<PAGE>
As Filed With the Securities and Exchange Commission on December 30, 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. 16 [x]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 20 [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
1701 Market Street
Philadelphia, Pennsylvania 19103
- --------------------------------------------------------------------------------
It is proposed that this filing will become effective (check appropriate box)
___ immediately upon filing pursuant to paragraph (b)
___ on March 1, 1999 pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
_X_ on March 1, 1999 pursuant to paragraph (a)(2) of Rule 485
- --------------------------------------------------------------------------------
<PAGE>
FLAG INVESTORS
EMERGING GROWTH FUND, INC.
(Class A and Class B Shares )
Prospectus & Application -- March 1, 1999
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks to achieve long-term capital
appreciation primarily through investment in a diversified portfolio of small
and mid-sized emerging growth companies.
The Fund offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Class A Shares (the "Class A Shares") and Flag Investors Class B Shares (the
"Class B Shares") of the Fund. These separate classes give you a choice as to
sales charge and fund expenses. (Refer to the section on sales charges and the
attached Application.)
TABLE OF CONTENTS
Page
----
Investment Summary............................................................ 2
Fees and Expenses of the Fund................................................. 4
Investment Program............................................................ 5
The Fund's Net Asset Value.................................................... 6
How to Buy Shares............................................................. 7
How to Redeem Shares.......................................................... 8
Telephone Transactions........................................................ 9
Sales Charges.................................................................10
How to Choose the Class That Is Right for You.................................13
Dividends and Taxes...........................................................14
Investment Advisor and Sub-Advisor............................................15
Financial Highlights..........................................................16
Application..................................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.
1
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks to achieve long-term capital appreciation primarily
through investment in a diversified portfolio of common stocks of small and
mid-sized emerging growth companies. The Fund's investment advisor and
sub-advisor will attempt to identify emerging growth companies that they believe
have the ability or potential to sustain a high level of growth. The advisors
will focus on a number of key selection criteria including a company's industry
position, management quality and experience, accounting and financial policies,
marketing and service capabilities, and product development efforts.
Risk Profile
The Fund is best suited for investors who are willing to accept the
risks and uncertainties of investing in emerging growth companies in the hope of
achieving above average long-term capital appreciation. The value of an
investment in the Fund will vary from day to day, based on changes in the prices
of securities the Fund holds. Those prices, in turn, reflect investor
perceptions of the economy, the markets and the companies represented in the
Fund's portfolio. The stocks of small and mid-sized companies may experience
greater price volatility than those of larger companies. The market for such
stocks may be more limited and the companies themselves may be more vulnerable
to economic or company specific problems. An investment in the Fund is not a
bank deposit and is not guaranteed by the FDIC or any other government agency.
Fund Performance
The following bar chart and table show the performance of the Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. This is an historical record and does not necessarily indicate how the
Fund will perform in the future.
2
<PAGE>
Class A Shares*
For years ended December 31,
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50% 49.62%
40% 37.34%
32.2%
30%
20.74%
20% 18.2%
10%
5.03%
0% -0.77%
-9.18%
- -10%
- -20% -21.07%
- -30%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
</TABLE>
* The bar chart does not reflect sales charges. If it did, returns
would be less than those shown.
During the 10-year period shown in the bar chart, the highest return for a
quarter was _____% (quarter ended ___________) and the lowest return for a
quarter was ______% (quarter ended _______________).
Average Annual Total Return (for periods ended December 31, 1998)
<TABLE>
<CAPTION>
Class A Shares(1) S&P 500(2) Class B Shares(1) S&P 500(2)
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Past One Year....... ___% ____% ___% ___%
Past Five Years..... ___% ____% n/a n/a
Past Ten Years...... ___% ____% n/a n/a
Since Inception..... ___% (12/30/87) ____%(3) ___% (6/20/96) ___%(4)
</TABLE>
- ----------
(1) These figures assume the reinvestment of dividends and capital gains
distributions and include the impact of the maximum sales charges.
(2) The Standard & Poor's 500 Composite Index is an unmanaged index that is a
widely recognized benchmark of general market performance. The index is a
passive measure of equity market returns. It does not factor in the costs of
buying, selling and holding securities -- costs which are reflected in the
Fund's results.
(3) For the period from 12/31/87 through 12/31/98.
(4) For the period from 6/30/96 through 12/31/98.
3
<PAGE>
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
Initial Sales Deferred Sales
Charge Charge
Alternative Alternative
----------- -----------
<S> <C> <C>
Shareholder Transaction Expenses:
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of offering price)................................................ 4.50%* None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, whichever is lower)
For purchases made before May 1, 1999...................................... 0.50%* 4.00%**
For purchases made on or after May 1, 1999................................. 1.00%* 4.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends..................... None None
Redemption Fee ................................................................. None None
Exchange Fee.................................................................... None None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees................................................................. 0.85% 0.85%
Distribution and/or Service (12b-1) Fees........................................ 0.25% 0.75%
Other Expenses (including a 0.25% shareholder servicing fee for Class B
Shares) ..................................................................... 0.31% 0.56%
Total Annual Fund Operating Expenses............................................ 1.41% 2.16%
</TABLE>
- ----------
* You will pay no sales charge on purchases of $1 million or more of Class A
Shares but, unless you are otherwise eligible for a sales charge waiver or
reduction, you may pay a contingent deferred sales charge when you redeem
your shares. (See "Sales Charges -- Redemption Price.")
** Contingent deferred sales charges decline over time and reach zero after
six years. At that time, Class B Shares convert automatically to Class A
Shares. (See "Sales Charges" and "How to Choose the Class That Is Right for
You.")
Example
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs
would be:
4
<PAGE>
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares................................. $587 $876 $1,186 $2,065
Class B Shares................................. $619 $976 $1,359 $2,127
</TABLE>
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<S> <C> <C> <C> <C>
Class A Shares................................. $587 $876 $1,186 $2,065
Class B Shares................................. $219 $676 $1,159 $2,128
</TABLE>
Federal regulations require that the table above reflect the maximum
sales charge. However, you may qualify for reduced sales charges or no sales
charge at all. (Refer to the section on sales charges.) If you hold your
shares for a long time, the combination of the initial sales charge you paid
and the recurring 12b-1 fees may exceed the maximum sales charges permitted by
the Conduct Rules of the National Association of Securities Dealers, Inc.
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks to achieve long-term capital appreciation primarily
through investment in a diversified portfolio of small and mid-sized emerging
growth companies.
The Fund's investment advisor and sub-advisor (collectively, the
"Advisors") are responsible for managing the Fund's investments. (Refer to the
section on the Investment Advisor and Sub-Advisor). The Advisors will seek to
identify companies that, in their opinion, are well managed and have
experienced or have the potential to experience rapid growth in their revenue,
earnings, assets and cash flow. The selection criteria will include a
company's industry position, management qualifications and experience,
accounting and financial policies, marketing and service capabilities, and
product developments efforts. The Advisors will invest in a broad
cross-section of industries in an effort to limit the Fund's volatility. The
Fund will invest primarily, but not exclusively, in the businesses of
technology, health care, business services, energy, transportation, financial
services, consumer products and services and capital goods.
An investment in the Fund involves risk. Over time, common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be volatile. In general, stock prices are sensitive to
developments affecting particular companies and to general economic conditions
that affect particular industry sectors or the securities markets as a whole.
In addition to the general risks of the stock markets, investing in small to
mid-size companies entails special risks. The stock prices of emerging growth
companies tend to be more volatile than investments in larger, more
established companies making such investments more speculative. In particular,
the companies that the Fund invests in may have limited product lines,
markets, and financial resources, and may depend on a relatively small
management group. There can be no guarantee that the Fund will achieve its
goals.
5
<PAGE>
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in money market instruments, investments
that would not ordinarily be consistent with the Fund's objectives. While
engaged in a temporary defensive strategy, the Fund may not achieve its
investment objective. The Advisors would follow such a strategy only if they
believed the risk of loss outweighed the opportunity for gain.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others, with which the Fund does business experience difficulties as a result
of year 2000 issues.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. When you buy Class A Shares,
the price you pay may be increased by a sales charge. When you redeem either
class of shares, the amount you receive may be reduced by a sales charge. Read
the section on sales charges for details on how and when these charges may or
may not be imposed.
The net asset value per share of the Fund is determined at the close of
regular trading on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern
Time) on each day the Exchange is open for business. It is calculated by
subtracting the liabilities attributable to a class from its proportionate share
of the Fund's assets and dividing the result by the outstanding shares of the
class. Because the different classes have different distribution or service
fees, their net asset values may differ from time to time.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
6
<PAGE>
The following sections describe how to buy and redeem shares.
HOW TO BUY SHARES
You may buy either class of the Fund's shares through your securities
dealer or through any financial institution that is authorized to act as a
shareholder servicing agent. Contact them for details on how to enter and pay
for your order. You may also buy shares by sending your check (along with a
completed Application Form) directly to the Fund. The Application Form, which
includes instructions, is attached to this Prospectus.
You may invest in Class A Shares unless you are a defined contribution
plan with assets of $75 million or more.
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.
Investment Minimums
Your initial investment 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.
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. If you participate
in the monthly plan, your subsequent investments may be as low as
$100. If you participate in the quarterly plan, your subsequent
investments may be as low as $250. Refer to the section on the
Fund's Automatic Investing Plan for details.
o There is no minimum investment requirement for qualified retirement
plans such as 401(k), pension or profit sharing plans.
Investing Regularly
You may make regular investments in the Fund through any of the
following methods. If you wish to enroll in any of these programs or if you need
any additional information, complete the appropriate section of the attached
Application Form or contact your securities dealer, your servicing agent, or the
Transfer Agent.
7
<PAGE>
Automatic Investing Plan. You may elect to make a regular monthly or
quarterly investment in either class of shares. The amount you decide upon will
be withdrawn from your checking account using a pre-authorized check. When the
money is received by the Transfer Agent, it will be invested in the class of
shares selected at that day's offering price. Either you or the Fund may
discontinue your participation upon 30 days' notice.
