employee of the Registrant against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees reasonably incurred by
any such indemnified person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court or
administrative or legislative body except with respect to any matter as to which
such person shall have been finally adjudicated in any such action, suit or
other proceeding (a) not to have acted in good faith in the reasonable belief
that such person's action was in the best interests of the Registrant or (b) to
be liable to the Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such person's office. Expenses, including counsel
fees so incurred by any such person, shall be paid from time to time by the
Registrant in advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay amounts so paid to the Registrant if it is ultimately determined that
indemnification of such expenses is not authorized under the Articles of
Incorporation, provided, however, that either (a) such person shall have
provided appropriate security for such undertaking, (b) the Registrant shall be
insured against losses arising from any such advance payments or (c) either a
majority of the Directors who are not "interested persons" of the Registrant as
defined in Section 2(a)(19) of the 1940 Act acting on the matter (provided that
a majority of the Directors who are not "interested persons" then in office act
on the matter), or independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts that there is reason
to believe that such person will be found entitled to indemnification under the
Articles of Incorporation.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1940 Act and
is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling
C-4
<PAGE>
person in connection with the securities being registered) the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1940 Act
and will be governed by the final adjudication of such issue. In the absence of
a determination by a court of competent jurisdiction, the determinations that
indemnification against such liabilities is proper, and advances can be made,
are made by a majority of a quorum of the disinterested, non-party directors of
the Fund, or an independent legal counsel in a written opinion, based on review
of readily available facts.
Item 28. Business and Other Connections of Investment Advisor.
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.
During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's investment advisor, has engaged in any
other business, profession, vocation or employment of a substantial nature other
than as an officer or employee of BT Alex. Brown Incorporated (formerly Alex.
Brown & Sons Incorporated).
Item 29. Principal Underwriters
----------------------
(a) ICC Distributors, Inc. acts as distributor for BT Alex. Brown Cash
Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag
Investors International Fund, Inc., the Flag Investors Total Return
U.S. Treasury Fund Shares of Total Return U.S. Treasury Fund, Inc., the
Flag Investors Managed Municipal Fund Shares of Managed Municipal Fund,
Inc., Flag Investors Short-Intermediate Income Fund, Inc. (formerly
known as Flag Investors Intermediate-Term Income Fund, Inc.), Flag
Investors Value Builder Fund, Inc., Flag Investors Maryland
Intermediate Tax Free Income Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc. and Flag Investors Equity Partners Fund, Inc.,
all registered open-end management investment companies.
(b)
<TABLE>
<CAPTION>
Names and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- --------------------- -------------------------- ---------------
<S> <C> <C>
John Y. Keefer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Richard C. Butt Vice President None
Margaret J. Fenderson Assistant Treasurer None
Dana L. Lukens Assistant Secretary None
Nanette K. Chern Chief Compliance Officer None
</TABLE>
- --------------------
* Two Portland Square
Portland, ME 04101
(c) Not Applicable.
C-5
<PAGE>
Item 30. Location of Accounts and Records.
--------------------------------
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.
Investment Company Capital Corp. ("ICC") (Registrant's investment
advisor, transfer agent, dividend disbursing agent and accounting services
provider), One South Street, Baltimore, Maryland 21202, maintains physical
possession of each such account, book or other document of the Registrant,
except for those maintained by the Registrant's distributor, ICC
Distributors, Inc., Two Portland Square, Portland, Maine 04101, or by the
Registrant's custodian, Bankers Trust Company, 130 Liberty Street, New
York, New York, 10006.
In particular, with respect to the records required by Rule
31a-1(b)(1), ICC maintains physical possession of all journals containing
itemized daily records of all purchases and sales of securities, including sales
and redemptions of Fund securities, and Bankers Trust Company maintains physical
possession of all receipts and deliveries of securities (including certificate
numbers if such detail is not recorded by the transfer agent), all receipts and
disbursements of cash, and all other debts and credits.
Item 31. Management Services.
-------------------
Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form (because the
contract was not believed to be of interest to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom, for the last three
fiscal years.
See Exhibit 8.
C-6
<PAGE>
Item 32. Undertakings.
------------
Furnish the following undertakings in substantially the following form in
all initial Registration Statements filed under the 1933 Act:
(a) Not Applicable.
(b) Not Applicable.
(c) A copy of the Registrant's latest Annual Report to Shareholders is
available upon request, without charge by contacting Registrant at
(800) 767-3524.
C-7
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this amendment to the Registration Statement to be signed on its behalf by the
undersigned thereto duly authorized in the City of Baltimore, in the State of
Maryland, on the 25th day of February, 1998.
FLAG INVESTORS EMERGING GROWTH
FUND, INC.
By: /s/Harry Woolf
--------------
Harry Woolf
President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by the
following persons in the capacities on the date(s) indicated:
<TABLE>
<S> <C> <C>
* Chairman and Director February 25, 1998
- --------------------- -----------------
Truman T. Semans Date
* Director February 25, 1998
- --------------------- -----------------
James J. Cunnane Date
* Director February 25, 1998
- --------------------- -----------------
Richard T. Hale Date
* Director February 25, 1998
- --------------------- -----------------
John F. Kroeger Date
* Director February 25, 1998
- --------------------- -----------------
Louis E. Levy Date
* Director February 25, 1998
- --------------------- -----------------
Eugene J. McDonald Date
* Director February 25, 1998
- --------------------- -----------------
Rebecca W. Rimel Date
* Director February 25, 1998
- --------------------- -----------------
Carl W. Vogt Date
/s/Harry Woolf President February 25, 1998
- --------------------- -----------------
Harry Woolf Date
/s/ Joseph A. Finelli Chief Financial
- --------------------- and Accounting
Joseph A. Finelli Officer
* By: /s/Amy M. Olmert
----------------
Amy M. Olmert
Attorney-In-Fact
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Description Page No.
------- ----------- -------
<S> <C> <C> <C>
(1) (a) Articles of Incorporation.(1)
(1) (b) Articles of Amendment.(1)
(1) (c) Articles Supplementary.(1)
(1) (d) Articles Supplementary.(2)
(1) (e) Articles Supplementary with respect to creation of
ABCAT Shares Class.(3)
(2) By-Laws as amended through December 18, 1996.(3)
(3) None.
(4) Specimen Security with respect to Flag Investors Shares.(4)
EX-99.B. (5) Investment Advisory Agreement between Registrant and
Investment Company Capital Corp., filed herewith.
EX-99.B. (6) (a) Distribution Agreement dated as of August 31,
1997 between Registrant and ICC Distributors,
Inc., filed herewith.
EX-99.B. (6) (b) Form of Sub-Distribution Agreement between ICC
Distributors, Inc. and Participating Dealers, filed
herewith.
EX-99.B. (6) (c) Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents, filed herewith.
(7) None.
EX-99.B. (8) Form of Custodian Agreement between Registrant and
Bankers Trust Company, filed herewith.
(9) (a) Master Services Agreement between Registrant and Investment
Company Capital Corp. with Appendices for the provision of
Transfer Agency and Accounting Services.(1)
(10) Opinion of Counsel.(1)
EX-99.B. (11) Consent of Coopers & Lybrand L.L.P., filed herewith.
(12) None.
(13) Subscription Agreements between Registrant and Investors.(1)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
(14) None.
(15) (a) Distribution Plan with respect to Flag Investors Emerging
Growth Fund Class A Shares.(1)
(15) (b) Distribution Plan with respect to Flag Investors Emerging Growth
Fund Class B Shares.(4)
EX-99.B. (15) (c) Amended Distribution Plan with respect to Flag Investors Emerging Growth
Fund Class A Shares, filed herewith.
EX-99.B. (15) (d) Amended Distribution Plan with respect to Flag Investors Emerging Growth
Fund Class B Shares, filed herewith.
(16) Schedule of Computation of Performance Quotations (unaudited).(1)
(18) (a) Rule 18f-3 Plan.(6)
(b) Rule 18f-3 Plan, as amended through March 26, 1997.(3)
EX-99.B (c) Amended Rule 18f-3 Plan, filed herewith.
EX-99.B. (24) (a) Powers of Attorney, filed herewith.
EX-27 (27) Financial Data Schedule, filed herewith.
</TABLE>
- ------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
August 18, 1995.
(2) Incorporated herein by reference to Post-Effective Amendment No. 11 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
February 28, 1996.
(3) Incorporated by reference to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-21119), filed with
the Securities and Exchange Commission via EDGAR on February 26, 1997.
<PAGE>
(4) Incorporated herein by reference to Exhibit 1 (Articles of Incorporation) as
amended to date, filed as part of Post-Effective Amendments Nos. 10, 11 and
14, to Registrant's Registration Statement on Form N-1A (Registration No.
33-12179) filed with the Securities and Exchange Commission via EDGAR on
August 18, 1995, February 28, 1996 and February 26, 1997, respectively, and
Exhibit 2 (By-Laws) as amended to date, filed as part of Post-Effective
Amendment No. 14 to such Registration Statement filed with the Securities
and Exchange Commission via EDGAR on February 26, 1997.
(5) Incorporated herein by reference to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
March 25, 1996.
(6) Incorporated herein by reference to Post-Effective Amendment No. 13 to
Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR on
October 18, 1996.
<PAGE>
EX-99.B(5)
FLAG INVESTORS EMERGING GROWTH FUND, INC.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 1st day
of September, 1997 by and between FLAG INVESTORS EMERGING GROWTH FUND, INC., a
Maryland corporation (the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a
Maryland corporation (the "Advisor"), with respect to the following recital of
fact:
R E C I T A L
WHEREAS, the Fund is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended; and
WHEREAS, the Advisor is a registered investment advisor and
engages in the business of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an
agreement to provide investment advisory and administrative services for the
Fund on the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt whereof is
hereby acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints the Advisor to manage
and supervise all aspects of the investment and reinvestment of the cash,
securities or other properties comprising the Fund's assets, subject at all
times to the policies and control of the Fund's Board of Directors. The Advisor
hereby accepts such appointment and agrees to render the services herein set
forth for the compensation herein provided.
2. Delivery of Documents. The Fund has furnished or will
furnish the Advisor with copies properly certified or authenticated of each of
the following:
(a) The Fund's Articles of Incorporation, filed with the
State of Maryland on July 3, 1987 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as from time to time amended, are
herein called the "Articles");
<PAGE>
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as from time to time amended, are herein
called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration Filed Pursuant
to Section 8(a) of the Investment Company Act of 1940, as amended (the "1940
Act") on Form N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on September 8, 1987;
(e) The Fund's Registration Statement on Form N-1A under
the 1940 Act and under the Securities Act of 1933, as amended (the "1933 Act")
as filed with the SEC relating to the shares of the Fund, and all amendments
thereto; and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are herein
called "Prospectus").
The Fund will furnish the Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements to
the foregoing, if any, and all documents, notices and reports filed with the
SEC.
3. Duties of Investment Advisor. The Advisor shall give the
Fund the benefit of its best judgment, efforts and facilities in rendering its
services as Advisor. In carrying out its obligations under paragraph 1 hereof,
the Advisor shall:
(a) formulate and implement continuing programs for the
purchases and sales of securities and regularly report thereon to the Fund's
Board of Directors; and
(b) in accordance with the Fund's investment objectives,
policies and investment restrictions reflected in the Prospectus determine what
issuers and securities shall be represented in the Fund's portfolio and in what
proportion and regularly report them to the Fund's Board of Directors; and
(c) provide the Board of Directors of the Fund on a regular
basis with financial reports with respect to the Fund's Portfolio investments
and analyses of the Fund's operations and the operations of comparable
investment companies; and
(d) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data, domestic,
foreign or otherwise, whether affecting the economy generally or the portfolio
of the Fund, and whether concerning the individual issuers whose securities are
included in the Fund's portfolio or the activities in
- 2 -
<PAGE>
which they engage, or with respect to securities which the Advisor considers
desirable for inclusion in the Fund's portfolio; and
(e) take, on behalf of the Fund, all actions which appear
to the Fund necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities; and
(f) supervise and manage all aspects of the Fund's
operations; and
(g) provide the Fund with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of Directors;
and
(h) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy materials, tax returns, reports to
the Fund's shareholders and reports to and filings with the SEC and state Blue
Sky authorities; and
(i) provide the Fund with, or obtain, adequate office space
and all necessary equipment and services, including telephone service, heat,
utilities, stationery, supplies and similar items for any offices as are deemed
advisable by the Fund's Board of Directors; and
(j) be responsible for the maintenance of such accounts
books and records as may be required by law or may, in the judgment of the Board
of Directors, be appropriate for the orderly transaction of the Fund's business,
provided that, if the Fund enters into a contract with any third party for the
maintenance of any such accounts, books and records, the Advisor shall be
responsible for supervision of and coordination with such third party on behalf
of the Fund but shall not be responsible for the costs related to such contract
or for the performance of such contract by such third party; and
(k) supervise, on behalf of the Fund, the operations of the
Fund's transfer and dividend disbursing agent.
4. Broker-Dealer Relationships. The Advisor is responsible for
decisions to buy and sell securities for the Fund, broker-dealer selection, and
negotiation of its brokerage commission rates. In performing this function the
Advisor shall comply with applicable policies established by the Board of
Directors and shall provide the Board of Directors with such reports as the
Board of Directors may require in order to monitor the Fund's portfolio
transaction activities.
The Advisor's primary consideration in effecting securities
transactions will be to obtain best price and execution of orders on an overall
basis. Accordingly, the Advisor will take into consideration in executing
individual transactions the net price available. However, the Advisor may also
take into consideration other factors as discussed below.
- 3 -
<PAGE>
The Advisor will take into consideration the ability of the
broker-dealer to meet the Fund's portfolio transaction execution needs on a
continuing basis. Accordingly, the Advisor will consider the reliability,
integrity and financial condition of the broker-dealer, the size of and
difficulty in executing the particular order and the general ability of the
broker-dealer to execute the Fund's transactions reliably and promptly. To the
extent that the executions and prices offered by more than one broker-dealer are
comparable, the Advisor may, in its discretion, effect transactions with
broker-dealers that furnish statistical, research or other information or
services which are deemed by the Advisor to be beneficial to the Fund's
investment program. Accordingly, the Advisor shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of its having caused the Fund to pay a broker or dealer an
amount of commission for effecting a portfolio investment transaction in excess
of the amount of commission another broker or dealer would have charged for
effecting that transaction, if the Advisor determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer, viewed in terms of
either that particular transaction or the Advisor's overall responsibilities
with respect to the Fund.
Consistent with the Conduct Rules of the National Association
of Securities Dealers, Inc., and subject to seeking the most favorable price and
execution available and such other policies as the Directors may determine, the
Advisor may consider services in connection with the sale of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other account of the
Advisor is considered at or about the same time, transactions in such securities
will be allocated among the accounts in a manner deemed equitable by the
Advisor. Alex. Brown may combine such transactions, in accordance with
applicable laws and regulations, in order to obtain the best net price and most
favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with respect
to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Board of Directors. Any management or
supervisory activities undertaken by the Advisor pursuant to this Agreement, as
well as any other activities
- 4 -
<PAGE>
undertaken by the Advisor on behalf of the Fund pursuant thereto, shall at all
times be subject to any directives of the Board of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules
and regulations adopted thereunder as amended; and
(b) the provisions of the Registration Statement of the
Fund under the 1933 Act and the 1940 Act and any rules and regulations adopted
thereunder as amended; and
(c) the provisions of the Fund's Articles of Incorporation;
and
(d) the provisions of the By-laws of the Fund, as amended;
and
(e) any other applicable provisions of state and federal
law and applicable rules of any registered national securities organization.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without cost to the
Fund (except as provided in paragraph 8 hereof), the services of such officers
and employees as may be required by the Fund for the proper conduct of its
affairs; travel expenses of employees and officers of the Advisor; office space,
equipment, research services and supplies; expenses of maintaining accounts,
books, and records, except to the extent such services are provided by a third
party pursuant to a contract with the Fund.
(b) The Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: the fees of the
Advisor, any sub-advisor and Alex. Brown; the charges and expenses of any
registrar, any custodian appointed by the Fund for the safekeeping of its cash,
portfolio securities and other property, and any stock transfer, dividend or
accounting agent or agents appointed by the Fund and any accounting services
provider appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and corporate fees
payable by the Fund to Federal, State or other governmental agencies; the cost
and expense of engraving or printing of stock certificates representing shares
of the Fund; all costs and expenses in connection with maintenance of
registration of the Fund and its shares with the SEC and various states and
other jurisdictions (including filing fees and legal fees and disbursements of
counsel); except as provided in subparagraph (a) above, the expenses of
printing, including typesetting, and distributing prospectuses of the Fund and
supplements thereto
- 5 -
<PAGE>
to the Fund's shareholders; all expenses of shareholders' and directors'
meetings and of preparing, printing and mailing of proxy statements and reports
to shareholders; fees and travel expenses of Directors or members of any
advisory board or committee other than such Directors or members who are
"interested persons" within the meaning of Section 2(a)(19) of the 1940 Act; all
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund, and of independent
accountants, in connection with any matter relating to the Fund; membership dues
of industry associations; interest payable on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and directors)
of the Fund which inure to its benefit; extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. The Advisor may, but shall
be under no duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Advisor's charge
in rendering such services may be billed monthly to the Fund, subject to
examination by the Fund's independent accountants. Payment or assumption by the
Advisor of any Fund expense that the Advisor is not required to pay or assume
under this Agreement shall not relieve the Advisor of any of its obligations to
the Fund nor obligate the Advisor to pay or assume any similar Fund expense on
any subsequent occasions. The Advisor may, with the approval of the majority of
the Fund's Directors who are not "interested persons" of the Fund, appoint a
Sub-Advisor for the Fund. Such Sub-Advisor shall be paid by the Advisor.
9. Compensation. For the services to be rendered and the
expenses assumed by the Advisor, the Fund shall pay to the Advisor compensation
at an annual rate of .85% of the Fund's average daily net assets; provided that,
if necessary, the Advisor's annual compensation will be reduced so that the
Fund's total expenses for that year do not exceed 1.50% of the Fund's average
daily net assets. Except as hereinafter set forth, compensation under this
Agreement shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly. If this Agreement becomes effective subsequent
to the first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Advisor's compensation for the preceding month shall be
made as promptly as possible.
10. Non-Exclusivity. The services of the Advisor to the Fund
are not to be deemed to be exclusive, and the Advisor shall be free to render
investment advisory and other services to others (including other investment
companies) and to engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that officers or
directors of the Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve as officers or directors of the
Advisor to the extent permitted
- 6 -
<PAGE>
by law; and that the officers and directors of the Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers or directors of any other
firm or corporation, including other investment companies.
11. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall continue in force and
effect for an initial term of two years and from year to year thereafter,
provided that such continuance is specifically approved at least annually:
(a) (i) by the Fund's Board of Directors or (ii) by the
vote of the holders of a majority of the outstanding voting securities (as
defined in Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors
who are not parties to this Agreement or interested persons (as defined in the
1940 Act) of a party to this Agreement (other than as Fund Directors), by votes
cast in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time,
on sixty (60) days' written notice to the other party, without the payment of
any penalty, by vote of the Fund's Board of Directors or by vote of the holders
of a majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), or by the Advisor. The notice provided for herein may
be waived by either party. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" having the meaning defined in
Section 2(a)(4) of the 1940 Act.
13. Liability.
(a) In the performance of its duties hereunder, the Advisor
shall be obligated to exercise care and diligence and to act in good faith and
to use its best efforts within reasonable limits in performing all services
provided for under this Agreement, but the Advisor shall not be liable for any
act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of the Advisor or its officers, directors or
employees, or reckless disregard by the Advisor of its duties under this
Agreement.
(b) The Advisor agrees that any claims by it against the
Fund may be satisfied only from the assets of the Fund, and no shareholders,
Directors or officers of the Fund may be held personally liable or responsible
for any obligations arising out of this Agreement.
14. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
- 7 -
<PAGE>
15. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act, shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the Securities and Exchange Commission issued pursuant to said Act. In
addition, where the effect of a requirement of the 1940 Act, reflected in any
provision of this Agreement is revised by rule, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers as of the day
and year first above written.
[SEAL] FLAG INVESTORS EMERGING GROWTH
FUND, INC.
Attest: /s/ Amy M. Olmert By: /s/ Harry Woolf
----------------- ----------------------
Amy M. Olmert Name: Harry Woolf
Title: President
[SEAL] INVESTMENT COMPANY CAPITAL
CORP.
Attest: /s/ Amy M. Olmert By: /s/ Edward J. Veilleux
----------------- -----------------------------------
Amy M. Olmert Name: Edward J. Veilleux
Title: Executive Vice President
- 8 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 31st day of August, 1997, by and between Flag
Investors Emerging Growth Fund, Inc., with its principal office and place of
business at One South Street, Baltimore, Maryland 21202 (the "Fund"), and ICC
Distributors, Inc., a Delaware corporation with its principal office and place
of business at Two Portland Square, Portland, Maine 04101 (the "Distributor").
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment company, may
issue its shares of common stock (the "Shares") in separate series and classes
and continuously offers for sale its Shares to the public; and
WHEREAS, the Distributor is registered under the Securities Exchange Act of
1934, as amended ("1934 Act"), as a broker-dealer and is engaged in the business
of selling shares of registered investment companies either directly to
purchasers or through other securities dealers;
WHEREAS, the Fund offers Shares in one or more series as listed in Appendix
A hereto (each such series, together with all other series subsequently
established by the Fund and made subject to this Agreement in accordance with
Section 16, being herein referred to as a "Series," and collectively as the
"Series") and the Fund offers shares of one or more classes (each such class
together with all other classes subsequently established by a Series being
herein referred to as a "Class," and collectively as the "Classes");
WHEREAS, the Fund desires that the Distributor offer the Shares of each
Series and Class thereof to the public and the Distributor is willing to provide
those services on the terms and conditions set forth in this Agreement in order
to promote the growth of the Fund and facilitate the distribution of the Shares;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, the Fund and the Distributor hereby agree as
follows:
SECTION 1. DELIVERY OF DOCUMENTS AND APPOINTMENT
(a) The Fund has delivered to the Distributor properly certified or
authenticated copies of its Articles of Incorporation and Bylaws (collectively,
as amended from time to time, "Organic Documents"), the Fund's Notification of
Registration filed with the U.S. Securities and Exchange Commission ("SEC")
pursuant to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act,
- 1 -
<PAGE>
the Fund's Registration Statement and all amendments thereto filed with the SEC
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or
the 1940 Act (the "Registration Statement") and its current Prospectuses and
Statements of Additional Information (collectively, as currently in effect and
as amended or supplemented, the "Prospectus") and shall promptly furnish the
Distributor with all amendments of or supplements to the foregoing, each
properly certified or authenticated. In addition, the Fund shall furnish the
Distributor with properly certified or authenticated copies of all documents,
notices and reports filed with the SEC.
(b) The Fund has delivered to the Distributor certified copies of the
resolutions of the Board of Directors (the "Board") authorizing the appointment
of the Distributor as distributor and approving this Agreement.
(b) The Fund hereby appoints the Distributor as its principal underwriter
and distributor to sell its Shares to the public and hereby agrees during the
term of this Agreement to sell its Shares to the Distributor upon the terms and
conditions herein set forth.
SECTION 2. EXCLUSIVE NATURE OF DUTIES
The Distributor shall be the exclusive representative of the Fund to act as
its principal underwriter and distributor except that the rights given under
this Agreement to the Distributor shall not apply to Shares issued in connection
with the merger, consolidation or reorganization of any other investment company
with the Fund; the Fund's acquisition by purchase or otherwise of all or
substantially all of the assets or stock of any other investment company; or the
reinvestment in Shares by the Fund's shareholders of dividends or other
distributions or any other offering by the Fund of securities to its
shareholders.
SECTION 3. PURCHASE OF SHARES; OFFERING OF SHARES
(a) The Distributor shall have the right to buy from the Fund the Shares
needed to fill unconditional orders for unsold Shares of the Fund as shall then
be effectively registered under the Securities Act placed with the Distributor
by investors or securities dealers or depository institutions or other financial
intermediaries acting as agent for their customers or on their own behalf.
Alternatively, the Distributor may act as the Fund's agent, to offer, and to
solicit offers to subscribe to, unsold Shares of the Fund as shall then be
effectively registered under the Securities Act. The Distributor will promptly
forward all orders and subscriptions for Shares of the Fund. The price which the
Distributor shall pay for Shares purchased by it from the Fund shall be the net
asset value, determined as set forth in Section 3(c) hereof, used in determining
the public offering price on which the orders are based. The price at which the
Distributor shall offer and sell Shares to investors shall be the public
offering price, as set forth in Section 3(b) hereof. The Distributor may sell
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<PAGE>
Shares to securities dealers, depository institutions or other financial
intermediaries acting as agent for their customers that have entered into
agreements with the Distributor pursuant to Section 9 hereof or acting on their
own behalf. The Fund reserves the right to sell its Shares directly to investors
through subscriptions received by the Fund, but no such direct sales shall
affect the sales charges due to the Distributor hereunder.
(b) The public offering price of the Shares of the Fund, i.e., the price
per Share at which the Distributor or selected dealers or selected agents (each
as defined in Section 11 hereof) may sell Shares to the public or to those
persons eligible to invest in Shares as described in the Fund's Prospectus,
shall be the public offering price determined in accordance with the then
currently effective Prospectus of the Fund or Class thereof under the Securities
Act, relating to such Shares, but not to exceed the net asset value at which the
Distributor, when acting as principal, is to purchase such Shares, plus, in the
case of Shares for which an initial sales charge is assessed, an initial charge
equal to a specified percentage or percentages of the public offering price of
the Shares as set forth in the current Prospectus relating to the Shares. In the
case of Shares for which an initial sales charge may be assessed, Shares may be
sold to certain classes of persons at reduced sales charges or without any sales
charge as from time to time set forth in the current Prospectus relating to the
Shares. The Fund will advise the Distributor of the net asset value per Share at
each time as the net asset value per Share shall have been determined by the
Fund.
(c) The net asset value per Share of each Series or Class thereof shall be
determined by the Fund, or an agent of the Fund, as of the close of the New York
Stock Exchange or such other time as set forth in the applicable Prospectus on
the Fund business day in accordance with the method set forth in the Prospectus
and guidelines established by the Board.
(d) The Fund reserves the right to suspend the offering of Shares of any
Class at any time in the absolute discretion of the Board, and upon notice of
such suspension the Distributor shall cease to offer Shares of the Fund or
Classes thereof specified in the notice.
(e) The Fund, or any agent of the Fund designated in writing to the
Distributor by the Fund, shall be promptly advised by the Distributor of all
purchase orders for Shares received by the Distributor and all subscriptions for
Shares obtained by the Distributor as agent shall be directed to the Fund for
acceptance and shall not be binding until accepted by the Fund. Any order or
subscription may be rejected by the Fund; provided, however, that the Fund will
not arbitrarily or without reasonable cause refuse to accept or confirm orders
or subscriptions for the purchase of Shares. The Fund (or its agent) will
confirm orders and subscriptions upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment thereof, will
issue such Shares in certificated or uncertificated form pursuant to the
instructions of the Distributor. The Distributor agrees to cause such payment
and such instructions to be delivered promptly to the Fund (or its agent).
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<PAGE>
SECTION 4. REPURCHASE OR REDEMPTION OF SHARES
(a) Any of the outstanding Shares of the Fund may be tendered for
redemption at any time, and the Fund agrees to redeem or repurchase the Shares
so tendered in accordance with its obligations as set forth in the Fund's
Organic Documents and the Prospectus relating to the Shares. The price to be
paid to redeem or repurchase the Shares of the Fund shall be equal to the net
asset value calculated in accordance with the provisions of Section 3(b) hereof
less, in the case of Shares for which a deferred sales charge is assessed, a
deferred sales charge equal to a specified percentage or percentages of the net
asset value of those Shares as from time to time set forth in the Prospectus
relating to those Shares or their cost, whichever is less. Shares for which a
deferred sales charge may be assessed and that have been outstanding for a
specified period of time may be redeemed without payment of a deferred sales
charge as from time to time set forth in the Prospectus relating to those
Shares.
(b) The Fund or its designated agent shall pay (i) the total amount of the
redemption price consisting of the redemption price less any applicable deferred
sales charge to the redeeming shareholder or its agent and (ii) except as may be
otherwise required by the Conduct Rules (the "Rules") of the National
Association of Securities Dealers, Inc. (the "NASD") and any interpretations
thereof, any applicable deferred sales charges to the Distributor in accordance
with the Distributor's instructions on or before the third business day
subsequent to each calendar month-end.
(c) Redemption of Shares or payment therefor may be suspended at times when
the New York Stock Exchange is closed for any reason other than its customary
weekend or holiday closings, when trading thereon is restricted, when an
emergency exists as a result of which disposal by the Fund of securities owned
by the Fund is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the SEC so permits.
SECTION 5. DUTIES AND REPRESENTATIONS OF THE DISTRIBUTOR
(a) The Distributor shall use reasonable efforts to sell Shares of the Fund
upon the terms and conditions contained herein and in the then current
Prospectus. The Distributor shall devote reasonable time and effort to effect
sales of Shares but shall not be obligated to sell any specific number of
Shares. The services of the Distributor to the Fund hereunder are not to be
deemed exclusive, and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long as
the performance of its obligations hereunder is not impaired thereby.
-4-
<PAGE>
(b) In selling Shares of the Fund, the Distributor shall use its best
efforts in all material respects duly to conform with the requirements of all
federal and state laws relating to the sale of the Shares. None of the
Distributor, any selected dealer, any selected agent or any other person is
authorized by the Fund to give any information or to make any representations
other than as is contained in the Fund's Prospectus or any advertising materials
or sales literature specifically approved in writing by the Fund or its agents.
(c) The Distributor shall adopt and follow procedures for the confirmation
of sales to investors and selected dealers or selected agents, the collection of
amounts payable by investors and selected dealers or selected agents on such
sales, and the cancellation of unsettled transactions, as may be necessary to
comply with the requirements of the NASD and any other applicable
self-regulatory organization.
(d) The Distributor will perform its duties hereunder under the supervision
of and in accordance with the directives of the Board. The Distributor will
perform its duties hereunder in accordance with the Fund's Organic Documents and
Prospectuses and with the instructions and directions of the Board and will
conform to and comply with the requirements of the 1940 Act, the Securities Act
and other applicable laws.
(e) The Distributor shall provide the Board with a written report of the
amounts expended in connection with this Agreement as requested by the Board.
(f) The Distributor represents and warrants to the Fund that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware and it is duly
qualified to carry on its business in the State of Maine;
(ii) It is empowered under applicable laws and by its Articles of
Incorporation to enter into and perform this Agreement;
(iii) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(iv) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(v) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Distributor, enforceable
against the Distributor in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
secured parties;
- 5 -
<PAGE>
(vi) It is registered under the 1934 Act with the SEC as a broker-
dealer, it is a member in good standing of the NASD, it will abide by
the rules and regulations of the NASD, and it will notify the Fund if
its membership in the NASD is terminated or suspended; and
(vii) The performance by the Distributor of its obligations hereunder
does not and will not contravene any provision of its Articles of
Incorporation.
(g) Notwithstanding anything in this Agreement, including the Appendices,
to the contrary, the Distributor makes no warranty or representation as to the
number of selected dealers or selected agents with which it has entered into
agreements in accordance with Section 11 hereof, as to the availability of any
Shares to be sold through any selected dealer, selected agent or other
intermediary or as to any other matter not specifically set forth herein.
SECTION 6. DUTIES AND REPRESENTATIONS OF THE FUND
(a) The Fund shall furnish to the Distributor copies of all financial
statements and other documents to be delivered to shareholders or investors at
least two Fund business days prior to such delivery and shall furnish the
Distributor copies of all other financial statements, documents and other papers
or information which the Distributor may reasonably request for use in
connection with the distribution of Shares. The Fund shall make available to the
Distributor the number of copies of its Prospectuses as the Distributor shall
reasonably request.
(b) The Fund shall take, from time to time, subject to the approval of its
Board and any required approval of its shareholders, all action necessary to fix
the number of authorized Shares (if such number is not limited) and to register
the Shares under the Securities Act, to the end that there will be available for
sale the number of Shares as reasonably may be expected to be sold pursuant to
this Agreement.
(c) The Fund shall register or qualify its Shares for sale under the
securities laws of the various states of the United States and other
jurisdictions ("States") as the Fund, in its sole discretion shall determine.
Any registration or qualification may be withheld, terminated or withdrawn by
the Fund at any time in its discretion. The Distributor shall furnish such
information and other material relating to its affairs and activities as may be
required by the Fund in connection with such registration or qualification.
-6-
<PAGE>
(d) The Fund represents and warrants to the Distributor that:
(i) It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland;
(ii) It is empowered under applicable laws and by its Organic Documents
to enter into and perform this Agreement;
(iii) All proceedings required by the Organic Documents have been taken
to authorize it to enter into and perform its duties under this
Agreement;
(iv) It is registered as an open-end management investment company with
the SEC under the 1940 Act;
(v) All Shares, when issued, shall be validly issued, fully and
non-assessable;
(vi) This Agreement, when executed and delivered, will constitute a
legal, valid and binding obligation of the Fund, enforceable against
the Fund in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured
parties;
(vii) The performance by the Fund of its obligations hereunder does not
and will not contravene any provision of its Articles of Incorporation.