Dividend Reinvestment Plan. Unless you elect otherwise, all income and
capital gains distributions will be reinvested in additional Fund shares at net
asset value. You may elect to receive your distributions in cash or to have your
distributions invested in shares of other Flag Investors funds. To make either
of these elections or to terminate automatic reinvestment, complete the
appropriate section of the attached Application Form or notify the Transfer
Agent, your securities dealer or your servicing agent at least five days before
the date on which the next dividend or distribution will be paid.
Systematic Purchase Plan. You may also purchase either class of shares
through a Systematic Purchase Plan. Contact your securities dealer or servicing
agent for details.
HOW TO REDEEM SHARES
You may redeem either class of the Fund's shares through your
securities dealer or servicing agent. Contact them for details on how to enter
your order and for information as to how you will be paid. If you have an
account with the Fund that is in your name, you may also redeem shares by
contacting the Transfer Agent by mail or (if you are redeeming less than
$50,000) by telephone. The Transfer Agent will mail your redemption check within
seven days after it receives your order in proper form. Refer to the section on
telephone transactions for more information on this method of redemption.
Your securities dealer, your servicing agent or the Transfer Agent may
require the following documents before they redeem your shares:
1) A letter of instructions specifying your account number and the number
of shares or dollar amount you wish to redeem. The letter must be
signed by all owners of the shares exactly as their names appear on the
account.
2) If you are redeeming more than $50,000, a guarantee of your signature
by a member of the Federal Deposit Insurance Corporation, a trust
company, broker, dealer, securities exchange or association, clearing
agency, savings association or (if authorized by state law) credit
union.
3) Any stock certificates representing the shares you are redeeming. The
certificates must be either properly endorsed or accompanied by a duly
executed stock power.
4) Any additional documents that may be required if your account is in the
name of a corporation, partnership, trust or fiduciary.
8
<PAGE>
Other Redemption Information
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be paid to you by check, whether or not that is the payment option
you have selected.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you 60
days' notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
If you own Fund shares having a value of at least $10,000, you may
arrange to have some of your shares redeemed monthly or quarterly under the
Fund's Systematic Withdrawal Plan. Each redemption under this plan involves all
the tax and sales charge implications normally associated with Fund redemptions.
Contact your securities dealer, your servicing agent or the Transfer Agent for
information on this plan.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $50,000 or exchange them for shares in another
Flag Investors fund by calling the Transfer Agent on any Business Day between
the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You are automatically
entitled to telephone transaction privileges but you may specifically request
that no telephone redemptions or exchanges be accepted for your account. You may
make this election when you complete the Application Form or at any time
thereafter by completing and returning documentation supplied by the Transfer
Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that they reasonably believe to be genuine.
Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by mail. If you hold your shares in
certificate form, you may not exchange or redeem them by telephone.
9
<PAGE>
SALES CHARGES
Purchase Price
The price you pay to buy shares will be the Fund's offering price which
is calculated by adding any applicable sales charges to the net asset value per
share of the class you are buying. The amount of any sales charge included in
your purchase price will be according to the following schedule:
<TABLE>
<CAPTION>
Class A
Sales Charge
as % of
-------------------------
Offering Net Amount Class B
Amount of Purchase Price Invested Sales Charge
------------------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Less than $ 50,000 ....................... 4.50% 4.71% None
$ 50,000 - $ 99,999 ....................... 3.50% 3.63% None
$ 100,000 - $249,999 ....................... 2.50% 2.56% None
$ 250,000 - $499,999 ....................... 2.00% 2.04% None
$ 500,000 - $999,999 ....................... 1.50% 1.52% None
$1,000,000 and over ......................... None None None
</TABLE>
Although you do not pay an initial sales charge when you invest
$1,000,000 or more in Class A Shares or when you buy any amount of Class B
Shares, you may pay a sales charge when you redeem your shares. Refer to the
section on sales charges on redemptions for details.
The sales charge you pay on your current purchase of Class A Shares may
be reduced under the circumstances listed below.
Rights of Accumulation. If you are purchasing additional Class A Shares
of this Fund or Class A shares of any other Flag Investors fund or if you
already have investments in Class A shares, you may combine the value of your
purchases with the value of your existing investments to determine whether you
qualify for a reduced sales charge. (For this purpose your existing investments
will be valued at the higher of cost or current value.) You may also combine
your purchases and investments with those of your spouse and your children under
the age of 21 for this purpose. You must be able to provide sufficient
information to verify that you qualify for this right of accumulation.
Letter of Intent. If you anticipate making additional purchases of Class
A Shares over the next 13 months, you may combine the value of your current
purchase with the value of your anticipated purchases to determine whether you
qualify for a reduced sales charge. You will be required to sign a letter of
intent specifying the total value of your anticipated purchases and to initially
purchase at least 5% of the total. When you make each purchase during the
period, you will pay the sales charge applicable to their combined value. If, at
the end of the 13-month period, the total value of your purchases is less than
10
<PAGE>
the amount you indicated, you will be required to pay the difference between
sales charges you paid and the sales charges applicable to the amount you
actually did purchase. Some of the shares you own will be redeemed to pay this
difference.
Purchases at Net Asset Value. You may buy Class A Shares without paying
a sales charge under the following circumstances:
1) If you are reinvesting some or all of the proceeds of a redemption of
Class A Shares made within the last 90 days.
2) If you are exchanging an investment in another Flag Investors fund for
an investment in this Fund (see "Purchases by Exchange" for a
description of the conditions).
3) If you are a current or retired Fund Director, a director, an employee
or a member of the immediate family of an employee of any of the
following (or their respective affiliates): the Fund's distributor, the
Advisors or a broker-dealer authorized to sell shares of the Fund.
4) If you are buying shares in any of the following types of accounts:
(i) A qualified retirement plan;
(ii) A Flag Investors fund payroll savings plan program;
(iii) 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 securities dealer or servicing
agent if you buy shares in this manner.
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 B Shares, as
applicable, without payment of the sales charges described above or any other
charge. If you exchange Class A shares of any Flag Investors fund with a lower
sales charge structure into Class A Shares, you will be charged the difference
in sales charges unless (with the exception of Flag Investors Cash Reserve Prime
Class A Shares) you have owned the shares for at least 24 months. 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. The Fund may modify or terminate these
offers of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
11
<PAGE>
Redemption Price
The amount of any sales charge deducted from your redemption price will
be determined according to the following schedule.
<TABLE>
<CAPTION>
Sales Charge as a Percentage of the Dollar Amount Subject to Charge
-------------------------------------------------------------------
Class A Sales Charge Class B Sales Charge
(as % of (as % of
Years Since Purchase Cost or Value) Cost or Value)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First ......................................... 1.00%* 4.00%
Second ........................................ 0.50%* 4.00%
Third ......................................... None 3.00%
Fourth ........................................ None 3.00%
Fifth ......................................... None 2.00%
Sixth ......................................... None 1.00%
Thereafter .................................... None None
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* You will pay a sales charge when you redeem Class A Shares only if you bought
those shares at net asset value as part of an investment of $1 million or
more. For purchases of $1 million or more of Class A Shares made before May
1, 1999, you will pay a sales charge of 0.50% if you redeem them within the
first year of purchase instead of the 1.00% reflected in the above table.
Determination of Sales Charge. The sales charge applicable to your
redemption is calculated in a manner that results in the lowest possible rate:
1) No sales charge will be applied to shares you own as a result of
reinvesting dividends or distributions.
2) If you have purchased shares at various times, the sales charge will be
applied first to shares you have owned for the longest period of time.
3) If you acquired the shares through an exchange of shares of another
Flag Investors fund, the period of time you held the original shares
will be combined with the period of time you held the shares being
redeemed to determine the years since purchase.
4) The sales charge is applied to the lesser of the cost of the shares or
their value at the time of your redemption.
Waiver of Sales Charge. You may redeem shares without paying a sales
charge under any of the following circumstances:
1) If you are exchanging your shares for shares of another Flag Investors
fund with the same sales charge structure.
12
<PAGE>
2) If your redemption represents the minimum required distribution from an
individual retirement account or other retirement plan.
3) If your redemption represents a distribution from a Systematic
Withdrawal Plan. This waiver applies only if the annual withdrawals
under your Plan are 12% or less of your share balance.
4) If shares are being redeemed in your account following your death or a
determination that you are disabled. This waiver applies only under the
following conditions:
(i) The account is registered in your name either individually, as
a joint tenant with rights of survivorship, as a participant
in community property, or as a minor child under the Uniform
Gifts or Uniform Transfers to Minors Acts.
(ii) Either you or your representative notifies your securities
dealer, servicing agent or the Transfer Agent that such
circumstances exist.
5) If you are redeeming Class A Shares, your original investment was at
least $3,000,000 and your securities dealer has agreed to return to the
Fund's distributor any payments received when you bought your shares.
Automatic Conversion of Class B Shares. Your Class B Shares, along with
any reinvested dividends or distributions associated with those shares, will be
automatically converted to Class A Shares six years after your purchase. This
conversion will be made on the basis of the relative net asset values of the
classes and will not be a taxable event to you.
HOW TO CHOOSE THE CLASS THAT IS RIGHT FOR YOU
Your decision as to which class of the Fund's shares is best for you
should be based upon a number of factors including the amount of money you
intend to invest and the length of time you intend to hold your shares.
If you choose Class A Shares, you will pay a sales charge when you buy
your shares but the amount of the charge declines as the amount of your
investment increases. You will pay lower expenses while you hold the shares and,
except in the case of investments of $1,000,000 or more, no sales charge if you
redeem them.
If you choose Class B Shares, you will pay no sales charge when you buy
your shares but your annual expenses will be higher than Class A Shares. You
will pay a sales charge if you redeem your shares within six years of purchase,
but the amount of the charge declines the longer you hold your shares and, at
the end of six years, your shares convert to Class A Shares thus eliminating the
higher expenses.