(viii) The Fund's Registration Statement is currently effective and
will remain effective with respect to all Shares of the Fund's Series
and Classes thereof being offered for sale;
(ix) It will use its best efforts to ensure that its Registration
Statement and Prospectuses have been or will be, as the case may be,
carefully prepared in conformity with the requirements of the
Securities Act and the rules and regulations thereunder;
(x) It will use its best efforts to ensure that (A) its Registration
Statement and Prospectuses contain or will contain all statements
required to be stated therein in accordance with the Securities Act and
the rules and regulations thereunder, (B) all statements of fact
contained or to be contained in the Registration Statement or
Prospectuses are or will be true and correct at the time indicated or
on the effective date as the case may be and (C) neither the
Registration Statement nor any Prospectus, when they shall become
effective or be authorized for use, will include an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of Shares;
- 7 -
<PAGE>
(xi) It will from time to time file such amendment or amendments to its
Registration Statement and Prospectuses as, in the light of then-
current and then-prospective developments, shall, in the opinion of its
counsel, be necessary in order to have the Registration Statement and
Prospectuses at all times contain all material facts required to be
stated therein or necessary to make any statements therein not
misleading to a purchaser of Shares ("Required Amendments");
(xii) It shall not file any amendment to its Registration Statement or
Prospectuses without giving the Distributor reasonable advance notice
thereof (which shall be at least three Fund business days); provided,
however, that nothing contained in this Agreement shall in any way
limit the Fund's right to file at any time such amendments to its
Registration Statement or Prospectuses, of whatever character, as the
Fund may deem advisable, such right being in all respects absolute and
unconditional; and
(xiii) It will use its best efforts to ensure that (A) any amendment to
its Registration Statement or Prospectuses hereafter filed will, when
it becomes effective, contain all statements required to be stated
therein in accordance with the 1940 Act and the rules and regulations
thereunder, (B) all statements of fact contained in the Registration
Statement or Prospectuses will, when it becomes effective, be true and
correct at the time indicated or on the effective date as the case may
be and (C) no such amendment, when it becomes effective, will include
an untrue statement of a material fact or will omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Shares.
SECTION 7. STANDARD OF CARE
(a) The Distributor shall use its best judgment and efforts in rendering
services to the Fund under this Agreement but shall be under no duty to take any
action except as specifically set forth herein or as may be specifically agreed
to by the Distributor in writing. The Distributor shall not be liable to the
Fund or any of the Fund's shareholders for any error of judgment or mistake of
law, for any loss arising out of any investment, or for any action or inaction
of the Distributor in the absence of bad faith, willful misfeasance or gross
negligence in the performance of the Distributor's duties or obligations under
this Agreement or by reason of the Distributor's reckless disregard of its
duties and obligations under this Agreement
(b) The Distributor shall not be liable to the Fund for any action taken or
failure to act in good faith reliance upon:
-8-
<PAGE>
(i) the advice of the Fund or of counsel, who may be counsel to the
Fund or counsel to the Distributor;
(ii) any oral instruction which the Distributor receives and which it
reasonably believes in good faith was transmitted by the person or
persons authorized by the Board to give such oral instruction (the
Distributor shall have no duty or obligation to make any inquiry or
effort of certification of such oral instruction);
(iii) any written instruction or certified copy of any resolution of
the Board, and the Distributor may rely upon the genuineness of any
such document or copy thereof reasonably believed in good faith by the
Distributor to have been validly executed; or
(iv) any signature, instruction, request, letter of transmittal,
certificate, opinion of counsel, statement, instrument, report, notice,
consent, order, or other document reasonably believed in good faith by
the Distributor to be genuine and to have been signed or presented by
the Fund or other proper party or parties;
and the Distributor shall not be under any duty or obligation to inquire into
the validity or invalidity or authority or lack thereof of any statement, oral
or written instruction, resolution, signature, request, letter of transmittal,
certificate, opinion of counsel, instrument, report, notice, consent, order, or
any other document or instrument which the Distributor reasonably believes in
good faith to be genuine.
(c) The Distributor shall not be responsible or liable for any failure or
delay in performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable control
including, without limitation, acts of civil or military authority, national
emergencies, labor difficulties (other than those related to the Distributor's
employees), fire, mechanical breakdowns, flood or catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply. In addition, to the extent the Distributor's obligations
hereunder are to oversee or monitor the activities of third parties, the
Distributor shall not be liable for any failure or delay in the performance of
the Distributor's duties caused, directly or indirectly, by the failure or delay
of such third parties in performing their respective duties or cooperating
reasonably and in a timely manner with the Distributor.
- 9 -
<PAGE>
SECTION 8. INDEMNIFICATION
(a) The Fund will indemnify, defend and hold the Distributor, its
employees, agents, directors and officers and any person who controls the
Distributor within the meaning of section 15 of the Securities Act or section 20
of the 1934 Act ("Distributor Indemnitees") free and harmless from and against
any and all claims, demands, actions, suits, judgments, liabilities, losses,
damages, costs, charges, reasonable counsel fees and other expenses of every
nature and character (including the cost of investigating or defending such
claims, demands, actions, suits or liabilities and any reasonable counsel fees
incurred in connection therewith) which any Distributor Indemnitee may incur,
under the Securities Act, under the securities laws of the various States or
under common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Fund's Registration Statement or
Prospectuses, arising out of or based upon any alleged omission to state a
material fact required to be stated in any one thereof or necessary to make the
statements in any one thereof not misleading, or arising out of or based upon
any filing made with the regulatory authorities of any State unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished in writing to the Fund in connection with the preparation
of the Registration Statement, exhibits to the Registration Statement or filings
made with the regulatory authorities of any State by or on behalf of the
Distributor ("Distributor Claims").
After receipt of the Distributor's notice of termination under Section
13(e), the Fund shall indemnify and hold each Distributor Indemnitee free and
harmless from and against any Distributor Claim; provided, that the term
Distributor Claim for purposes of this sentence shall mean any Distributor Claim
related to the matters for which the Distributor has requested amendment to the
Fund's Registration Statement and for which the Fund has not filed a Required
Amendment, regardless of with respect to such matters whether any statement in
or omission from the Registration Statement was made in reliance upon, or in
conformity with, information furnished to the Fund by or on behalf of the
Distributor.
(b) The Fund may assume the defense of any suit brought to enforce any
Distributor Claim and may retain counsel of good standing chosen by the Fund and
approved by the Distributor, which approval shall not be withheld unreasonably.
The Fund shall advise the Distributor that it will assume the defense of the
suit and retain counsel within ten (10) days of receipt of the notice of the
claim. If the Fund assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Fund does not assume the defense of any such suit, or if
Distributor does not approve of counsel chosen by the Fund or has been advised
that it may have available defenses or claims that are not available to or
conflict with those available to the Fund, the Fund will reimburse any
Distributor Indemnitee named as defendant in such suit for the reasonable fees
and expenses of any counsel that person retains. A Distributor
-10-
<PAGE>
Indemnitee shall not settle or confess any claim without the prior written
consent of the Fund, which consent shall not be unreasonably withheld or
delayed.
(c) The Distributor will indemnify, defend and hold the Fund and its
several officers and directors (collectively, the "Fund Indemnitees"), free and
harmless from and against any and all claims, demands, actions, suits,
judgments, liabilities, losses, damages, costs, charges, reasonable counsel fees
and other expenses of every nature and character (including the cost of
investigating or defending such claims, demands, actions, suits or liabilities
and any reasonable counsel fees incurred in connection therewith), but only to
the extent that such claims, demands, actions, suits, judgments, liabilities,
losses, damages, costs, charges, reasonable counsel fees and other expenses
result from, arise out of or are based upon:
(i) any alleged untrue statement of a material fact contained in the
Fund's Registration Statement or Prospectus or any alleged omission of
a material fact required to be stated or necessary to make the
statements therein not misleading, if such statement or omission was
made in reliance upon, and in conformity with, information furnished to
the Fund in writing in connection with the preparation of the
Registration Statement or Prospectus by or on behalf of the
Distributor; or
(ii) any act of, or omission by, Distributor or its sales
representatives that does not conform to the standard of care set forth
in Section 7 of this Agreement (collectively, "Fund Claims").
(d) The Distributor may assume the defense of any suit brought to enforce
any Fund Claim and may retain counsel of good standing chosen by the Distributor
and approved by the Fund, which approval shall not be withheld unreasonably. The
Distributor shall advise the Fund that it will assume the defense of the suit
and retain counsel within ten (10) days of receipt of the notice of the claim.
If the Distributor assumes the defense of any such suit and retains counsel, the
defendants shall bear the fees and expenses of any additional counsel that they
retain. If the Distributor does not assume the defense of any such suit, or if
the Fund does not approve of counsel chosen by the Distributor or has been
advised that it may have available defenses or claims that are not available to
or conflict with those available to the Distributor, the Distributor will
reimburse any Fund Indemnitee named as defendant in such suit for the reasonable
fees and expenses of any counsel that person retains. A Fund Indemnitee shall
not settle or confess any claim without the prior written consent of the
Distributor, which consent shall not be unreasonably withheld or delayed.
(e) The Fund's and the Distributor's obligations to provide indemnification
under this Section is conditioned upon the Fund or the Distributor receiving
notice of any action brought against a Distributor Indemnitee or Fund
Indemnitee, respectively, by the person against whom such action is brought
within twenty (20) days after the summons or other first legal process is
served. Such notice shall refer to the person or persons against whom the action
is brought. The failure to
- 11 -
<PAGE>
provide such notice shall not relieve the party entitled to such notice of any
liability that it may have to any Distributor Indemnitee or Fund Indemnitee
except to the extent that the ability of the party entitled to such notice to
defend such action has been materially adversely affected by the failure to
provide notice.
(f) The provisions of this Section and the parties' representations and
warranties in this Agreement shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Distributor
Indemnitee or Fund Indemnitee and shall survive the sale and redemption of any
Shares made pursuant to subscriptions obtained by the Distributor. The
indemnification provisions of this Section will inure exclusively to the benefit
of each person that may be a Distributor Indemnitee or Fund Indemnitee at any
time and their respective successors and assigns (it being intended that such
persons be deemed to be third party beneficiaries under this Agreement).
(g) The Distributor agrees promptly to notify the Fund of the commencement
of any litigation or proceeding of which it becomes aware arising out of or in
any way connected with the issuance or sale of Shares. The Fund agrees promptly
to notify the Distributor of the commencement of any litigation or proceeding of
which it becomes aware arising out of or in any way connected with the issuance
or sale of its Shares.
(h) Nothing contained herein shall require the Fund to take any action
contrary to any provision of its Organic Documents or any applicable statute or
regulation or shall require the Distributor to take any action contrary to any
provision of its Articles of Incorporation or Bylaws or any applicable statute
or regulation; provided, however, that neither the Fund nor the Distributor may
amend their Organic Documents or Articles of Incorporation and Bylaws,
respectively, in any manner that would result in a violation of a representation
or warranty made in this Agreement, except if required by any applicable statute
or regulation.
(i) Nothing contained in this section shall be construed to protect the
Distributor against any liability to the Fund or the security holders of the
Fund to which the Distributor would otherwise be subject by reason of its
failure to satisfy the standard of care set forth in Section 7 of this
Agreement.
-12-
<PAGE>
SECTION 9. NOTIFICATION TO THE DISTRIBUTOR
The Fund shall advise the Distributor immediately: (i) of any request by
the SEC for amendments to the Fund's Registration Statement or Prospectus or for
additional information; (ii) in the event of the issuance by the SEC of any stop
order suspending the effectiveness of the Fund's Registration Statement or any
Prospectus or the initiation of any proceedings for that purpose; (iii) of the
happening of any material event which makes untrue any statement made in the
Fund's then current Registration Statement or Prospectus or which requires the
making of a change in either thereof in order to make the statements therein not
misleading; and (iv) of all action of the SEC with respect to any amendments to
the Fund's Registration Statement or Prospectus which may from time to time be
filed with the Commission under the 1940 Act or the Securities Act.
SECTION 10. COMPENSATION; EXPENSES
(a) In consideration of the Distributor's services in connection with the
distribution of Shares of the Fund and each Class thereof, the Distributor shall
receive: (i) any applicable sales charge assessed upon investors in connection
with the purchase of Shares; (ii) from the Fund, any applicable contingent
deferred sales charge ("CDSC") assessed upon investors in connection with the
redemption of Shares; (iii) from the Fund, the distribution service fees with
respect to the Shares of those Classes as designated in Appendix A for which a
plan under Rule 12b-1 under the 1940 Act (a "Plan") is effective (the
"Distribution Fee"); and (iv) from the Fund, the shareholder service fees with
respect to the Shares of those Classes as designated in Appendix A (the "Service
Fee"). The Distribution Fee and Service Fee shall be accrued daily by each
applicable Fund or Class thereof and shall be paid monthly as promptly as
possible after the last day of each calendar month but in any event on or before
the fifth (5th) Fund business day after month-end, at the rate or in the amounts
set forth in Appendix A and, as applicable, the Plan(s). The Fund grants and
transfers to the Distributor a general unperfected lien and security interest in
any and all securities and other assets of the Fund now or hereafter maintained
in an account at the Fund's custodian on behalf of the Fund to secure any
Distribution Fees and Service Fees owed the Distributor by the Fund under this
Agreement.
(b) The Fund shall cause its transfer agent (the "Transfer Agent") to
withhold, from redemption proceeds payable to holders of Shares of the Series
and the Classes thereof, all CDSCs properly payable by the shareholders in
accordance with the terms of the applicable Prospectus and shall cause the
Transfer Agent to pay such amounts over to the Distributor as promptly as
possible after each month end.
(c) Except as specified in Sections 8 and 10(a), the Distributor shall be
entitled to no compensation or reimbursement of expenses for the services
provided by the Distributor pursuant to this Agreement. The Distributor may
receive compensation from the Fund's investment advisors, other service
providers or their respective affiliates (collectively, the "Advisor") for its
services
- 13 -
<PAGE>
hereunder or for additional services all as may be agreed to between the Advisor
and the Distributor. Notwithstanding anything in this Agreement to the contrary,
to the extent the Distributor receives compensation from the Advisor that is
disclosed to the Board, the Fund will indemnify, defend and hold each
Distributor Indemnitees free and harmless from and against any and all claims,
demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, reasonable counsel fees and other expenses of every nature and
character (including the cost of investigating or defending such claims,
demands, actions, suits or liabilities and any reasonable counsel fees incurred
in connection therewith) related in any way to such payment.
(d) The Fund shall be responsible and assumes the obligation for payment of
all its expenses, including fees and disbursements of its counsel and auditors,
in connection with the preparation and filing of the Registration Statement and
Prospectuses (including but not limited to the expense of setting in type the
Registration Statement and Prospectuses and printing sufficient quantities for
internal compliance, regulatory purposes and for distribution to current
shareholders).
(e) The Fund shall bear the cost and expenses (i) of the registration of
its Shares for sale under the Securities Act; (ii) of the registration or
qualification of its Shares for sale under the securities laws of the various
States; (iii) if necessary or advisable in connection therewith, of qualifying
the Fund, or its Series or the Classes thereof (but not the Distributor) as an
issuer or as a broker or dealer, in such States as shall be selected by the
Fund; and (iv) payable to each State for continuing registration or
qualification therein until the Fund decides to discontinue registration or
qualification. The Distributor shall pay all expenses relating to the
Distributor's broker-dealer qualification.
SECTION 11. SELECTED DEALER AND SELECTED AGENT AGREEMENTS
(a) The Distributor shall have the right to enter into sub-distribution
agreements with securities dealers of its choice ("selected dealers") and with
depository institutions and other financial intermediaries of its choice
("selected agents") for the sale of Shares and to fix therein the portion of the
sales charge, if any, that may be allocated to the selected dealers or selected
agents; provided, that all such agreements shall be in substantially the form of
agreement as set forth in Appendix B hereto. Shares of each Series or Class
thereof shall be resold by selected dealers or selected agents only at the
public offering price(s) set forth in the Prospectus relating to the Shares. The
Distributor shall offer and sell Shares of the Fund only to such selected
dealers as are members in good standing of the NASD. The Distributor shall have
the right to enter into shareholder servicing agreements with financial
intermediaries of its choice; provided, that all such agreements shall be in
substantially the form of agreement as set forth in Appendix C hereto.
-14-
<PAGE>
(b) The Distributor will supervise the Fund's relationship with selected
dealers and agents and may make payments to those selected dealers and agents in
such amounts as the Distributor may determine from time to time in its sole
discretion. The amount of payments to selected dealers and agents by the
Distributor may be reviewed by the Board from time to time; provided, however,
that no payment by the Distributor to any selected dealer or agent with respect
to a Share shall exceed the amount of payments made to the Distributor hereunder
with respect to that Share.
SECTION 12. CONFIDENTIALITY
The Distributor agrees to treat all records and other information related
to the Fund as proprietary information of the Fund and, on behalf of itself and
its employees, to keep confidential all such information, except that the
Distributor may:
(i) prepare or assist in the preparation of periodic reports to\
shareholders and regulatory bodies such as the SEC;
(ii) provide information typically supplied in the investment company
industry to companies that track or report price, performance or other
information regarding investment companies; and
(iii) release such other information as approved in writing by the
Fund, which approval shall not be unreasonably withheld;
provided, however, that the Distributor may release any information regarding
the Fund without the consent of the Fund if the Distributor reasonably believes
that it may be exposed to civil or criminal legal proceedings for failure to
comply, when requested to release any information by duly constituted
authorities or when so requested by the Fund.
SECTION 13. EFFECTIVENESS, DURATION AND TERMINATION
(a) This Agreement shall become effective with respect to each series or
class listed in Appendix A on the later of (i) August 31, 1997 or (ii) the date
on which the Fund's Registration Statement relating to Shares of the Fund
becomes effective. Upon effectiveness of this Agreement, it shall supersede all
previous agreements between the parties hereto covering the subject matter
hereof insofar as such Agreement may have been deemed to relate to the Fund.
(b) This Agreement shall continue in effect with respect to a Series Fund
for a period of one year from its effectiveness and thereafter shall continue in
effect with respect to the Series until terminated; provided, that continuance
is specifically approved at least annually (i) by the Board or by a vote of a
majority of the outstanding voting securities of the Fund and (ii) by a vote of
a majority of Directors of the Fund (I) who are not parties to this Agreement or
interested persons of
- 15 -
<PAGE>
any such party (other than as Directors of the Fund) and (II) with respect to
each Class of a Series for which there is an effective Plan, who do not have any
direct or indirect financial interest in any such Plan applicable to the Class
or in any agreements related to the Plan, cast in person at a meeting called for
the purpose of voting on such approval.
(c) This Agreement may be terminated at any time with respect to a Series,
without the payment of any penalty, (i) by the Board or by a vote of a majority
of the outstanding voting securities of the Series or, with respect to each
Class for which there is an effective Plan, a majority of Directors of the Fund
who do not have any direct or indirect financial interest in any such Plan or in
any agreements related to the Plan, on 60 days' written notice to the
Distributor or (ii) by the Distributor on 60 days' written notice to the Fund.
(d) This Agreement shall automatically terminate upon its assignment and
upon the termination of the Distributor's membership in the NASD.
(e) If the Fund does not file a Required Amendment within fifteen days
following receipt of a written request from the Distributor to do so, the
Distributor may, at its option, terminate this Agreement immediately.
(f) The obligations of Sections 5(e), 6(d), 8, 9 and 10 shall survive any
termination of this Agreement with respect to a Series or Class thereof.
SECTION 14. NOTICES
Any notice required or permitted to be given hereunder by the Distributor
to the Fund or the Fund to the Distributor shall be deemed sufficiently given if
personally delivered or sent by telegram, facsimile or registered, certified or
overnight mail, postage prepaid, addressed by the party giving such notice to
the other party at the last address furnished by the other party to the party
giving such notice, and unless and until changed pursuant to the foregoing
provisions hereof each such notice shall be addressed to the Fund or the
Distributor, as the case may be, at their respective principal places of
business.
-16-
<PAGE>
SECTION 15. ACTIVITIES OF THE DISTRIBUTOR
Except to the extent necessary to perform the Distributor's obligations
hereunder, nothing herein shall be deemed to limit or restrict the Distributor's
right, or the right of any of the Distributor's employees, agents, officers or
directors who may also be a director, officer or employee of the Fund, or
affiliated persons of the Fund to engage in any other business or to devote time
and attention to the management or other aspects of any other business, whether
of a similar or dissimilar nature, or to render services of any kind to any
other corporation, trust, firm, individual or association.
SECTION 16. ADDITIONAL FUNDS AND CLASSES
In the event that the Fund establishes one or more series of Shares or one
or more classes of Shares after the effectiveness of this Agreement, such series
of Shares or classes of Shares, as the case may be, shall become Series and
Classes under this Agreement upon approval of this Agreement by the Fund with
respect to the series of Shares or class of Shares and the execution of an
amended Appendix A reflecting the applicable names and terms. The Distributor
may elect not to make any such series or classes subject to this Agreement.
SECTION 17. MISCELLANEOUS
(a) The Distributor shall not be liable to the Fund and the Fund shall not
be liable to the Distributor for consequential damages under any provision of
this Agreement except that Distributor Claims, as that term is used in Section
8(a), shall include consequential damages related to, arising out of or based
upon any filing made with the regulatory authorities of any State.
(b) No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Distributor and the Fund.
(c) This Agreement shall be governed by, and the provisions of this
Agreement shall be construed and interpreted under and in accordance with, the
laws of the State of Maryland.
(d) This Agreement constitutes the entire agreement between the Distributor
and the Fund and supersedes any prior agreement with respect to the subject
matter hereof, whether oral or written.
(e) This Agreement may be executed by the parties hereto on any number of
counterparts, and all of the counterparts taken together shall be deemed to
constitute one and the same instrument.
- 17 -
<PAGE>
(f) If any part, term or provision of this Agreement is held to be illegal,
in conflict with any law or otherwise invalid, the remaining portion or portions
shall be considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as if the Agreement
did not contain the particular part, term or provision held to be illegal or
invalid.
(g) Section headings in this Agreement are included for convenience only
and are not to be used to construe or interpret this Agreement.
(h) No affiliated person, employee, agent, officer or director of the
Distributor shall be liable at law or in equity for the Distributor's
obligations under this Agreement.
(i) The Fund shall be liable to the Distributor only with respect to those
Series and Classes of the Fund and the Distributor shall look solely to the Fund
to satisfy any liability of a Series or Class thereof to the Distributor.
(j) Each of the undersigned warrants and represents that they have full
power and authority to sign this Agreement on behalf of the party indicated and
that their signature will bind the party indicated to the terms hereof.
(k) The terms "vote of a majority of the outstanding voting securities,"
"interested person," "affiliated person" and "assignment" shall have the
meanings ascribed thereto in the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
FLAG INVESTORS EMERGING GROWTH
FUND, INC.
By: ---------------------------
Name:
Secretary
ICC DISTRIBUTORS, INC.
By: --------------------------
John Y. Keffer
President
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<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
DISTRIBUTION AGREEMENT
Appendix A
as of August 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Distribution Service
Series Class Fee Fee
- -------------------------------------------------------------------------------------------------------------------
Flag Investors Emerging Growth Fund, Inc. Class A 0.25% ----
Class B 0.75% 0.25%
Institutional Class ---- ----
Alex Brown Advisory Capital
and Trust Class ---- ----
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
- A1 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
DISTRIBUTION AGREEMENT
Appendix B
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
- B1 -
<PAGE>
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
- B2 -
<PAGE>
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
8. Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment
- B3 -
<PAGE>
Company Act, the Securities Act, the Securities Exchange Act of 1934, as
amended, or the rules and regulations promulgated by the Securities and Exchange
Commission thereunder.
10. Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment, as defined in the Investment Company
Act. This Agreement may also be terminated at any time for any particular Fund
without penalty by the vote of a majority of the members of the Board of
Directors or Trustees of such Fund who are not "interested persons" (as such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
- B4 -
<PAGE>
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
Clears Through:
Phone No.:
- B5 -
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
DISTRIBUTION AGREEMENT
Appendix C
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (vi) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii)
- C1 -
<PAGE>
providing such other similar services as we may reasonably request to the extent
you are permitted to do so under applicable statutes, rules or regulations. You
will provide to Customers a schedule of any fees that you may charge directly to
them for such services. You hereby represent that such fees are not unreasonable
or excessive. Shares purchased by you on behalf of Customers will be registered
with our transfer agent in your name or in the name of your nominee. The
Customer will be the beneficial owner of Shares purchased and held by you in
accordance with the Customer's instructions ("Customers' Shares") and the
Customer may exercise all rights of a shareholder of the Fund.
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your
- C2 -
<PAGE>
employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board of
Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required by
law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
- C3 -
<PAGE>
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: ___________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:
By:
Name:
Address:
Date:
- C4 -
<PAGE>
Ex-99.B(6)(b)
FLAG INVESTORS EMERGING GROWTH FUND, INC.
[Form of Sub-Distribution Agreement]
FLAG INVESTORS FUNDS
SUB-DISTRIBUTION AGREEMENT
Ladies and Gentlemen:
ICC Distributors, Inc. ("ICC"), a Delaware corporation, serves as
Distributor (the "Distributor") of the Flag Investors Funds (collectively, the
"Funds", individually, a "Fund"). The Funds are open-end investment companies
(or series thereof) registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Funds offer their shares ("Shares")
to the public in accordance with the terms and conditions contained in the
Prospectus of each Fund. The term "Prospectus" as used herein refers to each
prospectus on file with the Securities and Exchange Commission which is part of
the registration statement of each Fund under the Securities Act of 1933 (the
"Securities Act"). In connection with the foregoing you may serve as a
participating dealer (and, therefore, accept orders for the purchase or
redemption of Shares, respond to shareholder inquiries and perform other related
functions) on the following terms and conditions:
1. Participating Dealer. You are hereby designated a Participating Dealer
and as such are authorized (i) to accept orders for the purchase of Shares and
to transmit to the Funds such orders and the payment made therefore, (ii) to
accept orders for the redemption of Shares and to transmit to the Funds such
orders and all additional material, including any certificates for Shares, as
may be required to complete the redemption and (iii) to assist shareholders with
the foregoing and other matters relating to their investments in each Fund, in
each case subject to the terms and conditions set forth in the Prospectus of
each Fund. You are to review each Share purchase or redemption order submitted
through you or with your assistance for completeness and accuracy. You further
agree to undertake from time to time certain shareholder servicing activities
for customers of yours who have purchased Shares and who use your facilities to
communicate with the Funds or to effect redemptions or additional purchases of
the Shares.
2. Limitation of Authority. No person is authorized to make any
representations concerning the Funds or the Shares except those contained in the
Prospectus of each Fund and in such printed information as the Distributor may
subsequently prepare. No person is authorized to distribute any sales material
relating to any Fund without the prior written approval of the Distributor.
<PAGE>
3. Compensation. As compensation for such services, you will look solely to
the Distributor, and you acknowledge that the Funds shall have no direct
responsibility for any compensation. In addition to any sales charge payable to
you by your customer pursuant to a Prospectus, the Distributor will pay you no
less often than annually a shareholder processing and service fee (as we may
determine from time to time in writing) computed as a percentage of the average
daily net assets maintained with each Fund during the preceding period by
shareholders who purchase their shares through you or with your assistance,
provided that said assets are at least $25,000 in the fund family for which you
are to be compensated, and provided that in all cases your name is transmitted
with each shareholder's purchase order.
4. Prospectus and Reports. You agree to comply with the provisions
contained in the Securities Act governing the distribution of prospectuses to
persons to whom you offer Shares. You further agree to deliver, upon our
request, copies of any amended Prospectus of the relevant Fund to purchasers
whose Shares you are holding as record owner and to deliver to such persons
copies of the annual and interim reports and proxy solicitation materials of the
Funds. We agree to furnish to you as many copies of each Prospectus, annual and
interim reports and proxy solicitation materials as you may reasonably request.
5. Qualification to Act. You represent that you are a member in good
standing of National Association of Securities Dealers, Inc. (the "NASD"). Your
expulsion or suspension from the NASD will automatically terminate this
Agreement on the effective date of such expulsion or suspension. You agree that
you will not offer Shares to persons in any jurisdiction in which you may not
lawfully make such offer due to the fact that you have not registered under, or
are not exempt from, the applicable registration or licensing requirements of
such jurisdiction. You agree that in performing the services under this
Agreement, you at all times, will comply with the Conduct Rules (formerly the
Rules of Fair Practice) of the NASD, including, without limitation, the
provisions of Rule 2830 (formerly Section 26) of such Rules. You agree that you
will not combine customer orders to reach breakpoints in commission for any
purposes whatsoever unless authorized by the then current Prospectus in respect
of a particular class of Shares or by us in writing. You also agree that you
will place orders immediately upon their receipt and will not withhold any order
so as to profit therefrom. In determining the amount payable to you hereunder,
we reserve the right to exclude any sales which we reasonably determine are not
made in accordance with the terms of the relevant prospectus and provisions of
the Agreement.
6. Blue Sky. The Funds have registered an indefinite number of Shares under
the Securities Act. The Funds intend to make appropriate notice filings in
certain states where such filing is required. We will inform you as to the
states or other jurisdictions in which we believe the Shares are eligible for
sale under the respective securities laws of such states. You agree that you
will offer Shares to your customers only in those states where such Shares are
eligible to be sold. We assume no responsibility or obligation as to your right
to sell Shares in any jurisdiction.
7. Authority of Fund. Each Fund shall have full authority to take such
action as it deems advisable in respect of all matters pertaining to the
offering of its Shares, including the right not to accept any order for the
purchase of Shares.
<PAGE>
8. Record Keeping. You will (i) maintain all records required by law to be
kept by you relating to transactions in Shares and, upon request by any Fund,
promptly make such of these records available to the Fund as the Fund may
reasonably request in connection with its operations and (ii) promptly notify
the Fund if you experience any difficulty in maintaining the records described
in the foregoing clauses in an accurate and complete manner.
9. Liability. The Distributor shall be under no liability to you except for
lack of good faith and for obligations expressly assumed by it hereunder. In
carrying out your obligations, you agree to act in good faith and without
negligence. Nothing contained in this Agreement is intended to operate as a
waiver by the Distributor or you of compliance with any provisions of the
Investment Company Act, the Securities Act, the Securities Exchange Act of 1934,
as amended, or the rules and regulations promulgated by the Securities and
Exchange Commission thereunder.
10. Termination. This Agreement may be terminated by either party, without
penalty, upon ten days' notice to the other party and shall automatically
terminate in the event of its assignment, as defined in the Investment Company
Act. This Agreement may also be terminated at any time for any particular Fund
without penalty by the vote of a majority of the members of the Board of
Directors or Trustees of such Fund who are not "interested persons" (as such
phrase is defined in the Investment Company Act) and who have no direct or
indirect financial interest in the operation of the Distribution Agreement
between such Fund and the Distributor or by the vote of a majority of the
outstanding voting securities of the Fund.
11. Communications. All communications other than this agreement and those
pertaining to this agreement should be sent to the address listed below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
Flag Investors Funds
330 West 9th Street, 1st Floor
Kansas City, MO 64105
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us both copies of this Agreement to:
Flag Investors Funds
c/o ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attn: Dealer Services
ICC Distributors, Inc.
By: Richard C. Butt
Vice President
<PAGE>
Confirmed and accepted:
Firm Name:
By:
Signature
Printed Name and Title
Date:
Address:
Clears Through:
Phone No.:
<PAGE>
Ex-99.B(6)(c)
FLAG INVESTORS EMERGING GROWTH FUND, INC.
[Form of Shareholder Services Agreement]
FLAG INVESTORS FAMILY OF FUNDS
SHAREHOLDER SERVICING AGREEMENT
[Date]
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Agreement with you
concerning the provision of support services to your clients and customers
("Customers") who may from time to time beneficially own shares of our common
stock ("Shares").
The terms and conditions of this Servicing Agreement are as follows:
Section 1.
(a) You agree to provide the following services to Customers who may from
time to time beneficially own Shares: (i) aggregating and processing purchase
and redemption requests for Shares from Customers and placing net purchase and
redemption orders with our distributor; (ii) processing dividend payments from
us on behalf of Customers; (iii) providing information periodically to Customers
showing their positions in Shares; (iv) arranging for bank wires; (v) responding
to Customer inquiries relating to the services performed by you; (vi) providing
subaccounting with respect to Shares beneficially owned by Customers; (vii) as
required by law, forwarding shareholder communications from us (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to Customers; and (viii) providing such other
similar services as we may reasonably request to the extent you are permitted to
do so under applicable statutes, rules or regulations. You will provide to
Customers a schedule of any fees that you may charge directly to them for such
services. You hereby represent that such fees are not unreasonable or excessive.
Shares purchased by you on behalf of Customers will be registered with our
transfer agent in your name or in the name of your nominee. The Customer will be
the beneficial owner of Shares purchased and held by you in accordance with the
Customer's instructions ("Customers' Shares") and the Customer may exercise all
rights of a shareholder of the Fund.
<PAGE>
(b) You agree that you will (i) maintain all records required by law
relating to transactions in Shares and, upon our request, promptly make such of
these records available to us as we may reasonably request in connection with
our operations, and (ii) promptly notify us if you experience any difficulty in
maintaining the records described in the foregoing clauses in an accurate and
complete manner.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be a part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services to Customers.
Section 3. Neither you nor any of your officers, employees, agents or
assignees are authorized to make any representations concerning us or Shares
except those contained in our then current prospectus for such Shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement, you will be deemed to be an
independent contractor and will have no authority to act as agent for us in any
matter or in any respect. You may, upon prior written notice to us, delegate
your responsibilities hereunder to another person or persons; provided, however,
that notwithstanding any such delegation, you will remain responsible for the
performance of all your responsibilities under this Agreement. By your written
acceptance of this Agreement, you agree and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or losses
resulting from requests, directions, actions or inactions of or by you and your
offices, employees, agents or assigns regarding your responsibilities hereunder
or the purchase, redemption, transfer or registration of Shares by or on behalf
of Customers. You and your employees will, upon request, be available during
normal business hours to consult with us or our designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will cause our distributor to pay you, and you will accept as full
payment therefore, a fee (as we may determine from time to time in writing)
computed as a percentage of the average daily net assets of the Customers'
Shares held of record by you from time to time, which fee will be computed daily
and payable no less often than annually. For purposes of determining the fees
payable under this Section 5, the average daily net assets of the Customer's
Shares will be computed in the manner specified in our registration statement
(as the same is in effect from time to time) in connection with the computation
of the net asset value of Shares for purposes of purchases and redemptions. The
fee rate stated above may be prospectively increased or decreased by us or by
our distributor, at any time upon notice to you. Further, we may, in our
discretion and without notice, suspend or withdraw the sale of Shares, including
the sale of such shares to you for the account of any Customer or Customers.