13
<PAGE>
In general, if you intend to invest more than $100,000 your combined
sales charges and expenses are lower with Class A Shares. If you intend to
invest less than $100,000 and expect to hold your shares for more than six
years, your combined sales charges and expenses are lower with Class B Shares.
Your securities dealer is paid a commission when you buy your shares
and is paid a servicing fee for as long as you hold your shares. Your securities
dealer or servicing agent may receive different levels of compensation depending
upon which class of shares you buy.
Distribution Plans
The Fund has adopted plans under Rule 12b-1 that allows the Fund to pay
your securities dealer or shareholder servicing agent distribution and other
fees for the sale of its shares and for shareholder service. Class A Shares pay
an annual distribution fee equal to 0.25% of average daily net assets. Class B
Shares pay an annual distribution fee of 0.75% of average daily net assets and
an annual shareholder servicing fee of 0.25% of average daily net assets.
Because these fees are paid out of net assets on an on-going basis, they will,
over time, increase the cost of your investment and may cost you more than
paying other types of sales charges.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of annual dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary income and capital gains
distributions are taxed at various rates based on how long the Fund held the
assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the shares. An exchange of shares of the Fund for shares of another fund is
a sale of Fund shares for tax purposes. More information about taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique and because the
tax laws are subject to change, you should consult your tax advisor about your
investment.
14
<PAGE>
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Brown Investment Advisory & Trust Company (formerly,
Alex. Brown Capital Advisory & Trust Company) ("Brown Trust" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex Brown. Cash
Reserve Fund, Inc. These funds, together with the Fund, had approximately $__
billion of net assets as of December 31, 1998. Brown Trust is a Maryland trust
company with approximately $__ billion under management as of December 31, 1998.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of Brown Trust. Brown Trust is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates.
As compensation for its advisory services for the fiscal year ended
October 31, 1998, ICC received from the Fund a fee equal to 0.85% of the Fund's
average daily net assets. ICC compensates Brown Trust out of its advisory fee.
Portfolio Manager
Frederick L. Meserve, Jr. has been responsible for managing the Fund's
assets since November, 1993. Mr. Meserve is a Managing Director at Brown Trust
where he has served as the Fund's portfolio manager since October, 1998. Prior
thereto, Mr. Meserve served as the Fund's portfolio manager while employed at BT
Alex. Brown. Mr. Meserve has been a member of BT Alex. Brown's Investment
Committee from 1979 to the present. 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.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance for the last five fiscal years. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information is part of the Fund's financial statements, which have been audited
by PricewaterhouseCoopers LLP. These financial statements are included in the
Statement of Additional Information, which is available upon request.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A Shares Class B Shares
----------------------------------------- -----------------------------------
For the
Period
June 20, 1996(1)
For the Year through
For the Year Ended October 31, Ended October 31, October 31,
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period......................... $23.17 $19.14 $17.09 $12.90 $14.02 $22.88 $19.10 $19.22
------ ------ ------ ------ ------ ------ ------ ------
Income from Investment Operations:
Expenses in excess of income...... (0.22) (0.18) (0.15) (0.09) (0.08) (0.37)(2) (0.18) (0.12)
Net realized and unrealized
gain/(loss) on investments...... (2.82) 4.95 3.10 4.32 0.47 (2.77) 4.70 --
------ ---- ---- ---- ---- ------ ----- ------
Total from Investment Operations.. (3.04) 4.77 2.95 4.23 0.39 (3.14) 4.52 (0.12)
------ ---- ---- ---- ---- ------ ----- ------
Less Distributions:
Distributions from net realized
short-term gains................ (0.21) (0.21) (0.30) -- -- (0.21) (0.21) --
Distributions from net realized
mid-term and long-term gains.... (0.84) (0.53) (0.60) (0.04) (1.51) (0.84) (0.53) --
------ ------ ------ ------ ------ ------ ------ ------
Total distributions............... (1.05) (0.74) (0.90) (0.04) (1.51) (1.05) (0.74) --
------ ------ ------ ------ ------ ------ ------ ------
Net asset value at end of period . $19.08 $23.17 $19.14 $17.09 $12.90 $18.69 $22.88 $19.10
====== ====== ====== ====== ====== ====== ====== ======
Total Return(3)........................... (13.48)% 25.93% 18.19% 32.92% 3.75% 14.11)% 24.69% (0.62)%
Ratios to Average Daily Net Assets:
Expenses.......................... 1.41% 1.44% 1.50% 1.50% 1.50% 2.16% 2.19% 2.25%(4)
Expenses in excess of income...... (1.03)% (0.97)% (0.83)% (0.64)% (0.73)% (1.77)% (1.73)% (1.67)%(4)
Supplemental Data:
Net assets at end of period (000): $65,247 $71,123 $45,325 38,127 $5,155 $5,719 $23,302 772
Portfolio turnover rate........... 23% 42% 24% 39% 86% 23% 42% 24%(4)
</TABLE>
- ----------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
16
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Make check payable to "Flag Investors Emerging Growth For assistance in completing this Application please call: 1-800-553-8080,
Fund, Inc." and mail with this Application to: Monday through Friday, 8:30 a.m. to 5:30 p.m. (Eastern Time).
Flag Investors Funds To open an IRA account, please call 1-800-767-3524 for an
P.O. Box 419663 IRA information kit.
Kansas City, MO 64141-6663
Attn: Flag Investors Emerging Growth Fund, Inc.
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 Gifts to Minors
______________________________________________________ ______________________________________________________
First Name Initial Last Name Custodian's Name (only one allowed by law)
_______________________________________________________ ________________________________________________________
Social Security Number Minor's Name (only one)
_______________________________________________________ _______________________________ ______________________
Joint Tenant Initial Last Name Social Security Number of Minor Minor's Date of Birth
(Mo./Day/Yr.)
under the __________________ Uniform Gifts to Minors Act
(State of Residence)
Corporations, Trusts, Partnerships, etc. Mailing Address
_______________________________________________________ ________________________________________________________
Name of Corporation, Trust or Partnership Street
____________________ ________________________ ________________________________________________________
Tax ID Number Date of Trust City State Zip
( )
_______________________________________________________ ________________________________________________________
Name of Trustees (if to be included in the Registration) Daytime Phone
_______________________________________________________
For the Benefit of
Letter of Intent (Optional)
|_| I agree to the Letter of Intent set forth in the accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Emerging Growth Fund, Inc., in an aggregate amount at least
equal to:
|_|$50,000 |_|$100,000 |_|$250,000 |_|$500,000 |_|$1,000,000
Right of Accumulation (Optional)
List the Account numbers of other Flag Investors Funds that you or your immediate family already own that qualify you for reduced
sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
Distribution Options
Please check 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.
</TABLE>
A-1
<PAGE>
<TABLE>
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.
<S> <C>
_________________________________________________ _________________________________________________________________________
Bank Name Depositor's Signature Date
_________________________________________________ _________________________________________________________________________
Existing Flag Investors Fund Account No., if any Depositor's Signature (if joint acct., both must sign) Date
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
predesignated bank account, please provide the following information:
Bank: ______________________________________ Bank Account No.: __________________________________
Address: ___________________________________ Bank Account Name: _________________________________
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 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 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
either 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 800-553-8080.)
|_| 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 acknowledge that I am of legal age in the state of my residence. I have received a copy of the Fund's prospectus.
- ------------------------------------------------------------------------------------------------------------------------------------
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 joint acct., both must sign) Date
- ------------------------------------------------------------------------------------------------------------------------------------
For Dealer Use Only
Dealer's Name: _____________________________________ Dealer Code: _____________________________________________________
Dealer's Address: __________________________________ Branch Code: _____________________________________________________
Representative: ____________________________________ Rep. No.: ________________________________________________________
</TABLE>
A-2
<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
Sub-Advisor Distributor
BROWN INVESTMENT ADVISORY & TRUST COMPANY ICC DISTRIBUTORS, INC.
Furness House Two Portland Square
19 South Street Portland, Maine 04101
Baltimore, Maryland 21202
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion of
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund and you may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-5320
EGPRS
<PAGE>
FLAG INVESTORS
EMERGING GROWTH FUND, INC.
(Institutional Shares)
Prospectus & Application -- March 1, 1999
- --------------------------------------------------------------------------------
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.
The Fund offers shares through securities dealers and financial
institutions that act as shareholder servicing agents. You may also buy shares
through the Fund's Transfer Agent. This Prospectus describes Flag Investors
Institutional Shares (the "Institutional Shares") of the Fund. Institutional
Shares may be purchased only by eligible institutions, certain qualified
retirement plans or by investment advisory affiliates of BT Alex. Brown
Incorporated on behalf of their clients. (See "How to Buy Institutional
Shares.")
TABLE OF CONTENTS
Page
----
Investment Summary............................................................2
Fees and Expenses of the Institutional Shares.................................4
Investment Program............................................................4
The Fund's Net Asset Value....................................................6
How to Buy Institutional Shares...............................................6
How to Redeem Institutional Shares............................................7
Telephone Transactions........................................................8
Dividends and Taxes...........................................................8
Investment Advisor and Sub-Advisor............................................9
Financial Highlights.........................................................10
Application.................................................................A-1
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor disapproved
these securities nor has it passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
1
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
The Fund seeks long-term capital appreciation primarily through
investment in a diversified portfolio of common stocks of small and mid-sized
emerging growth companies. The Fund's investment advisor and sub-advisor will
attempt to identify emerging growth companies that they believe have the ability
or potential to sustain a high level of growth. The advisors will focus on a
number of key selection criteria including a company's industry position,
management quality and experience, accounting and financial policies, marketing
and service capabilities, and product development efforts.