Section 6. You will furnish us or our designees with such information
relating to your performance under this Agreement as we or they may reasonably
request (including, without limitation, periodic certifications confirming the
provision to Customers of the services described herein), and shall otherwise
cooperate with us and our designees (including, without limitation, any
<PAGE>
auditors designated by us), in connection with the preparation of reports to our
Board of Directors concerning this Agreement and the monies paid or payable by
us pursuant hereto, as well as any other reports or filings that may be required
by law.
Section 7. We may enter into other similar services agreements with any
other person or persons without your consent.
Section 8. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by us or by our distributor, and is
terminable, without penalty, at any time by us or by you upon ten days' notice
to the other party hereto and shall automatically terminate in the event of its
assignment, as that term is defined in the Investment Company Act of 1940, as
amended.
Section 9. This Agreement will be construed in accordance with the laws of
the State of Maryland.
Section 10. All notices and other communications to either you or us will
be duly given if mailed, telegraphed, telexed, or transmitted by similar
telecommunications device, if to us at the address below, and if to you, at the
address specified by you after your signature below:
ICC Distributors, Inc.
P.O. Box 7558
Portland, Maine 04101
Attention: Dealer Services
<PAGE>
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to us at the address set forth in Section 10 above.
Very truly yours,
ICC DISTRIBUTORS, INC.
By: _______________________________
Richard C. Butt, Vice President
Confirmed and Accepted:
Firm Name:
By:
Name:
Address:
Date:
<PAGE>
EX-99.B(8)
FORM OF
CUSTODIAN AGREEMENT
AGREEMENT dated as of _______________________, 199__ between BANKERS
TRUST COMPANY (the "Custodian") and FLAG INVESTORS EMERGING GROWTH FUND, INC.
(the "Customer").
WHEREAS, the Customer may be organized with one or more series of
shares, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Portfolios under the terms and conditions set forth in this
Agreement, and the Custodian has agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs the Custodian
as custodian of all assets of each Portfolio which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4) (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
noncash investment property of a Portfolio which is acceptable for deposit
("Securities") and cash from any source and in any currency ("Cash"). The
Custodian shall not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the Custodian or any
Subcustodian.
2. Maintenance of Securities and Cash at Custodian and Subcustodian
Locations. Pursuant to Instructions, the Customer shall direct the Custodian to
(a) settle Securities transactions and maintain cash in the country or other
jurisdiction in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents in such
countries in amounts reasonably necessary to effect the Customer's transactions
in such Securities. Instructions to settle Securities transactions in any
country shall be deemed to authorize the holding of such Securities and Cash in
that country.
3. Custody Account. The Custodian agrees to establish and maintain one
or more custody accounts on its books each in the name of a Portfolio (each, an
"Account") for any and all Property from time to time received and accepted by
the Custodian or any Subcustodian for the account of such Portfolio. Upon
delivery by the Customer to the Custodian of any Property belonging to a
Portfolio,
1
<PAGE>
the Customer shall, by Instructions (as herein defined in Section 14),
specifically indicate which Portfolio such Property belongs or if such Property
belongs to more than one Portfolio shall allocate such Property to the
appropriate Portfolio. The Custodian shall allocate such Property to the
Accounts in accordance with the Instructions; provided that the Custodian shall
have the right, in its sole discretion, to refuse to accept any Property that is
not in proper form for deposit for any reason. The Customer on behalf of each
Portfolio, acknowledges its responsibility as a principal for all of its
obligations to the Custodian arising under or in connection with this Agreement
warrants its authority to deposit in the appropriate Account any Property
received therefor by the Custodian or a Subcustodian and to give, and authorize
others to give, instructions relative thereto. The Custodian may deliver
securities of the same class in place of those deposited in the Account.
The Custodian shall hold, keep safe and protect as custodian for each
Account, on behalf of the Customer, all Property in such Account. All
transactions, including, but not limited to, foreign exchange transactions,
involving the Property shall be executed or settled solely in accordance with
Instructions (which shall specifically reference the Account for which such
transaction is being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other income and
payments, whether paid in cash or in kind, on the Property, as
the same become payable and credit the same to the appropriate
Account;
(b) present for payment all Securities held in an Account which
are called, redeemed or otherwise become payable and all
coupons and other income items which call for payment upon
presentation to the extent that the Custodian or Subcustodian
is actually aware of such opportunities and hold the cash
received in such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the Securities themselves) and (ii) when
notification of a tender or exchange offer (other than
ministerial exchanges described in (i) above) is received for
an Account, endeavor to receive Instructions, provided that if
such Instructions are not received in time for the Custodian
to take timely action, no action shall be taken with respect
thereto;
(d) whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for an Account and such rights
entitlement or fractional interest bears an expiration date,
if after endeavoring to obtain Instructions such Instructions
are not received in time for the Custodian to take timely
action or if actual notice of such actions was received too
late to seek Instructions, sell in the discretion of the
Custodian (which sale the Customer hereby
2
<PAGE>
authorizes the Custodian to make) such rights entitlement or
fractional interest and credit the Account with the net
proceeds of such sale:
(e) execute in the Customer's name for an Account whenever the
Custodian deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of
income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any
governmental authority. In the event there is insufficient
Cash available in such Account to pay such taxes and levies,
the Custodian shall notify the Customer of the amount of the
shortfall and the Customer, at its option, may deposit
additional Cash in such Account or take steps to have
sufficient Cash available. The Customer agrees, when and if
requested by the Custodian and required in connection with the
payment of any such taxes to cooperate with the Custodian in
furnishing information, executing documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or
any Subcustodian.
4. Subcustodians and Securities Systems. The Customer authorizes and
instructs the Custodian to hold the Property in each Account in custody accounts
which have been established by the Custodian with (a) one of its U.S. branches
or another U.S. bank or trust company or branch thereof located in the U.S.,
which is itself qualified under the Investment Company Act of 1940, as amended
("1940 Act"), to act as custodian (individually, a "U.S. Subcustodian"), or a
U.S. securities depository or clearing agency or system in which the Custodian
or a U.S. Subcustodian participates (individually, a "U.S. Securities System")
or (b) one of its non-U.S. branches or majority-owned non-U.S. subsidiaries, a
non-U.S. branch or majority-owned subsidiary of a U.S. bank or a non-U.S. bank
or trust company, acting as custodian (individually, a "non-U.S. Subcustodian";
U.S. Subcustodians and non-U.S. Subcustodians, collectively, "Subcustodians"),
or a non-U.S. depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S. Securities System";
U.S. Securities System and non-U.S. Securities System collectively, Securities
System"), provided that in each case in which a U.S. Subcustodian or U.S.
Securities System is employed, each such Subcustodian or Securities System shall
have been approved by Instructions: provided further that in each case in which
a non-U.S. Subcustodian or non-U.S. Securities System is employed, (a) such
Subcustodian or Securities System either is (i) a "qualified U.S. bank" as
defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (ii) an "eligible
foreign custodian" within the meaning of Rule 17f-5 or such Subcustodian or
Securities System is the subject of an order granted by the U.S. Securities and
Exchange Commission ("SEC") exempting such agent or the subcustody arrangements
thereto from all or part of the provisions of Rule 17f-5 and (b) the agreement
between the Custodian and such non-U.S. Subcustodian has been approved by
Instructions; it being understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any
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Subcustodian or Securities System has been proper under the 1940 Act or any rule
or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease the
employment of any Subcustodian or Securities System with respect to the
Customer, and if desirable and practicable, appoint a replacement Subcustodian
or securities system in accordance with the provisions of this Section. In
addition, the Custodian may, at any time in its discretion, upon written
notification to the Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to the
Customer annually a certificate stating: (a) the identity of each non-U.S.
Subcustodian and non-U.S. Securities System then acting on behalf of the
Custodian and the name and address of the governmental agency or other
regulatory authority that supervises or regulates such non-U.S. Subcustodian and
non-U.S. Securities System; (b) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities as may reasonably be requested by the
Customer to ensure compliance with Rule 17f-5. So long as Rule 17f-5 requires
the Customer's Board of Trustees to directly approve its foreign custody
arrangements, the Custodian also shall furnish annually to the Customer
information concerning such non-U.S. Subcustodians and non-U.S. Securities
Systems similar in kind and scope as that furnished to the Customer in
connection with the initial approval of this Agreement. Custodian agrees to
promptly notify the Customer if, in the nominal course of its custodial
activities, the Custodian has reason to believe that any non-U.S. Subcustodian
or non-U.S. Securities System has ceased to be a qualified U.S. bank or an
eligible foreign custodian each within the meaning of Rule 17f-5 or has ceased
to be subject to an exemptive order from the SEC.
5. Use of Subcustodian. With respect to Property in an Account which is
maintained by the Custodian in the custody of a Subcustodian employed pursuant
to Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account held by a Subcustodian will be subject
only to the instructions of the Custodian or its agents.
(c) Property deposited with a Subcustodian will be maintained in an
account holding only assets for customers of the Custodian.
(d) Any agreement the Custodian shall enter into with a non-U.S.
Subcustodian with respect to the holding of Property shall require that (i) the
Account will be adequately indemnified or its losses adequately insured; (ii)
the Securities are not subject to any right, charge, security interest, lien or
claim of any kind in favor of such Subcustodian or its creditors except a claim
for payment in accordance with such agreement for their safe custody or
administration and expenses
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related thereto, (iii) beneficial ownership of such Securities be freely
transferable without the payment of money or value other than for safe custody
or administration and expenses related thereto, (iv) adequate records will be
maintained identifying the Property held pursuant to such Agreement as belonging
to the Custodian, on behalf of its customers and (v) to the extent permitted by
applicable law, officers of or auditors employed by, or other representatives of
or designated by, the Custodian, including the independent public accountants of
or designated by, the Customer be given access to the books and records of such
Subcustodian relating to its actions under its agreement pertaining to any
Property held by it thereunder or confirmation of or pertinent information
contained in such books and records be furnished to such persons designated by
the Custodian.
6. Use of Securities System. With respect to Property in the Account(s)
which are maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be required by
its agreement with the Custodian to, identify on its books
such Property as being held for the account of the Custodian
or Subcustodian for its customers.
(b) Any Property held in a Securities System for the account of
the Custodian or a Subcustodian will be subject only to the
instructions of the Custodian or such Subcustodian, as the
case may be.
(c) Property deposited with a Securities System will be maintained
in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless
precluded by applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System.
7. Agents. The Custodian may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash and/or
other property, and whether held by the Custodian or a
Subcustodian or in a Securities System as authorized herein,
shall be clearly recorded on the Custodian's books as
belonging to the appropriate Account and not for the
Custodian's own interest. The Custodian
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shall keep accurate and detailed accounts of all investments,
receipts, disbursements and other transactions for each
Account. All accounts, books and records of the Custodian
relating thereto shall be open to inspection and audit at all
reasonable times during normal business hours by any person
designated by the Customer. All such accounts shall be
maintained and preserved in the form reasonably requested by
the Customer. The Custodian will supply to the Customer from
time to time, as mutually agreed upon, a statement in respect
to any Property in an Account held by the Custodian or by a
Subcustodian. In the absence of the filing in writing with the
Custodian by the Customer of exceptions or objections to any
such statement within sixty (60) days of the mailing thereof,
the Customer shall be deemed to have approved such statement
and in such case or upon written approval of the Customer of
any such statement, such statement shall be presumed to be for
all purposes correct with respect to all information set forth
therein.
(b) The Custodian shall take all reasonable action as the Customer
may request to obtain from year to year favorable opinions
from the Customer's independent certified public accountants
with respect to the Custodian's activities hereunder in
connection with the preparation of the Customer's Form N1-A
and the Customer's Form N-SAR or other periodic reports to the
SEC and with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall deliver to
the Customer a written report prepared by the Custodian's
independent certified public accountants with respect to the
services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting
system, internal accounting control and procedures for
safeguarding Cash and Securities, including Cash and
Securities deposited and/or maintained in a securities system
or with a Subcustodian. Such report shall be of sufficient
scope and in sufficient detail as may reasonably be required
by the Customer and as may reasonably be obtained by the
Custodian.
(d) The Customer may elect to participate in any of the electronic
on-line service and communications systems offered by the
Custodian which can provide the Customer, on a daily basis,
with the ability to view on-line or to print on hard copy
various reports of Account activity and of Securities and/or
Cash being held in any Account. To the extent that such
service shall include market values of Securities in an
Account, the Customer hereby acknowledges that the Custodian
now obtains and may in the future obtain information on such
values from outside sources that the Custodian considers to be
reliable and the Customer agrees that the Custodian (i) does
not verify or represent or warrant either the reliability of
such service nor the accuracy or completeness of any such
information furnished or obtained by or through such service
and (ii) shall be without liability in selecting and utilizing
such service or furnishing any information derived therefrom.
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9. Holding of Securities, Nominees, etc. Securities in an Account which
are held by the Custodian or any Subcustodian may be held by such entity in the
name of the Customer, on behalf of a Portfolio, in the Custodian's or
Subcustodian's name, in the name of the Custodian's or Subcustodian's nominee,
or in bearer form. Securities that are held by a Subcustodian or which are
eligible for deposit in a Securities System as provided above may be maintained
with the Subcustodian or the Securities System in an account for the Custodian's
or Subcustodian's customers, unless prohibited by law, rule, or regulation. The
Custodian or Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of the same issue
held by it as fiduciary or as a custodian. In the event that any Securities in
the name of the Custodian or its nominee or held by a Subcustodian and
registered in the name of such Subcustodian or its nominee are called for
partial redemption by the issuer of such Security, the Custodian may, subject to
the rules or regulations pertaining to allocation of any Securities System in
which such Securities have been deposited, allot, or cause to be allotted, the
called portion of the respective beneficial holders of such class of security in
any manner the Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in any Account, the
Custodian shall perform such services and only such services relative thereto as
are (i) set forth in Section 3 of this Agreement, (ii) described in Exhibit B
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") and (iii) as may otherwise be agreed upon between
the Custodian and the Customer. The liability and responsibility of the
Custodian in connection with the Proxy Service referred to in (ii) of the
immediately preceding sentence and in connection with any additional services
which the Custodian and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the description of the
Proxy Service and as may be agreed upon by the Custodian and the Customer in
connection with the furnishing of any such additional service and shall not be
affected by any other term of this Agreement. Neither the Custodian nor its
nominees or agents shall vote upon or in respect of any of the Securities in an
Account, execute any form of proxy to vote thereon, or give any consent or take
any action (except as provided in Section 3) with respect thereto except upon
the receipt of Instructions relative thereto.
11. Segregated Account. To assist the Customer in complying with the
requirements of the 1940 Act and the rules and regulations thereunder, the
Custodian shall, upon receipt of Instructions, establish and maintain a
segregated account or accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred, exchanged or
delivered by the Custodian or a Subcustodian upon receipt by the Custodian of
Instructions which include all information required by the Custodian. Settlement
and payment for Securities received for an Account and delivery of Securities
out of such Account may be effected in accordance with the customary or
established securities trading or securities processing practices and procedures
in the Jurisdiction or market in which the transaction occurs, including,
without limitation, delivering Securities to the purchaser thereof or to a
dealer therefor (or an agent for such purchaser or dealer) against a receipt
with the expectation of receiving later payment for such Securities from such
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purchaser or dealer, as such practices and procedures may be modified or
supplemented in accordance with the standard operating procedures of the
Custodian in effect from time to time for that jurisdiction or market. The
Custodian shall not be liable for any loss which results from effecting
transactions in accordance with the customary or established securities trading
or securities processing practices and procedures in the applicable jurisdiction
or market.
Notwithstanding that the Custodian may settle purchases and sales
against, or credit income to, an Account, on a contractual basis, as outlined in
the Global Guide provided to the Customer by the Custodian, the Custodian may,
at its sole option, reverse such credits or debits to the appropriate Account in
the event that the transaction does not settle, or the income is not received in
a timely manner, and the Customer agrees to hold the Custodian harmless from any
losses which may result therefrom.
13. Conditional Credits.
(a) Notwithstanding any other provision of this Agreement, the
Custodian shall not be required to comply with any
Instructions to settle the purchase of any securities for the
Account, unless there are sufficient immediately available
funds in the relevant currency in the Account, provided that
if, after all expenses, debits and withdrawals of Cash in the
relevant currency ("Debits") applicable to the Account have
been made and if after all Conditional Credits, as defined
below, applicable to the Account have been made final entries
as set forth in (c) below, the amount of immediately available
funds of the relevant currency in such Account is at least
equal to the aggregate purchase price of all securities for
which the Custodian has received Instructions to settle on
that date ("Settlement Date"), the Custodian, upon settlement,
shall credit the Securities to the Account by making a final
entry on its books and records.
(b) Notwithstanding the foregoing, if after all Debits applicable
to the Account have been made, there remains outstanding any
Conditional Credit (as defined below) applicable to the
Account or the amount of immediately available funds in a
given currency in such Account are less than the aggregate
purchase price in such currency of all securities for which
the Custodian has received Instructions to settle on the
Settlement Date, the Custodian, upon settlement, may credit
the securities to the Account by making a conditional entry on
its books and records ("Conditional Credit"), pending receipt
of sufficient immediately available funds in the relevant
currency in the Account.
(c) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have
been made, immediately available funds in the relevant
currency at least equal to the aggregate purchase price in
such currency of all securities subject to a Conditional
Credit on a Settlement Date are deposited into the Account,
the Custodian shall make the Conditional Credit a final entry
on its books and records. In such case, the Customer shall be
liable to the Custodian only for late
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<PAGE>
charges at a rate which the Custodian customary charges for
similar extensions of credit.
(d) If, within a reasonable time from the posting of a Conditional
Credit and after all Debits applicable to the Account have
been made, immediately available funds in the relevant
currency at least equal to the aggregate purchase price in
such currency of all securities subject to a Conditional
Credit on a Settlement Date are not deposited into the
Account, the Customer authorizes the Custodian, as agent, to
sell the securities and credit the Account with the proceeds
of such sale. In such case, the Customer shall be liable to
the Custodian for any deficiencies, out-of-pocket costs and
expenses associated with the sale of the securities, including
but not limited to, shortfalls in the sales proceeds and the
Custodian is hereby authorized to sell such other securities
to the extent necessary to satisfy such shortfalls with the
net proceeds of such sales.
(e) The Customer agrees that it will not use the Account to
facilitate the purchase of securities without sufficient funds
in the Account (which funds shall not include the expected
proceeds of the sale of the purchased securities).
14. Permitted Transactions. The Customer agrees that it will cause
transactions to be made pursuant to this Agreement only upon Instructions in
accordance with Section 15 and only for the purposes listed below.
(a) In connection with the purchase or sale of Securities at
prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or otherwise
become payable.
(c) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or
readjustment.
(d) Upon conversion of Securities pursuant to their terms into
other securities.
(e) Upon exercise of subscription, purchase or other similar
rights represented by Securities.
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts
borrowed.
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(h) In connection with any loans, but only against receipt of
collateral as specified in Instructions which shall reflect
any restrictions applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of
the Customer against delivery of the shares to be redeemed to
the Custodian, a Subcustodian or the Customer's transfer
agent.
(j) For the purpose of redeeming in kind shares of the Customer
against delivery of the shares to be redeemed to the
Custodian, a Subcustodian or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any
agreement among the Customer, on behalf of a Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association
of Securities Dealers, Inc., relating to compliance with the
rules of The Options Clearing Corporation, the Commodities
Futures Trading Commission and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Customer.
(l) For release of Securities to designated brokers under covered
call options, provided, however, that such Securities shall be
released only upon payment to the Custodian of monies for the
premium due and a receipt for the Securities which are to be
held in escrow. Upon exercise of the option, or at expiration,
the Custodian will receive the Securities previously deposited
from broker. The Custodian will act strictly in accordance
with Instructions in the delivery of Securities to be held in
escrow and will have no responsibility or liability for any
such Securities which are not returned promptly when due other
than to make proper request for such return.
(m) For spot or forward foreign exchange transactions to
facilitate security trading or receipt of income from
Securities related transactions.
(n) Upon the termination of this Agreement as set forth in Section
20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no obligation to
verify the purpose for which a transaction is being effected.
15. Instructions. The term "Instructions" means instructions from the
Customer in respect of any of the Custodian's duties hereunder which have been
received by the Custodian at its address set forth in Section 22 below (i) in
writing (including, without limitation, facsimile transmission) or by tested
telex signed or given by such one or more person or persons as the Customer
shall have from time to time authorized in writing to give the particular class
of Instructions in question and whose
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name and (if applicable) signature and office address have been filed with the
Custodian, or (ii) which have been transmitted electronically through an
electronic on-line service and communications system offered by the Custodian or
other electronic instruction system acceptable to the Custodian, or (iii) a
telephonic or oral communication by one or more persons as the Customer shall
have from time to time authorized to give the particular class of Instructions
in question and whose name has been filed with the Custodian; or (iv) upon
receipt of such other form of instructions as the Customer may from time to time
authorize in writing and which the Custodian has agreed in writing to accept.
Instructions in the form of oral communications shall be confirmed by the
Customer by tested telex or writing in the manner set forth in clause (i) above,
but the lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. Instructions may relate to specific transactions
or to types or classes of transactions, and may be in the form of standing
instructions.
The Custodian shall have the night to assume in the absence of notice
to the contrary from the Customer that any person whose name is on file with the
Custodian pursuant to this Section has been authorized by the Customer to give
the Instructions in question and that such authorization has not been revoked.
The Custodian may act upon and conclusively rely on, without any liability to
the Customer or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
16. Standard of Care. The Custodian shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Custodian which are not contrary to the provisions of
this Agreement. The Custodian will use reasonable care with respect to the
safekeeping of Property in each Account and, except as otherwise expressly
provided herein, in carrying out its obligations under this Agreement. So long
as and to the extent that it has exercised reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any Property or
other property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon, and may
conclusively rely on, without liability for any loss resulting therefrom, any
notice, request consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed or furnished by the proper party or parties,
including, without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including, without
limitation, the fees and expenses of counsel) incurred by the Custodian and
arising out of action taken or omitted with reasonable care by the Custodian
hereunder or under any Instructions. The Custodian shall be liable to the
Customer for any act or omission to act of any Subcustodian to the same extent
as if the Custodian committed such act itself. With respect to a Securities
System, the Custodian shall only be responsible or liable for losses arising
from employment of such Securities System caused by the Custodian's own failure
to exercise reasonable care. In the event of any loss to the Customer by reason
of the failure of the Custodian or a Subcustodian to utilize reasonable care,
the Custodian shall be liable to the Customer to the extent of the Customer's
actual damages at the time such loss was discovered without reference to any
special conditions or circumstances. In no event shall the Custodian be liable
for any consequential or special damages. The Custodian shall be entitled to
rely, and may act, on advice of counsel (who may be
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counsel for the Customer) on all matters and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-line service
and communications system offered by the Custodian, the Customer shall be fully
responsible for the security of the Customer's connecting terminal, access
thereto and the proper and authorized use thereof and the initiation and
application of continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless from and
against any and all losses, damages, costs and expenses (including the fees and
expenses of counsel) incurred by the Custodian as a result of any improper or
unauthorized use of such terminal by the Customer or by any others.
All collections of funds or other property paid or distributed in
respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian shall have no
liability for any loss occasioned by delay in the actual receipt of notice by
the Custodian or by a Subcustodian of any payment, redemption or other
transaction regarding Securities in each Account in respect of which the
Custodian has agreed to take action as provided in Section 3 hereof. The
Custodian shall not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure or de facto),
including, without limitation, nationalization, expropriation, and the
imposition of currency restrictions; devaluations of or fluctuations in the
value of currencies; changes in laws and regulations applicable to the banking
or securities industry; market conditions that prevent the orderly execution of
securities transactions or affect the value of Property; acts of war, terrorism,
insurrection or revolution, strikes or work stoppages; the inability of a local
clearing and settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption,
nuclear fusion, fission or radioactivity, or other acts of God.
The Custodian shall have no liability in respect of any loss, damage or
expense suffered by the Customer, insofar as such loss, damage or expense arises
from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Customer by
entities other than the Custodian prior to the Custodian's employment under this
Agreement.
The provisions of this Section shall survive termination of this
Agreement.
17. Investment Limitations and Legal or Contractual Restrictions or
Regulations. The Custodian shall not be liable to the Customer and the Customer
agrees to indemnify the Custodian and its nominees, for any loss, damage or
expense suffered or incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or limitation
applicable to the Customer or any Portfolio pursuant to any contract or any law
or regulation. The provisions of this Section shall survive termination of this
Agreement.
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18. Fees and Expenses. The Customer agrees to pay to the Custodian such
compensation for its services pursuant to this Agreement as may be mutually
agreed upon in writing from time to time and the Custodian's reasonable
out-of-pocket or incidental expenses in connection with the performance of this
Agreement, including (but without limitation) legal fees as described herein
and/or deemed necessary in the judgment of the Custodian to keep safe or protect
the Property in the Account. The initial fee schedule is attached hereto as
Exhibit C. The Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental charges, and
any expense related thereto, which may be imposed, or assessed with respect to
any Property in an Account and also agrees to hold the Custodian, its
Subcustodians, and their respective nominees harmless from any liability as a
record holder of Property in such Account. The Custodian is authorized to charge
the applicable Account for such items and the Custodian shall have a lien on the
Property in the applicable Account for any amount payable to the Custodian under
this Agreement, including but not limited to amounts payable pursuant to Section
13 and pursuant to indemnities granted by the Customer under this Agreement. The
provisions of this Section shall survive the termination of this Agreement.
19. Tax Reclaims. With respect to withholding taxes deducted and which
may be deducted from any income received from any Property in an Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit D attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit D. Such standard of care shall not be
affected by any other term of this Agreement.
20. Amendment, Modifications, etc. No provision of this Agreement may
be amended, modified or waived except in a writing signed by the parties hereto.
No waiver of any provision hereto shall be deemed a continuing waiver unless it
is so designated. No failure or delay on the part of either party in exercising
any power or right under this Agreement operates as a waiver, nor does any
single or partial exercise of any power or right preclude any other or further
exercise thereof or the exercise of any other power or right.
21. Termination.
(a) Termination of Entire Agreement. This Agreement may be
terminated by the Customer or the Custodian by ninety (90)
days' written notice to the other; provided that notice by the
Customer shall specify the names of the persons to whom the
Custodian shall deliver the Securities in each Account and to
whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall,
within ninety (90) days following the giving of such notice,
deliver to the Custodian a written notice specifying the names
of the persons to whom the Custodian shall deliver the
Securities in each Account and to whom the Cash in such
Account shall be paid. In either case, the Custodian will
deliver such Securities and Cash to the persons so specified,
after deducting therefrom any amounts which the Custodian
determines to be owed to it under Sections 13, 18, and 24. In
addition, the Custodian may in its discretion withhold from
such delivery such Cash and Securities as may be necessary
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to settle transactions pending at the time of such delivery.
The Customer grants to the Custodian a lien and right of
setoff against the Account and all Property held therein from
time to time in the full amount of the foregoing obligations.
If within ninety (90) days following the giving of a notice of
termination by the Custodian, the Custodian does not receive
from the Customer a written notice specifying the names of the
persons to whom the Custodian shall deliver the Securities in
each Account and to whom the Cash in such Account shall be
paid, the Custodian, at its election, may deliver such
Securities and pay such Cash to a bank or trust company doing
business in the State of New York to be held and disposed of
pursuant to the provisions of this Agreement, or may continue
to hold such Securities and Cash until a written notice as
aforesaid is delivered to the Custodian, provided that the
Custodian's obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This Agreement may
be terminated by the Customer or the Custodian as to one or
more Portfolios (but less than all of the Portfolios) by
delivery of an amended Exhibit A deleting such Portfolios, in
which case termination as to such deleted Portfolios shall
take effect ninety (90) days after the date of such delivery,
or such earlier time as mutually agreed. The execution and
delivery of an amended Exhibit A which deletes one or more
Portfolios shall constitute a termination of this Agreement
only with respect to such deleted Portfolio(s), shall be
governed by the preceding provisions of Section 21 as to the
identification of a successor custodian and the delivery of
Cash and Securities of the Portfolio(s) so deleted to such
successor custodian and shall not affect the obligations of
the Custodian and the Customer hereunder with respect to the
other Portfolios set forth in Exhibit A, as amended from time
to time.
22. Notices. Except as otherwise provided in this Agreement, all
requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by
registered mail, telex or facsimile addressed to such other address as shall
have been furnished by the receiving party pursuant to the provisions hereof and
(b) shall be deemed effective when received, or, in the case of a telex, when
sent to the proper number and acknowledged by a proper answer back.
23. Several Obligations of the Portfolios. With respect to any
obligations of the Customer on behalf of each Portfolio and each of its related
Accounts arising out of this Agreement, the Custodian shall look for payment or
satisfaction of any obligation solely to the assets and property of the
Portfolio and such Accounts to which such obligation relates as though the
Customer had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related Accounts.
24. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to Custodian a continuing security
interest in and right of setoff against each Account and all Property held
therein from time to time in the full amount of such obligations;
14
<PAGE>
provided that, if there is more than one Account and the obligations secured
pursuant to this Section can be allocated to a specific Account or the Portfolio
related to such Account, such security interest and right of setoff will be
limited to Property held for that Account only and its related Portfolio. Should
the Customer fail to pay promptly any amounts owed hereunder, Custodian shall be
entitled to use available Cash in the Account or applicable Account, as the case
may be, and to dispose of Securities in the Account or such applicable Account
as is necessary. In any such case and without limiting the foregoing, Custodian
shall be entitled to take such other action(s) or exercise such other options,
powers and rights as Custodian now or hereafter has as a secured creditor under
the New York Uniform Commercial Code or any other applicable law.
25. Representations and Warranties.
(a) The Customer hereby represents and warrants to the Custodian
that:
(i) the employment of the Custodian and the allocation of
fees, expenses and other charges to any Account as herein provided, is not
prohibited by law or any governing documents or contracts to which the Customer
is subject;
(ii) the terms of this Agreement do not violate any obligation
by which the Customer is bound, whether arising by contract, operation of law or
otherwise;
(iii) this Agreement has been duly authorized by appropriate
action and when executed and delivered will be binding upon the Customer and
each Portfolio in accordance with its terms; and
(iv) the Customer will deliver to the Custodian a duly
executed Secretary's Certificate in the form of Exhibit E hereto or such other
evidence of such authorization as the Custodian may reasonably require, whether
by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the Customer that:
(i) the terms of this Agreement do not violate any
obligation by which the Custodian is bound, whether
arising by contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by
appropriate action and when executed and delivered
will be binding upon the Custodian in accordance with
its terms;
(iii) the Custodian will deliver to the Customer such
evidence of such authorization as the Customer may
reasonably require, whether by way of a certified
resolution or otherwise; and
15
<PAGE>
(iv) Custodian is qualified as a custodian under Section
26(a) of the 1940 Act and warrants that it will
remain so qualified or upon ceasing to be so
qualified shall promptly notify the Customer in
writing.
26. Governing Law and Successors and Assigns. This Agreement shall be
governed by the law of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and the
Custodian.
27. Publicity. Customer shall furnish to Custodian at its office
referred to in Section 22 above, prior to any distribution thereof, copies of
any material prepared for distribution to any persons who are not parties hereto
that refer in any way to the Custodian. Customer shall not distribute or permit
the distribution of such materials if Custodian reasonably objects in writing
within ten (10) business days of receipt thereof (or such other time as may be
mutually agreed) after receipt thereof. The provisions of this Section shall
survive the termination of this Agreement.
[28. Representative Capacity and Binding Obligation. A copy of the
[Declaration of Trust/Trust Instrument] of the Customer is on file with The
Secretary of the [Commonwealth of Massachusetts/State of Delaware], and notice
is hereby given that this Agreement is not executed on behalf of the Trustees of
the Customer as individuals, and the obligations of this Agreement are not
binding upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of the
Portfolios.]
The Custodian agrees that no shareholder, trustee or officer of the
Customer may be held personally liable or responsible for any obligations of the
Customer arising out of this Agreement.
29. Submission to Jurisdiction. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the City of New York, State of New York, United States of America, and the
Customer irrevocably submits to the non-exclusive jurisdiction of any such court
in any such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such suit, action or proceeding brought in such a court and any
claim that such suit, action or proceeding was brought in an inconvenient forum.
30. Confidentiality. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant to this
Agreement and, except as may be required in carrying out this Agreement, shall
not be disclosed to any third party without the prior consent of such providing
party. The foregoing shall not be applicable to any information that is publicly
available when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or requested to be
disclosed by any bank or other regulatory examiner of the Custodian, Customer,
or any Subcustodian, any auditor of the
16
<PAGE>
parties hereto, by judicial or administrative process or otherwise by applicable
law or regulation. The provisions of this Section shall survive the termination
of this Agreement.
31. Severability. If any provision of this Agreement is determined to
be invalid or unenforceable, such determination shall not affect the validity or
enforceability of any other provision of this Agreement.
32. Entire Agreement. This Agreement together with any exhibits
attached hereto, contains the entire agreement between the parties relating to
the subject matter hereof and supersedes any oral statements and prior writings
with respect thereto.
33. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
34. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
IN WITNESS WHEREOF, each of the parties has caused its duly authorized
signatories to execute this Agreement as of the date first written above.