Risk Profile
The Fund is best suited for investors who are willing to accept the
risks and uncertainties of investing in emerging growth companies in the hope of
achieving above average long-term capital appreciation. The value of an
investment in the Fund will vary from day to day, based on changes in the prices
of securities the Fund holds. Those prices, in turn, reflect investor
perceptions of the economy, the markets and the companies represented in the
Fund's portfolio. The stocks of small and mid-sized companies may experience
greater price volatility than those of larger companies. The market for such
stocks may be more limited and the companies themselves may be more vulnerable
to economic or company specific problems. An investment in the Fund is not a
bank deposit and is not guaranteed by the FDIC or any other government agency.
Fund Performance
The following bar chart and table show the performance of the
Institutional Shares both year-by-year and as an average over different periods
of time. The variability of performance over time provides an indication of the
risks of investing in the Fund. This is an historical record and does not
necessarily indicate how the Fund will perform in the future.
2
<PAGE>
Institutional Shares
For years ended December 31,
21.08%
1997 1998
During the 2-year period shown in the bar chart, the highest return for a
quarter was _____% (quarter ended _________) and the lowest return for a quarter
was ______% (quarter ended _______________).
Average Annual Total Return (for periods ended December 31, 1998)
Institutional Shares(1) S&P 500(2)
--------------------------------------------------
Past One Year ............... _____% _____%
Since Inception ............. _____%(11/2/95) _____%(3)
- --------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The Standard & Poor's 500 Composite Index is an unmanaged index that is a
widely recognized benchmark of general market performance. The index is a
passive measure of equity market returns. It does not factor in the costs of
buying, selling and holding securities -- costs which are reflected in the
Fund's results.
(3) For the period from 11/1/95 through 12/31/98.
3
<PAGE>
FEES AND EXPENSES OF THE INSTITUTIONAL SHARES
This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses: (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases .................................... None
Maximum Deferred Sales Charge (Load)................................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......................... None
Redemption Fee ...................................................................... None
Exchange Fee......................................................................... None
Annual Fund Operating Expenses: (expenses that are deducted from Fund assets)
Management Fees...................................................................... 0.85%
Distribution and/or Service (12b-1) Fees............................................. None
Other Expenses....................................................................... 0.31%
Total Annual Fund Operating Expenses................................................. 1.16%
</TABLE>
Example
This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Institutional Shares
for the time periods indicated and then redeem all of your shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Institutional Shares............................. $220 $686 $1,189 $2,218
</TABLE>
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks long-term capital appreciation primarily through
investment in a diversified portfolio of small and mid-sized emerging growth
companies.
4
<PAGE>
The Fund's investment advisor and sub-advisor (collectively, the
"Advisors") are responsible for managing the Fund's investments. (Refer to the
section on the Investment Advisor and Sub-Advisor). The Advisors will seek to
identify companies that, in their opinion, are well managed and have experienced
or have the potential to experience rapid growth in their revenue, earnings,
assets and cash flow. The selection criteria will include a company's industry
position, management qualifications and experience, accounting and financial
policies, marketing and service capabilities, and product developments efforts.
The Advisors will invest in a broad cross-section of industries in an effort to
limit the Fund's volatility. The Fund will invest primarily, but not
exclusively, in the businesses of technology, health care, business services,
energy, transportation, financial services, consumer products and services and
capital goods.
An investment in the Fund involves risk. Over time, common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be volatile. In general, stock prices are sensitive to
developments affecting particular companies and to general economic conditions
that affect particular industry sectors or the securities markets as a whole. In
addition to the general risks of the stock markets, investing in small to
mid-size companies entails special risks. The stock prices of emerging growth
companies tend to be more volatile than investments in larger, more established
companies making such investments more speculative. In particular, the companies
that the Fund invests in may have limited product lines, markets, and financial
resources, and may depend on a relatively small management group. There can be
no guarantee that the Fund will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in money market instruments, investments
that would not ordinarily be consistent with the Fund's objectives. While
engaged in a temporary defensive strategy, the Fund may not achieve its
investment objective. The Advisors would follow such a strategy only if they
believed the risk of loss outweighed the opportunity for gain.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse consequences to the Fund. The Fund and its shareholders may
experience losses if these assurances prove to be incorrect or if issuers of
portfolio securities or third parties, such as custodians, banks, broker-dealers
or others, with which the Fund does business experience difficulties as a result
of year 2000 issues.
5
<PAGE>
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. The net asset value per share
of the Fund is determined at the close of regular trading on the New York Stock
Exchange (ordinarily 4:00 p.m. Eastern Time) on each day the Exchange is open
for business. It is calculated by subtracting the liabilities attributable to a
class from its proportionate share of the Fund's assets and dividing the result
by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem Institutional Shares on any day the New York
Stock Exchange is open for business (a "Business Day"). If your order is entered
before the net asset value per share is determined for that day, the price you
pay or receive will be based on that day's net asset value per share. If your
order is entered after the net asset value per share is determined for that day,
the price you pay or receive will be based on the next Business Day's net asset
value per share.
The following sections describe how to buy and redeem Institutional
Shares.
HOW TO BUY INSTITUTIONAL SHARES
You may buy Institutional Shares if you are any of the following:
o An eligible institution (e.g., a financial institution, corporation,
investment counselor, trust, estate or educational, religious or
charitable institution or a qualified retirement plan other than a
defined contribution plan).
o A defined contribution plan with assets of at least $75 million.
o An investment advisory affiliate of BT Alex. Brown purchasing
shares for the accounts of your investment advisory clients.
You may buy Institutional Shares through your securities dealer or
through any financial institution that is authorized to act as a shareholder
servicing agent. Contact them for details on how to enter and pay for your
order. You may also buy Institutional Shares by sending your check (along with a
completed Application Form) directly to the Fund. The Application Form, which
includes instructions, is attached to this Prospectus.
6
<PAGE>
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.
Investment Minimums
Your initial investment must be at least $500,000.
The following are exceptions to this minimum:
o There is no minimum initial investment for investment advisory
affiliates of BT Alex. Brown purchasing shares for the accounts of
its investment advisory clients.
o There is no minimum initial investment for defined contribution plans
with assets of at least $75 million.
o The minimum initial investment for all other qualified retirement
plans is $1 million.
There are no minimums for subsequent investments.
Purchases by Exchange
You may exchange Institutional Shares of any other Flag Investors fund
for an equal dollar amount of Institutional Shares of the Fund. The Fund may
modify or terminate this offer of exchange upon 60 days' notice.
You may request an exchange through your securities dealer or servicing
agent. Contact them for details on how to enter your order. If your shares are
in an account with the Fund's Transfer Agent, you may also request an exchange
directly through the Transfer Agent by mail or by telephone.
HOW TO REDEEM INSTITUTIONAL SHARES
You may redeem Institutional Shares through your securities dealer or
servicing agent. Contact them for details on how to enter your order and for
information as to how you will be paid. If your shares are in an account with
the Fund, you may also redeem them by contacting the Transfer Agent by mail or
(if you are redeeming less than $500,000) by telephone. You will be paid for
redeemed shares by wire transfer of funds to your securities dealer, servicing
agent or bank upon receipt of a duly authorized redemption request as promptly
as feasible and, under most circumstances, within three Business Days.
7
<PAGE>
Any dividends payable on shares you redeem will be paid on the next
dividend payable date. If you have redeemed all of your shares by that time, the
dividend will be remitted by wire to your securities dealer, servicing agent or
bank.
If you redeem sufficient shares to reduce your investment to $500 or
less, the Fund has the power to redeem the remaining shares after giving you 60
days' notice. The Fund reserves the right to redeem shares in kind under certain
circumstances.
TELEPHONE TRANSACTIONS
If your shares are in an account with the Transfer Agent, you may
redeem them in any amount up to $500,000 or exchange them for Institutional
Shares of another Flag Investors fund by calling the Transfer Agent on any
Business Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time). You
are automatically entitled to telephone transaction privileges but you may
specifically request that no telephone redemptions or exchanges be accepted for
your account. You may make this election when you complete the Application Form
or at any time thereafter by completing and returning documentation supplied by
the Transfer Agent.
The Fund and the Transfer Agent will employ reasonable procedures to
confirm that telephoned instructions are genuine. These procedures include
requiring you to provide certain personal identification information when you
open your account and before you effect each telephone transaction. You may be
required to provide additional telecopied instructions. If these procedures are
employed, neither the Fund nor the Transfer Agent will bear any liability for
following telephone instructions that they reasonably believe to be genuine.
Your telephone transaction request will be recorded.
During periods of extreme economic or market changes, you may
experience difficulty in contacting the Transfer Agent by telephone. In such
event, you should make your request by express mail or facsimile.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of annual dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and
8
<PAGE>
distributions is the same whether or not you reinvest them. Dividends are taxed
as ordinary income and capital gains distributions are taxed at various rates
based on how long the Fund held the assets. The Fund will tell you annually how
to treat dividends and distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the shares. An exchange of shares of the Fund for shares of another fund is
a sale of Fund shares for tax purposes. More information on taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique and because the
tax laws are subject to change, you should consult your tax advisor about your
investment.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Brown Investment Advisory & Trust Company (formerly,
Alex. Brown Capital Advisory & Trust Company) ("Brown Trust" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex. Brown Cash
Reserve Fund, Inc. These funds, together with the Fund, had approximately $_____
billion of net assets as of December 31, 1998. Brown Trust is a trust company
with approximately $_____ billion under management as of December 31, 1998.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of Brown Trust. Brown Trust is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates.
As compensation for its services for the fiscal year ended October 31,
1998, ICC received from the Fund a fee equal to 0.85% of the Fund's average
daily net assets. ICC compensates Brown Trust out of its advisory fee.
Portfolio Manager
Frederick L. Meserve, Jr. has been responsible for managing the Fund's
assets since November, 1993. Mr. Meserve is a Managing Director at Brown Trust
where he has served as the Fund's portfolio manager since October, 1998. Prior
thereto, Mr. Meserve served as the Fund's portfolio manager while employed at BT
Alex. Brown. Mr. Meserve has been a member of BT Alex. Brown's Investment
Committee from 1979 to the present. 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.
9
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Institutional Shares' financial performance since the class began operations.
Certain information reflects financial results for a single Institutional Share.
The total returns in the table represent the rate that an investor would have
earned on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information is part of the Fund's financial statements,
which have been audited by PricewaterhouseCoopers LLP. These financial
statements are included in the Statement of Additional Information, which is
available upon request.
<TABLE>
<CAPTION>
(For a share outstanding throughout each period)
- ---------------------------------------------------------------------------------------------------------------
Institutional Shares
For the Year For the Period
Ended November 2, 1995(1)
October 31, through October 31,
------------ -------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period................. $23.25 $ 19.15 $ 17.45
------ ------ ------
Income from Investment Operations:
Expenses in excess of investment income................ (0.17)(2) (0.26) (0.12)
Net realized and unrealized gain/(loss) on investments. (2.86) 5.10 2.72
------ ------ ------
Total from Investment Operations....................... (3.03) 4.84 2.60
------ ------ ------
Less Distributions:
Distributions from net realized short-term gains....... (0.21) (0.21) (0.30)
Distributions from net realized mid-term and long-term gains... (0.84) (0.53) (0.60
------ ------ ------
Total distributions.................................... (1.05) (0.74) (0.90)
------ ------ ------
Net asset value at end of period ...................... $19.17 $23.25 $19.15
====== ====== ======
Total Return............................................... (13.39)% 26.36% 16.48%
Ratios to Average Daily Net Assets:
Expenses............................................... 1.16% 1.19% 1.25%3
Expenses in excess of income........................... (0.76)% (0.74)% (0.61)%3
Supplemental Data:
Net assets at end of period (000)...................... $6,243 $13,068 $19,751
Portfolio turnover rate................................ 23% 42% 24%3
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculations based on average shares.
(3) Annualized.
10
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(INSTITUTIONAL SHARES)
NEW ACCOUNT APPLICATION
- --------------------------------------------------------------------------------
Send completed Application by overnight carrier to:
Flag Investors Funds
330 West Ninth Street, First Floor
Kansas City, MO 64105
Attn: Flag Investors Emerging Growth Fund, Inc.
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).
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)
Name on Account
- --------------------------------------------------------------------------------
Name of Corporation, Trust or Partnership
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax ID Number
[ ] Corporation [ ] Partnership [ ] Trust
[ ] Non-Profit or Charitable Organization [ ] Other_____
Mailing Address
- --------------------------------------------------------------------------------
Name of Individual to Receive Correspondence
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City State Zip
( )
- --------------------------------------------------------------------------------
Daytime Phone
If a Trust, please provide the following:
- --------------------------------------------------------------------------------
Date of Trust For the Benefit of
- --------------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)
Initial Investment
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 The amount to be invested
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 [ ] Telephone exchange
privileges 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>
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
Tax ID Number and (2) I am not subject to any backup withholding
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.
- --------------------------------------------------------------------------------
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.
<PAGE>
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 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 the general partners/trustees of the
investor and that they have done the following under the authority of the
investor's partnership agreement/trust agreement: (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>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Institutional Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
BROWN INVESTMENT ADVISORY ICC DISTRIBUTORS, INC.
& TRUST COMPANY Two Portland Square
Furness House Portland, Maine 04101
19 South Street
Baltimore, Maryland 21202
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion of
market conditions and investment strategies that significantly affected the
Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund and you may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-5320
- --------------------------------------------------------------------------------
EGIPRS
<PAGE>
[BROWN INVESTMENT ADVISORY & TRUST COMPANY
EMERGING GROWTH SHARES]
(A Class of Flag Investors Emerging Growth Fund, Inc.)
(formerly, Alex. Brown Capital Advisory & Trust Emerging Growth Shares)
Prospectus & Application -- March 1, 1999
- --------------------------------------------------------------------------------
This mutual fund (the "Fund") seeks to achieve long-term capital
appreciation primarily through investment in a diversified portfolio of small
and mid-sized emerging growth companies.
The Fund offers [Brown Investment Advisory & Trust Company Shares] of
the Fund (the "Shares") solely for the discretionary accounts of Brown
Investment Advisory & Trust Company and its affiliates. (See "How to Buy
Shares.")
TABLE OF CONTENTS
Page
Investment Summary.............................................................2
Fees and Expenses of the Shares................................................4
Investment Program.............................................................5
The Fund's Net Asset Value.....................................................6
How to Buy Shares..............................................................6
How to Redeem Shares...........................................................7
Dividends and Taxes............................................................7
Investment Advisor and Sub-Advisor.............................................7
Financial Highlights...........................................................9
Flag Investors Funds
P.O. Box 515
Baltimore, MD 21203
The Securities and Exchange Commission has neither approved nor
disapproved these securities nor has it passed upon the
adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
1
<PAGE>
INVESTMENT SUMMARY
Objectives and Strategies
This mutual fund (the "Fund") seeks to achieve long-term capital
appreciation primarily through investment in a diversified portfolio of common
stocks of small and mid-sized emerging growth companies. The Fund's investment
advisor and sub-advisor will attempt to identify emerging growth companies that
they believe have the ability or potential to sustain a high level of growth.
The advisors will focus on a number of key selection criteria including a
company's industry position, management quality and experience, accounting and
financial policies, marketing and service capabilities, and product development
efforts.
Risk Profile
The Fund is best suited for investors who are willing to accept the
risks and uncertainties of investing in emerging growth companies in the hope of
achieving above average long-term capital appreciation. The value of an
investment in the Fund will vary from day to day, based on changes in the prices
of securities the Fund holds. Those prices, in turn, reflect investor
perceptions of the economy, the markets and the companies represented in the
Fund's portfolio. The stocks of small and mid-sized companies may experience
greater price volatility than those of larger companies. The market for such
stocks may be more limited and the companies themselves may be more vulnerable
to economic or company specific problems. An investment in the Fund is not a
bank deposit and is not guaranteed by the FDIC or any other government agency.
Fund Performance
The following bar chart and table show the performance of the Shares
for the year ended December 31, 1998 and as an average over different periods of
time. The variability of performance over time provides an indication of the
risks of investing in the Fund. This is an historical record and does not
necessarily indicate how the Fund will perform in the future.
2
<PAGE>
[Brown Investment Advisory & Trust Company] Shares
For year ended December 31,
100% ---------------------------------------------------------------------
|
|
|
80% ---------------------------------------------------------------------
|
|
|
60% ---------------------------------------------------------------------
|
|
|
40% ---------------------------------------------------------------------
|
|
|
20% ---------------------------------------------------------------------
|
|
|
0% ---------------------------------------------------------------------
|
1998
During the 1-year period shown in the bar chart, the highest return for a
quarter was _____% (quarter ended ______________) and the lowest return for a
quarter was ______% (quarter ended _______________).
Average Annual Total Return (for periods ended December 31, 1998)
[Brown Investment Advisory
& Trust Company] Shares(1) S&P 500(2)
-------------------------------------------------
Past One Year ............. _____% _____%
Since Inception ........... _____% (5/9/97) _____%(3)
- ----------------
(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The Standard & Poor's 500 Composite Index is an unmanaged index that is a
widely recognized benchmark of general market performance. The index is a
passive measure of equity market returns. It does not factor in the costs
of buying, selling and holding securities -- costs which are reflected in
the Fund's results.
(3) For the period from 5/1/97 through 12/31/98.
3
<PAGE>
FEES AND EXPENSES OF THE SHARES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
Shareholder Transaction Expenses:
(fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases..................... None
Maximum Deferred Sales Charge (Load)................................. None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends.......... None
Redemption Fee....................................................... None
Exchange Fee......................................................... None
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Management Fees...................................................... 0.85%*
Distribution and/or Service (12b-1) Fees............................. None
Other Expenses....................................................... 0.31%
-----
Total Annual Fund Operating Expenses................................. 1.16%
* Brown Investment Advisory & Trust Company intends to waive its advisory fee
at the account level for client assets invested in Shares.
Example
This Example is intended to help you compare the cost of investing in
the Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
[Brown Investment Advisory & Trust
Company] Shares..................................... $220 $686 $1,189 $2,218
</TABLE>
4
<PAGE>
INVESTMENT PROGRAM
Investment Objective, Policies and Risk Considerations
The Fund seeks to achieve long-term capital appreciation primarily
through investment in a diversified portfolio of small and mid-sized emerging
growth companies.
The Fund's investment advisor and sub-advisor (collectively, the
"Advisors") are responsible for managing the Fund's investments. (Refer to the
section on the Investment Advisor and Sub-Advisor). The Advisors will seek to
identify companies that, in their opinion, are well managed and have experienced
or have the potential to experience rapid growth in their revenue, earnings,
assets and cash flow. The selection criteria will include a company's industry
position, management qualifications and experience, accounting and financial
policies, marketing and service capabilities, and product development efforts.
The Advisors will invest in a broad cross-section of industries in an effort to
limit the Fund's volatility. The Fund will invest primarily, but not
exclusively, in the businesses of technology, health care, business services,
energy, transportation, financial services, consumer products and services and
capital goods.
An investment in the Fund involves risk. Over time, common stocks have
shown greater potential for growth than other types of securities, but in the
short run stocks can be volatile. In general, stock prices are sensitive to
developments affecting particular companies and to general economic conditions
that affect particular industry sectors or the securities markets as a whole. In
addition to the general risks of the stock markets, investing in small to
mid-size companies entails special risks. The stock prices of emerging growth
companies tend to be more volatile than investments in larger, more established
companies making such investments more speculative. In particular, the companies
that the Fund invests in may have limited product lines, markets, and financial
resources, and may depend on a relatively small management group.
There can be no guarantee that the Fund will achieve its goals.