[NAME OF CUSTOMER]
By:__________________________________
Name:________________________________
Title:_______________________________
By:__________________________________
Name:________________________________
Title:_______________________________
BANKERS TRUST COMPANY
By:__________________________________
Name:________________________________
Title:_______________________________
17
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of ______________,199__ between Bankers
Trust Company and _______________________.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the first WHEREAS
clause of the above-referred to Custodian Agreement. Terms used herein as
defined terms unless otherwise defined shall have the meanings ascribed to them
in the above-referred to Custodian Agreement.
Dated as of:
[NAME OF CUSTOMER]
By:__________________________________
Name:________________________________
Title:_______________________________
By:__________________________________
Name:________________________________
Title:_______________________________
BANKERS TRUST COMPANY
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of ________________, 199__ between
Bankers Trust Company and __________________.
PROXY SERVICE
The following is a description of the Proxy Service referred to in
Section 10 of the above referred to Custodian Agreement. Terms used herein as
defined terms shall have the meanings ascribed to them therein unless otherwise
defined below.
The Custodian provides a service, described below, for the transmission
of corporate communications in connection with shareholder meetings relating to
Securities held in the countries specified in the Global Guide]. For the United
States and Canada, the term "corporate communications" means the proxy
statements or meeting agenda, proxy cards, annual reports and any other meeting
materials received by the Custodian. For countries other then the United States
and Canada, the term "corporate communications" means the meeting agenda only
and does not include any meeting circulars, proxy statements or any other
corporate communications furnished by the issuer in connection with such
meeting. Non-meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon request as
provided below.
The Custodian's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in the
English language, and if the language of such agenda is in the
official language of the country in which the related security
is held, the Custodian will as soon as practicable after
receipt of the original meeting agenda by a Subcustodian
provide an English translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is furnished,
the local language agenda will not be furnished unless
requested.
Translations will be free translations and neither the Custodian nor
any Subcustodian will be liable or held responsible for the accuracy thereof or
any direct or indirect consequences arising therefrom, including without
limitation arising out of any action taken or omitted to be taken based thereon.
<PAGE>
If requested, the Custodian will, on a reasonable efforts basis,
endeavor to obtain any additional corporate communication such as annual or
interim reports, proxy statements, meeting circulars, or local language agendas,
and provide them in the form obtained.
Timing in the voting process is important and, in that regard, upon
receipt by the Custodian of notice from a Subcustodian, the Custodian will
provide a notice to the Customer indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Custodian will promptly forward such instructions to the
applicable Subcustodian. If voting instructions are not timely received, the
Custodian shall have no liability or obligation to take any action.
For Securities held in markets other than those set forth in the first
paragraph, the Custodian wall not furnish the material described above or seek
voting instructions. However, if requested to exercise voting rights at a
specific meeting, the Custodian will endeavor to do so on a reasonable efforts
basis without any assurance that such rights will be so exercised at such
meeting.
If the Custodian or any Subcustodian incurs extraordinary expenses in
exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such reimbursement.
It is the intent of the Custodian to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
Global Guide. The Custodian will notify the Customer as
<PAGE>
to the inclusion of additional countries or deletion of existing countries after
their inclusion or deletion and this Exhibit B will be deemed to be
automatically amended to include or delete such countries as the case may be.
Dated as of
[NAME OF CUSTOMER]
By:__________________________________
Name:________________________________
Title:_______________________________
By:__________________________________
Name:________________________________
Title:_______________________________
BANKERS TRUST COMPANY
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ________________.
CUSTODY FEE SCHEDULE
This Exhibit C shall be amended upon delivery by the Custodian of a new Exhibit
C to the Customer and acceptance thereof by the Customer and shall be effective
as of the date of acceptance by the Customer or a date agreed upon between the
Custodian and the Customer.
<PAGE>
EXHIBIT D
To Custodian Agreement dated as of _____________, 199__ between Bankers
Trust Company and ______________.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian Agreement,
the Custodian shall perform the following services with respect to withholding
taxes imposed or which may be imposed on income from Property in any Account.
Terms used herein as defined terms shall unless otherwise defined have the
meanings ascribed to them in the above referred to Custodian Agreement.
When Withholding tax has been deducted with respect to income from any
Property in an Account, the Custodian will actively pursue on a reasonable
efforts basis the reclaim process, provided that the Custodian shall not be
required to institute any legal or administrative proceeding against any
Subcustodian or other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local authorities by the
Custodian or its designee. In all cases of withholding, the Custodian will
provide full details to the Customer. If exemption from withholding at the
source can be obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the exemption. Upon
receipt of such documentation from the Customer, the Custodian will file for
exemption on the Customer's behalf and notify the Customer when it has been
obtained.
In connection with providing the foregoing service, the Custodian shall
be entitled to apply categorical treatment of the Customer according to the
Customer's nationality, the particulars of its organization and other relevant
details that shall be supplied by the Customer. It shall be the duty of the
Customer to inform the Custodian of any change in the organization, domicile or
other relevant fact concerning tax treatment of the Customer and further to
inform the Custodian if the Customer is or becomes the beneficiary of any
special ruling or treatment not applicable to the general nationality and
category or entity of which the Customer is a part under general laws and treaty
provisions. The Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the Custodian may
also rely on professional tax services published by a major international
accounting firm and/or advice received from a Subcustodian in the jurisdictions
in question. In addition, the Custodian may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and on advice
received from a Subcustodian,
<PAGE>
counsel or other professional tax advisers and shall be without liability to the
Customer for any action reasonably taken or omitted pursuant to information
contained in such services or such advice.
Dated as of
[NAME OF CUSTOMER]
By:__________________________________
Name:________________________________
Title:_______________________________
By:__________________________________
Name:________________________________
Title:_______________________________
BANKERS TRUST COMPANY
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
EXHIBIT E
[Name of Entity]
Certificate of the Secretary
I, [Name of Secretary], hereby certify that I am the Secretary of
[Name of Entity], a [type of entity] organized under the laws of [jurisdiction]
(the "Company"), and as such I am duly authorized to, and do hereby, certify
that:
1. Organizational Documents. The Company's organizational documents,
and all amendments thereto, have been filed with the appropriate governmental
officials of [jurisdiction], the Company continues to be in existence and is in
good standing, and no action has been taken to repeal such organizational
documents, the same being in full force and effect on the date hereof.
2. By-Laws. The Company's By-Laws have been duly adopted and no action
has been taken to repeal such By-Laws, the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf of the
Company, which resolutions (i) have not in any way been revoked or rescinded,
(ii) have been in full force and effect since their adoption, to and including
the date hereof, and are now in full force and effect, and (iii) are the only
corporate proceedings of the Company now in force relating to or affecting the
matters referred to therein, including, without limitation, confirming that the
Company is duly authorized to enter into a certain custody agreement with
Bankers Trust Company (the "Agreement"), and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
execute said Agreement on behalf of the Company, in conformity with the
requirements of the Company's organizational documents, Bylaws, and other
pertinent documents to which the Company may be bound.
4. Incumbency. The following named individuals are duly elected (or
appointed), qualified, and acting officers of the Company holding those offices
set forth opposite their respective names as of the date hereof, each having
full authority, acting individually, to bind the Company as a legal matter, with
respect to all matters pertaining to the Agreement, and to execute and deliver
said Agreement on behalf of the Company, and the signatures set forth opposite
the respective names and titles of said officers are their true, authentic
signatures:
Name Title Signature
[Name] [Position] _____________________________
[Name] [Position] _____________________________
[Name] [Position] _____________________________
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand this _______ day of
[Date], 19__.
By:_____________________________________
Name:___________________________________
Title: Secretary
I, [Name of Confirming Officer], [Title] of the Company, hereby certify
that on this ___ day of [Date], 19__, [Name of Secretary] is the duly elected
Secretary of the Company and that the signature above is his genuine signature.
By:_____________________________________
Name:___________________________________
Title:__________________________________
<PAGE>
EX-99.B(11)
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Flag Investors Emerging Growth Fund, Inc.
We consent to the inclusion in Post-Effective Amendment No. 15 to the
Registration Statement of Flag Investors Emerging Growth Fund, Inc. on Form N-1A
(File No. 33-21119), of our report dated November 26, 1997 on our audit of the
financial statements and financial highlights of Emerging Growth Fund, Inc.,
which report is included in the Annual Report to Shareholders for the year ended
October 31, 1997, which is included in the Registration Statement. We also
consent to the reference to our Firm under the headings "Financial Highlights"
and "General Information" in the Prospectuses and "Independent Accountants" in
the Statement of Additional Information.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Baltimore, Maryland
February 23, 1998
<PAGE>
EX-99.B(15)(c)
Amended
August 4, 1997
FLAG INVESTORS EMERGING GROWTH FUND, INC.
FLAG INVESTORS CLASS A SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the 1940 "Act") of the Flag Investors Class A Shares (the "Shares")
of Flag Investors Emerging Growth Fund, Inc. (the "Fund"). Other capitalized
terms herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement ("Participating
Dealer"), to accept payments made to it under the Distribution Agreement and to
make payments on behalf of the Fund to Shareholder Servicing Agents under
Shareholder Services Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement which in an annual fee, calculated
on an average daily net basis and paid monthly, equal to .25% of the average
daily net assets of the Shares of the Fund.
3. Expenses Authorized. The Distributor is authorized.
pursuant to the Plan from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares of the Fund. Any such advertising and sales
material may include references to other open-end investment companies or other
investments, provided that expenses relating to such advertising and sales
material will be allocated among such other investment companies or investments
in an equitable manner, and any sales personnel so paid are not required to
devote their time solely to the sale of Shares of the fund.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's Advisor, Sub-Advisor and the Distributor; the
charges and expenses of any registrar, any custodian or depositary appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any stock transfer, dividend or accounting agent or agents
appointed by the Fund; brokers' commissions chargeable to the Fund in connection
with portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes and corporate fees payable by
the Fund to federal, state or other governmental agencies; the cost and expense
of engraving or printing of stock certificates representing shares of the Fund;
all costs and expenses in connection with maintenance of registration of the
Fund and its shares with the Securities and Exchange Commission and various
states and other jurisdictions (including filing fees and legal fees and
disbursements of counsel); except as provided in subparagraph (a) above, the
expenses of printing, including typesetting, and distributing prospectuses of
the Fund and supplements thereto to the Fund's shareholders; all expenses of
shareholders' and Board of Directors meetings and of preparing, printing and
mailing of proxy
-1-
<PAGE>
statements and reports to shareholders; fees and travel expenses of Directors or
members of any advisory board or committee other than such Directors or members
who are "interested persons" within the meaning of Section 2(a)(19) of the 1940
Act; all expenses incident to the payment of any dividend, distribution,
withdrawal or redemption, whether in shares or in cash; charges and expenses of
any outside service used for pricing of the Fund's shares; charges and expenses
of legal counsel, including counsel to the Directors of the Fund who are not
interested persons (as defined in the 1940 Act) of the Fund, and of independent
accountants, in connection with any matter relating to the fund; membership dues
of industry associations; interest payable on Fund borrowings; postage;
insurance premiums on property or personnel (including officers and directors)
of the fund which inure to its benefit; extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the Fund's
operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report on any such expenditures as part of its regular reports
pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar of fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a)
This Plan has been approved by a vote of the Board of Directors of the Fund and
of a majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on this
Plan. This Plan shall, unless terminated as hereinafter provided, continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the vote of the Fund's Board of Directors and by
the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act), cast in person at a meeting called for the
purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a vote of a
majority of the Directors who are not interested persons (as defined in the 1940
Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase materially the
amount of payments to be made without approval by a vote of the holders of at
least a majority of the Fund's outstanding voting securities (as defined in the
1940 Act) and all amendments must be approved by the Board of Directors in the
manner set forth under (a) above.
-2-
<PAGE>
EX-99.B (15)(d)
Amended
August 4, 1997
FLAG INVESTORS EMERGING GROWTH FUND, INC.
FLAG INVESTORS CLASS B SHARES
DISTRIBUTION PLAN
1. The Plan. This Plan (the "Plan") is a written plan as
described in Rule 12b-1 (the "Rule") under the Investment Company Act of 1940,
as amended (the "1940 Act") of the Flag Investors Class B Shares (the "Shares")
of Flag Investors Emerging Growth Fund, Inc. (the "Fund"). Other capitalized
terms herein have the meaning given to them in the Fund's prospectus.
2. Payments Authorized. (a) The Fund's distributor (the
"Distributor") is authorized, pursuant to the Plan, to make payments to any
Participating Dealer under a Sub-Distribution Agreement, to accept payments made
to it under the Distribution Agreement and to make payments on behalf of the
Fund to Shareholder Servicing Agents under Shareholder Servicing Agreements.
(b) The Distributor may make payments in any amount,
provided that the total amount of all payments made during a fiscal year of the
Fund do not exceed, in any fiscal year of the Fund, the amount paid to the
Distributor under the Distribution Agreement with respect to distribution of the
Shares which is an annual fee, calculated on an average daily net basis and paid
monthly, equal to .75% of the average daily net assets of the Shares of the
Fund.
3. Expenses Authorized. The Distributor is authorized,
pursuant to the Plan, from sums paid to it under the Distribution Agreement, to
purchase advertising for the Shares, to pay for promotional or sales literature
and to make payments to sales personnel affiliated with it for their efforts in
connection with sales of Shares. Any such advertising and sales material may
include references to other open-end investment companies or other investments,
provided that expenses relating to such advertising and sales material will be
allocated among such other investment companies or investments in an equitable
manner, and any sales personnel so paid are not required to devote their time
solely to the sale of Shares.
4. Certain Other Payments Authorized. As set forth in the
Distribution Agreement, the Fund assumes certain expenses, which the Distributor
is authorized to pay or cause to be paid on its behalf and such payments shall
not be included in the limitations contained in this Plan. These expenses
include: the fees of the Fund's investment advisor and the Distributor; the
charges and expenses of any registrar, any custodian or depository appointed by
the Fund for the safekeeping of its cash, portfolio securities and other
property, and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection with
portfolio securities transactions to which the Fund is a party; all taxes,
including securities issuance and transfer taxes, and fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of certificates representing shares of the Fund; all costs
and expenses in connection with maintenance of registration of the Fund and its
shares with the Securities and Exchange Commission and various states and other
jurisdictions (including filing fees and legal fees and disbursements of
counsel); the costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of the Fund
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing of proxy
statements and reports to shareholders; fees and travel expenses of Directors or
Director members of any advisory board or committee; all
<PAGE>
expenses incident to the payment of any dividend, distribution, withdrawal or
redemption, whether in shares or in cash; charges and expenses of any outside
service used for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and of independent certified
public accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
5. Other Distribution Resources. The Distributor and
Participating Dealers may expend their own resources separate and apart from
amounts payable under the Plan to support the Fund's distribution effort. The
Distributor will report to the Board of Directors on any such expenditures as
part of its regular reports pursuant to Section 6 of this Plan.
6. Reports. While this Plan is in effect, the Distributor
shall report in writing at least quarterly to the Fund's Board of Directors, and
the Board shall review, the following: (i) the amounts of all payments under the
Plan, the identity of the recipients of each such payment; (ii) the basis on
which the amount of the payment to such recipient was made; (iii) the amounts of
expenses authorized under this Plan and the purpose of each such expense; and
(iv) all costs of each item specified in Section 4 of this Plan (making
estimates of such costs where necessary or desirable), in each case during the
preceding calendar or fiscal quarter.
7. Effectiveness, Continuation, Termination and Amendment. (a)
This Plan has been approved by a vote of the Board of Directors of the Fund and
of a majority of the Directors who are not interested persons (as defined in the
1940 Act), cast in person at a meeting called for the purpose of voting on this
Plan. This Plan shall, unless terminated as hereinafter provided, continue in
effect from year to year only so long as such continuance is specifically
approved at least annually by the vote of the Fund's Board of Directors and by
the vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act), cast in person at a meeting called for the
purpose of voting on such continuance.
(b) This Plan may be terminated at any time by a vote
of a majority of the Directors who are not interested persons (as defined in the
1940 Act) or by the vote of the holders of a majority of the Fund's outstanding
voting securities (as defined in the 1940 Act).
(c) This Plan may not be amended to increase
materially the amount of payments to be made without approval by a vote of the
holders of at least a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act) and all amendments must be approved by the Board of
Directors in the manner set forth under (a) above.
<PAGE>
EX-99.B(18)(c)
Flag Investors Emerging Growth Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B,
Flag Investors Institutional and
Alex. Brown Capital Advisory & Trust Shares
Originally Adopted December 13, 1995
(As revised to reflect the addition of Flag Investors Class B Shares and the
Alex. Brown Capital Advisory & Trust Shares)
Amended through August 4, 1997
I. Introduction.
A. Authority. This Rule 18f-3 Multiple Class Plan (the "Plan") has been
adopted by the Board of Directors (the "Board") of Flag Investors Emerging
Growth Fund, Inc. (the "Fund"), including a majority of the Directors of the
Fund who are not "interested persons" of the Fund (the "Independent Directors")
pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the
"1940 Act").
B. History. The Fund is entitled to rely on an exemptive order dated
December 30, 1994, which amended and supplemented prior multi-class exemptive
orders dated August 27, 1985 and February 27, 1987, respectively, (Inv. Co. Act
Releases Nos. IC-20813, IC-14695 and IC-15592, respectively) (collectively, the
"Order"). On December 13, 1995, the Fund elected to rely on Rule 18f-3 rather
than the Order, as permitted by Rule 18f-3 subject to certain conditions, and
created a multiple class distribution arrangement for its classes of shares of
the common stock of the Fund's one existing series (the "Series"). The multiple
class distribution arrangement will be effective on the date of effectiveness of
the post-effective amendment to the Fund's registration statement that
incorporates the arrangement. The multi-class distribution arrangement will
apply to all existing (Flag Investors Class A, Flag Investors Class B, Flag
Investors Institutional and Alex. Brown Capital Advisory & Trust) and future
classes of Fund shares. The Flag Investors Class A Shares have been offered
since the Fund's inception on December 30, 1987 and the Flag Investors
Institutional Shares have been offered since November 1, 1995. The Flag
Investors Class B Shares have been offered since June 20, 1996 and the Alex.
Brown Capital Advisory & Trust Shares have been offered since January 10, 1997.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors. Before any material amendment of the
Plan, the Fund is required to obtain a finding by a majority of the Board, and a
majority of the Independent Directors, that the Plan as proposed to be amended,
including the expense allocations, is in the best interests of each class
individually and the Fund as a whole.
II. Attributes of Share Classes
A. The rights of each existing class of the Fund are not being changed
hereby, and the rights, obligations and features of each of the classes of the
Fund shall be as set forth in the Fund's Articles of Incorporation and Bylaws,
as each such document is amended or restated to date, the resolutions that are
adopted with respect to the classes of the Fund and that are adopted pursuant to
the Plan to date, and related materials of the Board, as set forth in Exhibit A
hereto.
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii)
<PAGE>
each class of shares shall separately bear any distribution expenses in
connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")1/; and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
III. Expense Allocations
Expenses of each class created after the date hereof must be
allocated as follows: (i) distribution and shareholder servicing payments
associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to
each respective class of shares (including any costs relating to implementing
such plans or any amendment thereto) will be borne exclusively by that class;
(ii) any incremental transfer agency fees relating to a particular class will be
borne exclusively by that class; and (iii) Class Expenses relating to a
particular class will be borne exclusively by that class.
The methodology and procedures for calculating the net asset
value and dividends and distributions of the various classes of shares of the
Fund and the proper allocation of income and expenses among the various classes
of shares of the Fund are required to comply with the Fund's internal control
structure pursuant to applicable auditing standards, including Statement on
Auditing Standards No. 55, and to be reviewed as part of the independent
accountants' review of such internal control structure. The independent
accountants' report on the Fund's system of internal controls required by Form
N-SAR, Item 77B, is not required to refer expressly to the procedures for
calculating the classes' net asset values.
- ---------------------
1/ Class Expenses are limited to any or all of the following: (i) transfer agent
fees identified as being attributable to a specific class of shares, (ii)
stationery, printing, postage, and delivery expenses related to preparing and
distributing materials such as shareholder reports, prospectuses, and proxy
statements to current shareholders of a specific class, (iii) Blue Sky
registration fees incurred by a class of shares, (iv) SEC registration fees
incurred by a class of shares, (v) expenses of administrative personnel and
services as required to support the shareholders of a specific class, (vi)
directors' fees or expenses incurred as a result of issues relating solely to a
class of shares, (vii) account expenses relating solely to a class of shares,
(viii) auditors' fees, litigation expenses, and legal fees and expenses relating
solely to a class of shares, and (ix) expenses incurred in connection with
shareholder meetings as a result of issues relating solely to a class of shares.
<PAGE>
Approved: September 26, 1995
Resolutions of Board Creating
Institutional Class of Shares
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Emerging Growth Fund, Inc. is authorized to
issue is hereby increased from ten million (10,000,000) to fifteen million
(15,000,000) and that from such amount, five million (5,000,000) authorized and
unissued shares be, and hereby are, designated and classified as the "Flag
Investors Emerging Growth Fund Institutional Shares";
FURTHER RESOLVED, that the proper officers of the Fund be, and each of
them hereby is, authorized and directed to file Articles Supplementary to the
Fund's Articles of Incorporation to effectuate the increase in authorized shares
and to designate and classify the new class;
FURTHER RESOLVED, that any filings previously made and any actions
previously taken by the appropriate officers of each Fund in connection with the
establishment and registration of the new class be, and they hereby are
ratified, confirmed and approved as the act and deed of such Fund.
Approved: September 26, 1995
Approval of Distribution Agreements
for New Flag Investors Institutional Shares
FURTHER RESOLVED, that the Distribution Agreement between Flag
Investors Emerging Growth Fund, Inc. and Alex. Brown & Sons Incorporated for the
Flag Investors Institutional Shares of said Fund be, and the same hereby is,
approved;
FURTHER RESOLVED, that the proper officers of Flag Investors Emerging
Growth Fund, Inc. be, and each of them hereby is, authorized and directed to
enter into and execute the Distribution Agreement on behalf of the Fund, and to
take all other actions that such officer deems necessary or appropriate in
connection with the execution of such agreement, the taking of any action to
establish conclusively such officer's authority therefore and the approval and
ratification thereof by the Fund.
Approved: October 1, 1996
Resolutions of Board Creating
Alex. Brown Capital Advisory & Trust Shares
RESOLVED, that the total number of shares of common stock, par value
$.001 per share, that Flag Investors Emerging Growth Fund, Inc. is authorized to
issue is hereby increased from fifteen million (15,000,000) to twenty million
(20,000,000) and that from such amount, five million (5,000,000) authorized and
unissued shares be, and hereby are, designated and classified as the "Alex.
Brown Advisory & Trust Emerging Growth Shares";
FURTHER RESOLVED, that the proper officers of Flag Investors Emerging
Growth Fund, Inc. be, and each of them hereby is, authorized and directed to
file Articles Supplementary to the Fund's Articles of Incorporation to
effectuate the increase in authorized shares and to designate and classify the
new class;
<PAGE>
Approved: October 1, 1996
Approval of Distribution Agreements for
New Alex. Brown Capital Advisory & Trust Shares
RESOLVED, that the Distribution Agreement between Flag Investors
Emerging Growth Fund, Inc. and Alex. Brown & Sons Incorporated for the Alex.
Brown Capital Advisory & Trust Shares of said Fund be, and the same hereby is,
approved in substantially the form presented to this meeting;
FURTHER RESOLVED, that the proper officers of Flag Investors Emerging
Growth Fund, Inc. be, and they hereby are, authorized and directed to enter into
and execute the appropriate Distribution Agreement on behalf of the Fund, and to
take all other actions that such officer deems necessary or appropriate in
connection with the execution of such agreement, the taking of any action to
establish conclusively such officer's authority therefore and the approval and
ratification thereof by the Fund.
Approved: August 4, 1997
Approval of Distribution Agreements for
All Classes of Emerging Growth Fund, Inc.
RESOLVED, that ICC Distributors, Inc. ("ICC ") be, and it hereby is,
appointed distributor for all classes of Alex. Brown Cash Reserve Fund, Inc.,
Flag Investors Telephone Income Fund, Inc., Flag Investors International Fund,
Inc., Flag Investors Emerging Growth Fund, Inc., Flag Investors
Short-Intermediate Income Fund, Inc., Flag Investors Value Builder Fund, Inc.,
Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc., Flag Investors
Real Estate Securities Fund, Inc. and Flag Investors Equity Partners Fund, Inc.,
and for the Flag Investors classes of each of Managed Municipal Fund, Inc. and
Total Return U.S. Treasury Fund, Inc., such appointment to be effective upon the
consummation of the merger of Alex. Brown Incorporated with and into a
subsidiary of Bankers Trust New York Corporation (the "Merger"), or at such
other time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc. and ICC Distributors, Inc. with
respect to all shares except the Flag Investors Shares be, and the same hereby
is, approved in substantially the form presented to this meeting and that the
appropriate officers of the Fund be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body;
FURTHER RESOLVED, that the proposed Distribution Agreement
between Alex. Brown Cash Reserve Fund, Inc., Flag Investors Telephone Income
Fund, Inc., Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., Total Return U.S. Treasury Fund, Inc. (for Flag Investors
Shares), Managed Municipal Fund, Inc. (for the Flag Investors Shares), Flag
Investors Short-Intermediate Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate Tax-Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc., and Flag Investors Equity
Partner Fund, Inc., and ICC Distributors, Inc. be, and the same hereby is,
approved in substantially the form presented to this meeting and that the
appropriate officers of the Funds be, and they hereby are, authorized and
directed to negotiate, enter into and execute such Distribution Agreement with
such modifications as said officers in consultation with counsel shall deem
necessary or appropriate or as may be required to conform with the requirements
of any applicable statute, regulation or regulatory body.
Approved: August 4, 1997
Approval of Plans of Distribution for
<PAGE>
Flag Investors Class A and Flag Investors Class B Shares
RESOLVED, that the Plan of Distribution for the Flag Investors
Class A Shares of Flag Investors Emerging Growth Fund, Inc. be, and hereby is,
amended to reflect the change in distributor effected at this meeting, such
amendment to be effective upon the consummation of the Merger, or such other
time as the proper officers of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved;
FURTHER RESOLVED, that the Plan of Distribution for the Flag
Investors Class B Shares of said Fund be, and hereby is, amended to reflect the
change in distributor effected at this meeting, such amendment to be effective
upon the consummation of the Merger, or such other time as the proper officers
of the Fund shall determine;
FURTHER RESOLVED, that the amended Plan is determined to be
reasonably likely to benefit such class and its shareholders; and that based on
information reasonably available to the Directors, expenditures contemplated by
such Plan are comparable to expenditures for other similar plans;
FURTHER RESOLVED, that the continuation of said Plan, as
amended, be, and the same hereby is, approved.
<PAGE>
Flag Investors Emerging Growth Fund, Inc.
18f-3 Plan Exhibits
1. Registrant's Articles of Incorporation filed as Exhibit (1)(a) to
Post-Effective Amendment No. 10 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 0000950116-95-000392) on August 18, 1995 is
incorporated herein by reference.
2. Registrant's Articles Supplementary establishing the ABCAT Shares is filed as
Exhibit (1)(e) to Post-Effective Amendment No. 14 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-21119), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 0000950116-97-000363) on
February 25, 1997 and is incorporated herein by reference.
3. Registrant's By-Laws are filed as Exhibit (2) to Post-Effective Amendment No.
14 to Registrant's Registration Statement on Form N-1A (Registration No.
33-21119) filed with the Securities and Exchange Commission via EDGAR (Accession
No. 0000950116-97-000363) on February 25, 1997 and are incorporated herein by
reference.
4. Registrant's Distribution Agreement between Registrant and ICC Distributors
Inc. with respect to Flag Investors Shares filed as Exhibit (6)(a) to this
Post-Effective Amendment No. 15 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-21119), filed herewith and is incorporated herein by
reference.
5. Registrant's Sub-Distribution Agreement between ICC Distributors, Inc. and
Participating Broker-Dealers is filed as Exhibit (6)(b) to this Post-Effective
Amendment No. 15 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-21119) filed herewith and is incorporated herein by
reference.
6. Registrant's Distribution Agreement between Registrant and ICC Distributors
with respect to Flag Investors Shares filed as Exhibit (6)(a) to this
Post-Effective Amendment No. 15 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-21119), filed herewith and is incorporated herein by
reference.
7. Registrant's Distribution Agreement between Registrant and ICC Distributors,
Inc. with respect to Flag Investors Shares filed as Exhibit (6)(a) to this
Post-Effective Amendment No. 15 to Registrant's Registration Statement on Form
N-1A (Registration No. 33-21119), filed herewith and is incorporated herein by
reference.
8. Registrant's Distribution Agreement between Registrant and ICC Distributors,
Inc. with respect to Alex. Brown Capital Advisory & Trust Shares is filed as
Exhibit (6)(a) to this Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-21119) filed herewith
and is incorporated herein by reference.
9. Registrant's Distribution Plan with respect to Flag Investors Emerging Growth
Fund Class A Shares filed as Exhibit (15)(c) to this Post-Effective Amendment
No. 15 to Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed herewith and is incorporated herein by reference.
10. Registrant's Distribution Plan with respect to Flag Investors Emerging
Growth Fund Class B Shares filed as Exhibit (15)(d) to this Post-Effective
Amendment No. 15 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-21119), filed herewith and is incorporated herein by
reference.
11. Registrant's Prospectus relating to its Class A and Class B Shares is filed
as part of this Registration Statement on Form N-1A (Registration No. 33-21119),
and as amended from time to time, is incorporated herein by reference.
12. Registrant's Prospectus relating to its Institutional Class Shares is filed
as part of this Registration Statement on Form N-1A (Registration No. 33-21119),
and as amended from time to time, is incorporated herein by reference.
13. Registrant's Prospectus relating to its Alex. Brown Capital Advisory & Trust
Class Shares is filed as part of this Registration Statement on Form N-1A
(Registration No. 33-21119), and as amended from time to time, is incorporated
herein by reference.
<PAGE>
EX-99.B(24)
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, James J. Cunnane, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Emerging Growth Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ James J. Cunnane
James J. Cunnane
Date: February 25, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Richard T. Hale, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Emerging Growth Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Richard T. Hale
Richard T. Hale
Date: February 25, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, John F. Kroeger, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Emerging Growth Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ John F. Kroeger
John F. Kroeger
Date: February 25, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Louis E. Levy, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Emerging Growth Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Louis E. Levy
Louis E. Levy
Date: February 25, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Eugene J. McDonald, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, his true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in his name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Emerging Growth Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Eugene J. McDonald
Eugene J. McDonald
Date: February 25, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Truman T. Semans, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert , and each of them singly, his true and lawful
attorney-in-fact and agent, with full power of substitution or resubstitution,
to do any and all acts and things and to execute any and all instruments, in his
name, place and stead, which said attorney-in-fact and agent may deem necessary
or advisable or which may be required to enable Flag Investors Emerging Growth
Fund, Inc. (the "Fund") to comply with the Securities Act of 1933, as amended
(the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940
Act"), and any rules, regulations or requirements of the Securities and Exchange
Commission in respect thereof, in connection with the Fund's Registration
Statement on Form N-1A pursuant to the 1933 Act and the 1940 Act, together with
any and all pre- and post-effective amendments thereto, including specifically,
but without limiting the generality of the foregoing, the power and authority to
sign in the name and on behalf of the undersigned as Chairman and a director of
the Fund such Registration Statement and any and all such pre- and
post-effective amendments filed with the Securities and Exchange Commission
under the 1933 Act and the 1940 Act, and any other instruments or documents
related thereto, and the undersigned does hereby ratify and confirm all that
said attorney-in-fact and agent, or either of them or their substitute or
substitutes, shall lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Truman T. Semans
Truman T. Semans
Date: February 25, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Carl W. Vogt, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and Amy M.
Olmert, and each of them singly, his true and lawful attorney-in-fact and agent,
with full power of substitution or resubstitution, to do any and all acts and
things and to execute any and all instruments, in his name, place and stead,
which said attorney-in-fact and agent may deem necessary or advisable or which
may be required to enable Flag Investors Emerging Growth Fund, Inc. (the "Fund")
to comply with the Securities Act of 1933, as amended (the "1933 Act") and the
Investment Company Act of 1940, as amended (the "1940 Act"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the Fund's Registration Statement on Form N-1A
pursuant to the 1933 Act and the 1940 Act, together with any and all pre- and
post-effective amendments thereto, including specifically, but without limiting
the generality of the foregoing, the power and authority to sign in the name and
on behalf of the undersigned as a director of the Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/ Carl W. Vogt
Carl W. Vogt
Date: February 25, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Rebecca W. Rimel, whose
signature appears below, does hereby constitute and appoint Edward J. Veilleux
and Amy M. Olmert, and each of them singly, her true and lawful attorney-in-fact
and agent, with full power of substitution or resubstitution, to do any and all
acts and things and to execute any and all instruments, in her name, place and
stead, which said attorney-in-fact and agent may deem necessary or advisable or
which may be required to enable Flag Investors Emerging Growth Fund, Inc. (the
"Fund") to comply with the Securities Act of 1933, as amended (the "1933 Act")
and the Investment Company Act of 1940, as amended (the "1940 Act"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the Fund's Registration Statement on Form
N-1A pursuant to the 1933 Act and the 1940 Act, together with any and all pre-
and post-effective amendments thereto, including specifically, but without
limiting the generality of the foregoing, the power and authority to sign in the
name and on behalf of the undersigned as a director of the Fund such
Registration Statement and any and all such pre- and post-effective amendments
filed with the Securities and Exchange Commission under the 1933 Act and the
1940 Act, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorney-in-fact and
agent, or either of them or their substitute or substitutes, shall lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand and seal
as of the date set forth below.
/s/ Rebecca W. Rimel
Rebecca W. Rimel
Date: February 25, 1998
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