To protect the Fund under adverse market conditions, the Advisors may
make temporary, defensive investments in money market instruments, investments
that would not ordinarily be consistent with the Fund's objectives. While
engaged in a temporary defensive strategy, the Fund may not achieve its
investment objective. The Advisors would follow such a strategy only if they
believed the risk of loss outweighed the opportunity for gain.
Year 2000 Issues
The Fund depends on the smooth functioning of computer systems in
almost every aspect of its business. The Fund could be adversely affected if the
computer systems used by its service providers do not properly process dates on
and after January 1, 2000 and distinguish between the year 2000 and the year
1900. The Fund has asked its service providers whether they expect to have their
computer systems adjusted for the year 2000 transition, and received assurances
from each that its system is expected to accommodate the year 2000 without
material adverse
5
<PAGE>
consequences to the Fund. The Fund and its shareholders may experience losses if
these assurances prove to be incorrect or if issuers of portfolio securities or
third parties, such as custodians, banks, broker-dealers or others, with which
the Fund does business experience difficulties as a result of year 2000 issues.
THE FUND'S NET ASSET VALUE
The price you pay when you buy shares or receive when you redeem shares
is based on the Fund's net asset value per share. The net asset value per share
of the Fund is determined at the close of regular trading on the New York Stock
Exchange (ordinarily 4:00 p.m. Eastern Time) on each day the Exchange is open
for business. It is calculated by subtracting the liabilities attributable to a
class from its proportionate share of the Fund's assets and dividing the result
by the outstanding shares of the class.
In valuing the Fund's assets, its investments are priced at their
market value. When price quotes for a particular security are not readily
available, investments are priced at their "fair value" using procedures
approved by the Fund's Board of Directors.
You may buy or redeem Shares on any day the New York Stock Exchange is
open for business (a "Business Day"). If your order is entered before the net
asset value per share is determined for that day, the price you pay or receive
will be based on that day's net asset value per share. If your order is entered
after the net asset value per share is determined for that day, the price you
pay or receive will be based on the next Business Day's net asset value per
share.
The following sections describe how to buy and redeem Shares.
HOW TO BUY SHARES
Only Brown Investment Advisory & Trust Company and its affiliates may
acquire Shares on behalf of their discretionary accounts by placing orders with
the Fund's distributor (the "Distributor"). There is no minimum for initial or
subsequent investments in Shares.
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.
6
<PAGE>
HOW TO REDEEM SHARES
Shares may be redeemed by, or at the direction of, Brown Investment
Advisory & Trust Company, or an affiliate, by transmitting an order through the
Fund's distributor or the Transfer Agent. Contact them for details. Payment for
redeemed shares will be made by, or at the direction of, Brown Investment
Advisory & Trust Company, or an affiliate. Payment will be made as promptly as
feasible and, under most circumstances, within three Business Days. Any
dividends payable on Shares you redeem will be paid on the next dividend payable
date.
DIVIDENDS AND TAXES
Dividends and Distributions
The Fund's policy is to distribute to shareholders substantially all of
its taxable net investment income in the form of annual dividends and to
distribute taxable net capital gains on an annual basis.
Certain Federal Income Tax Consequences
The dividends and distributions you receive from the Fund may be
subject to federal, state and local taxation, depending on your tax situation.
The tax treatment of dividends and distributions is the same whether or not you
reinvest them. Dividends are taxed as ordinary income and capital gains
distributions are taxed at various rates based on how long the Fund held the
assets. The Fund will tell you annually how to treat dividends and
distributions.
If you redeem shares of the Fund, you will be subject to tax on any
gain. The character of such gain will generally be based on your holding period
for the shares. An exchange of shares of the Fund for shares of another fund is
a sale of Fund shares for tax purposes. More information on taxes is in the
Statement of Additional Information.
Because each investor's tax circumstances are unique and because the
tax laws are subject to change, you should consult your tax advisor about your
investment.
INVESTMENT ADVISOR AND SUB-ADVISOR
Investment Company Capital Corp. ("ICC" or the "Advisor") is the Fund's
investment advisor and Brown Investment Advisory & Trust Company (formerly,
Alex. Brown Capital Advisory & Trust Company) ("Brown Trust" or the
"Sub-Advisor") is the Fund's sub-advisor. ICC is also the investment advisor to
other mutual funds in the Flag Investors family of funds and BT Alex. Brown Cash
Reserve Fund, Inc. These funds, together with the Fund, had
7
<PAGE>
approximately $_____ billion of net assets as of December 31, 1998. Brown Trust
is a [Maryland trust company] with approximately $_____ billion under management
as of December 31, 1998.
ICC is responsible for supervising and managing all of the Fund's
operations, including overseeing the performance of Brown Trust. Brown Trust is
responsible for decisions to buy and sell securities for the Fund, for
broker-dealer selection, and for negotiation of commission rates.
As compensation for its services for the fiscal year ended October 31,
1998, ICC received from the Fund a fee equal to 0.85% of the Fund's average
daily net assets. ICC compensates Brown Trust out of its advisory fee.
Portfolio Manager
Frederick L. Meserve, Jr. has been responsible for managing the Fund's
assets since November, 1993. Mr. Meserve is a Managing Director at Brown Trust
where he has served as the Fund's portfolio manager since October, 1998. Prior
thereto, Mr. Meserve served as the Fund's portfolio manager while employed at BT
Alex. Brown. Mr. Meserve has been a member of BT Alex. Brown's Investment
Committee from 1979 to the present. 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.
8
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the [Brown
Investment Advisory & Trust Company] Shares' financial performance since the
class began operations. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information is part of the Fund's
financial statements, which have been audited by PricewaterhouseCoopers LLP.
These financial statements are included in the Statement of Additional
Information, which is available upon request.
(For a share outstanding throughout each period)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year For the Period
Ended May 9, 1997(1) through
October 31, October 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period...................... $23.24 $18.64
------ ------
Income from Investment Operations:
Expenses in excess of income................................ (0.17)(2) (0.06)
Net realized and unrealized gain/(loss)on investments....... (2.83) 4.66
------ ------
Total from Investment Operations............................ (3.00) 4.60
------ ------
Less Distributions:
Distributions from net realized short-term gains............ (0.21) --
Distributions from net realized mid-term and long-term
gains.................................................... (0.84) --
------ ------
Total Distributions......................................... (1.05) --
------ ------
Net asset value at end of period............................ $19.19 $23.24
====== ======
Total Return.................................................... (13.26)% 24.68%
Ratios to Average Daily Net Assets:
Expenses.................................................... 1.16% 1.19%(3)
Expenses in excess of income................................ (0.80)% (0.69)%(3)
Supplemental Data:
Net assets at end of period (000)........................... $46,628 $35,653
Portfolio turnover rate..................................... 23% 42%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Annualized.
9
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
[(Brown Investment Advisory & Trust Company] Shares)
Investment Advisor
INVESTMENT COMPANY CAPITAL CORP.
One South Street
Baltimore, Maryland 21202
Sub-Advisor Distributor
BROWN INVESTMENT ADVISORY ICC DISTRIBUTORS, INC.
& TRUST COMPANY Two Portland Square
Furness House Portland, Maine 04101
19 South Street
Baltimore, Maryland 21202
Transfer Agent Independent Accountants
INVESTMENT COMPANY CAPITAL CORP. PRICEWATERHOUSECOOPERS LLP
One South Street 250 West Pratt Street
Baltimore, Maryland 21202 Baltimore, Maryland 21201
1-800-553-8080
Custodian Fund Counsel
BANKERS TRUST COMPANY MORGAN, LEWIS & BOCKIUS LLP
130 Liberty Street 1701 Market Street
New York, New York 10006 Philadelphia, Pennsylvania 19103
<PAGE>
- --------------------------------------------------------------------------------
You may obtain the following additional information about the Fund, free of
charge, from your securities dealer or servicing agent or by calling (800)
767-FLAG:
o A statement of additional information (SAI) about the Fund that is
incorporated by reference into the prospectus.
o The Fund's most recent annual and semi-annual reports containing detailed
financial information and, in the case of the annual report, a discussion
of market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
In addition you may review information about the Fund (including the SAI) at the
Securities and Exchange Commission's Public Reference Room in Washington, D.C.
(Call 1-800-SEC-0330 to find out about the operation of the Public Reference
Room.) The Commission's Internet site at http://www.sec.gov has reports and
other information about the Fund and you may get copies of this information by
writing the Public Reference Section of the Commission, Washington, D.C.
20549-5009. You will be charged for duplicating fees.
For other shareholder inquiries, contact the Transfer Agent at (800) 553-8080.
For Fund information, call (800) 767-FLAG or your securities dealer or servicing
agent.
Investment Company Act File No. 811-5320
- --------------------------------------------------------------------------------
<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 SECURITIES
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, 1999
Relating to Prospectuses dated March 1, 1999 for:
Flag Investors Class A Shares, Flag Investors Class B Shares
Flag Investors Institutional Shares
and
[Brown Investment Advisory & Trust Company] Emerging Growth Shares
<PAGE>
TABLE OF CONTENTS
Page
----
1. GENERAL INFORMATION AND HISTORY....................................1
2. INVESTMENT OBJECTIVES AND POLICIES.................................2
3. VALUATION OF SHARES AND REDEMPTION.................................6
4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS...............6
5. MANAGEMENT OF THE FUND.............................................9
6. INVESTMENT ADVISORY AND OTHER SERVICES............................13
7. DISTRIBUTION OF FUND SHARES.......................................14
8. BROKERAGE.........................................................18
9. CAPITAL STOCK.....................................................20
10. SEMI-ANNUAL REPORTS...............................................21
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES.................21
12. LEGAL MATTERS.....................................................22
13. INDEPENDENT ACCOUNTANTS...........................................22
14. PERFORMANCE INFORMATION...........................................22
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...............23
16. FINANCIAL STATEMENTS..............................................25
<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 "Class A
Shares"), Flag Investors Emerging Growth Fund Class B Shares (the "Class B
Shares"), Flag Investors Emerging Growth Fund Institutional Shares (the
"Institutional Shares") and [Brown Investment Advisory & Trust Company] Emerging
Growth Shares (formerly "Alex. Brown Capital Advisory & Trust Emerging Growth
Shares" ("ABCAT Shares")) (the "Brown Trust Shares") (collectively, the
"Shares").
Important information concerning the Fund is included in the Fund's
Prospectuses which may be obtained without charge from the Fund's distributor
(the "Distributor") or, with respect to each class except the [Brown Trust]
Shares class, from Participating Dealers that offer such Shares to prospective
investors. 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 Class A Shares since its inception on December 30,
1987, the Institutional Shares since November 2, 1995, the Class B Shares since
June 20, 1996 and the Brown Trust Shares since May 9, 1997.
Under a license agreement dated December 29, 1987 between the Fund and
Alex. Brown Incorporated (predecessor to BT Alex. Brown Incorporated), Alex.
Brown & Sons Incorporated licenses to the Fund the "Flag Investors" name and
logo but retains the rights to the 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
$500 million, the Fund will discontinue sales of Shares with the exception of
purchases made by pre-existing IRA accounts.
-1-
<PAGE>
2. INVESTMENT OBJECTIVES AND POLICIES
Investment Objective and Policies of the Fund
The Fund has the investment objective of 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's investment objective
will be achieved.
The Fund seeks to achieve its investment objective through investments
in small and mid-sized emerging growth companies. In general, an emerging growth
company with $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.
In addition, the Fund may invest up to 20% of its net assets in
securities convertible into the common stock of high quality growth companies.
Convertible securities 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 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
-2-
<PAGE>
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.
In addition, 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.
Additional information about certain of the Fund's investment policies
and practices are described below.
Restricted Securities
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" below.)
Rule 144A Securities may become illiquid if qualified institutional buyers are
not interested in acquiring the securities.
Repurchase Agreements
The Fund may enter into repurchase agreements with domestic banks or
broker-dealers deemed to be creditworthy by the Advisors under guidelines
approved by the Board of Directors. A repurchase agreement is a short-term
investment in which the Fund acquires ownership of a debt security and the
seller agrees to repurchase the obligation at a future time and set price,
usually not more than seven days from the date of purchase, thereby determining
the yield during the Fund's holding period. The value of underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including the interest factor. The collateral for these repurchase
agreements will be held by the Fund's custodian or by a duly appointed
sub-custodian. The Fund makes payment for such securities only upon physical
delivery or evidence of book-entry transfer to the account of a custodian or
bank acting as agent. The underlying securities, which in the case of the Fund
are securities of the U.S. Government only, may have maturity dates exceeding
one year. The Fund does not bear the risk of a decline in value of the
underlying securities unless the seller defaults under its repurchase
obligation. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in liquidating the
underlying securities and loss including (a) possible decline in the value of
the underlying security while the Fund seeks to enforce its rights thereto, (b)
possible subnormal levels of income and lack of access to income during this
period and (c) expenses of enforcing its rights.
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
-3-
<PAGE>
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 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.
The Fund's custodian or another affiliate may act as securities lending agent.
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.
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's investment program is subject to a number of investment
restrictions that reflect self-imposed standards as well as federal and state
regulatory limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the Fund's outstanding Shares. The vote of a majority of the
outstanding Shares of the Fund means the lesser of: (i) 67% or more of the
Shares present at a shareholder meeting at which the holders of more than 50% of
the Shares are present or represented or (ii) more than 50% of the outstanding
Shares of the Fund. The Fund will not:
-4-
<PAGE>
1) Concentrate 25% or more of its total assets in securities of
issuers in any one industry (for these purposes the U.S. Government and
its agencies and instrumentalities are not considered an industry);
2) With respect to 75% of its total assets, invest more than 5%
of its total assets in the securities of any single issuer (for these
purposes the U.S. Government and its agencies and instrumentalities are
not considered an issuer);
3) 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;
4) 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;
5) 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;
6) Purchase or sell commodities or commodities contracts;
7) Act as an underwriter of securities within the meaning of the
U.S. 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;
8) Issue senior securities;
9) Make loans, except that the Fund may purchase or hold debt
instruments and enter into repurchase agreements in accordance with its
investment objective and policies and may lend portfolio securities and
enter into repurchase agreements as described in the Registration
Statement;
10) Effect short sales of securities;
11) Purchase securities on margin (but the Fund may obtain such
short-term credits as may be necessary for the clearance of
transactions); or
12) 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 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.
-5-
<PAGE>
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) each day
on which the New York Stock Exchange is open for business (a "Business Day").
The New York Stock Exchange is open for business on all weekdays except for the
following holidays (or the days on which they are observed): New Year's Day,
Martin Luther King, Jr. Day, 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 third parties 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 Shares by check, or by
wire transfer of funds. However, if the Board of Directors determines that it
would be in the best interests of the remaining shareholders 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 make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "Valuation of Shares", and
such valuation will be made as of the same time the redemption price is
determined. 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 is only a summary of certain additional federal income
tax considerations generally affecting the Fund and its shareholders that are
not described in the Fund's Prospectuses. 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 Prospectuses is not intended as a
substitute for careful tax planning. For example, under certain specified
circumstances, state income tax laws may exempt from taxation distributions of a
regulated investment company to the extent that such distributions are derived
from interest on federal obligations. Investors are urged to consult with their
tax advisor regarding whether such exemption is available.
The following general discussion of certain federal income tax
consequences is based on the Internal Revenue Code of 1986, as amended (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.
-6-
<PAGE>
Qualification as a Regulated Investment Company
The Fund intends to qualify and elect to be treated for each taxable
year as a regulated investment company ("RIC") under Subchapter M of the Code.
Accordingly, the Fund must, among other things, (a) derive at least 90% of its
gross income each taxable year from dividends, interest, payments with respect
to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, and certain other related income, including,
generally, certain gains from options, futures and forward contracts; and (b)
diversify its holdings so that, at the end of each fiscal quarter of the Fund's
taxable year, (i) at least 50% of the market value of the Fund's total assets is
represented by cash and cash items, United States Government securities,
securities of other RICs, and other securities, with such other securities
limited, in respect to any one issuer, to an amount not greater than 5% of the
value of the Fund's total assets or 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 United States Government securities or
securities of other RICs) of any one issuer or two or more issuers that the Fund
controls and which are engaged in the same, similar, or related trades or
business. For purposes of the 90% gross income requirement described above,
foreign currency gains that are not directly related to the Fund's principal
business of investing in stock or securities (or options or futures with respect
to stock or securities) may be excluded from income that qualifies under the 90%
requirement.
In addition to the requirements described above, in order to qualify as
a RIC, the Fund must distribute at least 90% of its net investment income (that
generally includes dividends, taxable interest, and the excess of net short-term
capital gains over net short-term capital losses less operating expenses) and at
least 90% of its net tax-exempt interest income, for each tax year, if any, to
its shareholders. If the Fund meets all of the RIC requirements, it will not be
subject to federal income tax on any of its net investment income or capital
gains that it distributes to shareholders.
Although the Fund intends to distribute substantially all of its net
investment income and may distribute its capital gains for any taxable year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.
If the Fund fails to qualify for any taxable year as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate income tax rates without any deduction for distributions to
shareholders, and such distributions generally will be taxable to shareholders
as ordinary dividends to the extent of the Fund's current and accumulated
earnings and profits. In this event, such distributions generally will be
eligible for the dividends-received deduction for corporate shareholders.
Fund Distributions
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 reinvested in additional Shares to the extent of the Fund's
earnings and profits. The Fund anticipates that it will distribute substantially
all of its investment company taxable income for each taxable year.
The Fund may either retain or distribute to shareholders its excess of
net long-term capital gains over net short-term capital losses ("net capital
gains"). If such gains are distributed as a capital gains distribution, they are
taxable to shareholders that are individuals at a maximum rate of 20%,
-7-
<PAGE>
regardless of the length of time the shareholder has held Shares. If any such
gains are retained, the Fund will pay federal income tax thereon, and, if the
Fund makes an election, the shareholders will include such undistributed gains
in their income, will increase their basis in Fund shares by the difference
between the amount of such includable gains and the tax deemed paid by such
shareholder and will be able to claim their share of the tax paid by the Fund as
a refundable credit.
In the case of corporate shareholders, Fund distributions (other than
capital gains distributions) generally qualify for the dividends-received
deduction to the extent of the gross amount of qualifying dividends received by
the Fund for the year. Generally, and subject to certain limitations, a dividend
will be treated as a qualifying dividend if it has been received from a domestic
corporation. For purposes of the alternative minimum tax and the environmental
tax, corporate shareholders generally will be required to take the full amount
of any dividend received from the Fund into account in determining their
adjusted current earnings for purposes of computing "alternative minimum taxable
income."
Ordinarily, investors 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 the shareholder and paid by the
Fund in the year in which the dividends were declared.
The sale or exchange of a share is a taxable event for the shareholder.
Generally, gain or loss on the sale or exchange of a Share will be capital gain
or loss that will be long-term if the Share has been held for more than twelve
months and otherwise will be short-term. For individuals, long-term capital
gains are currently taxed at a rate of 20% and short-term capital gains are
currently taxed at ordinary income tax rates. However, if a shareholder realizes
a loss on the sale, exchange or redemption of a Share held for six months or
less and has previously received a capital gains distribution with respect to
the Share (or any undistributed net capital gains of the Fund with respect to
such Share are included in determining the shareholder's long-term capital
gains), the shareholder must treat the loss as a long-term capital loss to the
extent of the amount of the prior capital gains distribution (or any
undistributed net capital gains of the Fund that have been included in
determining such 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 during the
61-day period.
Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those investors 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 such purchase may have reflected the amount
of such distribution.
The Fund will provide a statement annually to shareholders as to the
federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends-received deduction.
-8-
<PAGE>
In certain cases, the Fund will be required to withhold and remit to
the United States Treasury 31% of distributions payable to any shareholder who
(1) has failed to provide a correct tax identification number, (2) is subject to
backup withholding by the Internal Revenue Service for failure to properly
report receipt of interest or dividends, or (3) has failed to certify to the
Fund that such shareholder is not subject to backup withholding.
Federal Excise Tax; Miscellaneous Considerations; Effect of Future Legislation
If the Fund fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its capital gain net income (the excess
of short and long term capital gains over short and long term capital losses)
for the one-year period ending on October 31 of that year (and any retained
amount from the prior calendar year), the Fund will be subject to a
nondeductible 4% Federal excise tax on the undistributed amounts. The Fund
intends to make sufficient distributions to avoid imposition of this tax, or to
retain, at most, its net capital gains and pay tax thereon.
State and Local Tax Considerations
Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to consult
their tax advisors as to the consequences of these and other state and local tax
rules affecting an investment in the Fund.
5. MANAGEMENT OF THE FUND
Directors and Officers
The overall business and 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 its investment advisor, sub-advisor, distributor, custodian and
transfer agent.
The Directors and executive officers of the Fund, their respective
dates of birth and their principal occupations during 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)
Vice Chairman, Alex. Brown Capital Advisory & Trust Company; Director,
Investment Company Capital Corp. (registered investment advisor); and
Director, Virginia Hot Springs, Inc. (property management); Formerly,
Managing Director, BT Alex. Brown Incorporated; Vice Chairman, Alex.
Brown & Sons Incorporated (now BT Alex. Brown Incorporated).
*RICHARD T. HALE, Director (7/17/45)
Managing Director, BT Alex. Brown Incorporated; Director and President,
Investment Company Capital Corp. (registered investment advisor);
Chartered Financial Analyst.
JAMES J. CUNNANE, Director (3/11/38)
60 Seagate Drive, Unit P106, Naples, Florida 34103. Managing Director,
CBC Capital (merchant banking), 1993-Present; Director, Net.World
(telecommunications) 1998-Present; Formerly, Senior Vice President and
Chief Financial Officer, General Dynamics Corporation (defense),
1989-1993 and Director, The Arch Fund (registered investment company).
-9-
<PAGE>
JOSEPH R. HARDIMAN, Director (5/27/37)
8 Bowen Mill Road, Baltimore, Maryland 21212. Private Equity Investor
and Capital Markets Consultant; Director, The Nevis Fund (registered
investment company) and Circon Corp. (medical instruments). Formerly,
President and Chief Executive Officer, The National Association of
Securities Dealers, Inc. and The NASDAQ Stock Market, Inc., 1987-1997;
Chief Operating Officer of Alex. Brown & Sons Incorporated (now BT Alex.
Brown Incorporated) 1985-1987; General Partner, Alex. Brown & Sons
Incorporated (now BT Alex. Brown Incorporated) 1976-1985.
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 health care); Executive Vice Chairman and Director, Central
Carolina Bank & Trust (banking) and Director, Victory Funds (registered
investment companies). Formerly, Director, AMBAC Treasurers Trust
(registered investment company) and DP Mann Holdings (insurance).
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 and Member
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, Reed College
(education); Trustee, Rockefeller Foundation and Director, Merrill Lynch
Cluster C Funds (registered investment companies); and Director, Flag
Investors/ISI and BT Alex. Brown Cash Reserve Fund, Inc. 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),
1995-Present; Formerly, Vice President and Treasurer, The Delaware Group
of Funds (registered investment companies) and Vice President, Delaware
Management Company Inc. (investments), 1980-1995.
AMY M. OLMERT, Secretary (5/14/63)
Vice President, BT Alex. Brown Incorporated, 1997-Present. Formerly,
Senior Manager, Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP), 1988-1997.
-10-
<PAGE>
SCOTT J. LIOTTA, Assistant Secretary (3/18/65)
Assistant Vice President, BT Alex. Brown Incorporated, 1996-Present;
Formerly, Manager and Foreign Markets Specialist, Putnam Investments
Inc. (registered investment companies), 1994- 1996; Supervisor, Brown
Brothers Harriman & Co. (domestic and global custody), 1991-1994.
- --------------------
* 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 12 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 five other funds in the Fund
Complex. Mr. Hale serves as Chairman of three funds and as a Director of seven
other funds in the Fund Complex. Messrs. Cunnane, [Hardiman], Levy, McDonald and
Vogt serve as Directors of each fund in the Fund Complex. Ms. Rimel serves as
Director 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 of each of the funds in
the Fund Complex.
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, 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 each fund in the
Fund Complex for which he or she serves. In addition, the Chairmen of the Fund
Complex's Audit Committee and Executive Committee receive an aggregate annual
fee from the Fund Complex. Payment of such fees and expenses are allocated among
all such funds described above in direct proportion to their relative net
assets. For the fiscal year ended October 31, 1998, Independent Directors' fees
attributable to the assets of the Fund totaled $5,951. 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, 1998.
<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, 1998 Expenses Directors and President
for the Fiscal
Year Ended
October 31, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Truman T. Semans, Chairman(1) $0 $0 $0
Richard T. Hale, Director(1) $0 $0 $0
James J. Cunnane, Director $676(2) (3) $39,000 for service on 13(4)
Boards in the Fund Complex
Joseph R. Hardiman, Director(5) N/A N/A $9,750 for service on 9(7)
Boards in the Fund Complex
</TABLE>
-11-
<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, 1998 Expenses Directors and President
for the Fiscal
Year Ended
October 31, 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John F. Kroeger, Director(6) $849 (3) $49,000 for service on 13(4)
Boards in the Fund Complex
Louis E. Levy, Director $715(2) (3) $44,000 for service on 13(4)
Boards in the Fund Complex
Eugene J. McDonald, Director $676(2) (3) $39,000 for service on 13(4)
Boards in the Fund Complex
Rebecca W. Rimel, Director $693(2) (3) $39,000 for service on 11(4,7)
Boards in the Fund Complex
Carl W. Vogt, Esq., Director $687(2) (3) $39,000 for service on 11(4,7)
Boards in the Fund Complex
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Denotes an individual who is an "interested person" as defined in the
Investment Company Act.
(2) Of amounts payable to Messrs. Cunnane, Levy, McDonald and Vogt and Ms.
Rimel, $676, $0, $676, $693 and $687, respectively, was deferred pursuant
to a Deferred Compensation Plan.
(3) 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 31,1998 was approximately $2,643.
(4) One of these funds ceased operations on July 29, 1998.
(5) Elected to the Fund's Board effective October 1, 1998.
(6) Retired effective October 1, 1998.
(7) Mr. Hardiman and Ms. Rimel receive, and Mr. Vogt received, 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. 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, 4 years; for
Mr. Levy, 3 years; for Mr. McDonald, 6 years; for Ms. Rimel, 3 years; for Mr.
Vogt, 3 years; and for Mr. Hardiman, 0 years.
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
Chairmen of Audit and Executive Committees 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>
-12-
<PAGE>
Any Director who receives fees from the Fund is permitted to defer 50%
to 100% of his or her 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, BT Alex. Brown Cash Reserve Fund, Inc.
and BT International Equity Fund 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 of the directors and
officers of the Fund, as well as to designated officers, directors and employees
of the Advisors and the Distributor. As described below, the Code of Ethics
imposes additional 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 Advisors preclear any personal securities investments (with
certain exceptions, such as non-volitional purchases or purchases that are part
of an automatic dividend reinvestment plan). The foregoing would apply to any
officer, director or employee of the Distributor that is an access person. 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 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 instituted by those
entities so long as they contain similar requirements and restrictions.
6. INVESTMENT ADVISORY AND OTHER SERVICES
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. On September 25, 1998, a Sub-Advisory Agreement among
the Fund, ICC and Brown Investment Advisory & Trust Company (formerly, Alex.
Brown Capital Advisory & Trust Company) ("Brown Trust") was approved by a vote
of shareholders of the Fund. ICC, the investment advisor, is an indirect
subsidiary of Bankers Trust Corporation. Brown Trust is a trust company
chartered under the laws of the State of Maryland. Brown Trust is a wholly-owned
subsidiary of Brown Capital Holdings Incorporated ("Brown Capital Holdings"), a
Maryland corporation whose principal executive officer is Michael D. Hankin.
Brown Capital Holdings is owned by management and employees of Brown Trust and
outside investors. ICC also serves as investment advisor and Brown Trust serves
as sub-advisor to other funds in the Flag Investors family of funds.
-13-
<PAGE>
Under the Investment Advisory Agreement, ICC obtains and evaluates
economic, statistical and financial information to formulate and implement
investment policies for the Fund. ICC has delegated this responsibility to Brown
Trust provided that ICC continues to supervise the performance of Brown Trust
and report thereon to the Fund's Board of Directors. Any investment program
undertaken by ICC or Brown Trust will at all times be subject to policies and
control of the Fund's Board of Directors. ICC will provide the Fund with office
space for managing its affairs, with the services of required executive
personnel and with certain clerical and bookkeeping services and facilities.
These services are provided by ICC without reimbursement by the Fund for any
costs. Neither ICC nor Brown Trust shall be liable to the Fund or its
shareholders for any act or omission by ICC or Brown Trust 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. The
services of ICC and Brown Trust to the Fund are not exclusive and ICC and Brown
Trust are free to render similar services to others.
As compensation for its services, ICC receives a maximum annual fee,
payable monthly, representing 0.85% of the Fund's average daily net assets.
However, the actual amount of the fee is contractually limited to an amount that
would result in total expenses on Class A Shares of no more than 1.50% of the
Class A Shares' average daily net assets. As compensation for providing
sub-advisory services, Brown Trust is entitled to receive a fee from ICC,
calculated daily and payable monthly, at the annual rate of 0.55% of the Fund's
average daily net assets, provided that, if necessary, Brown Trust's annual
compensation will be reduced in an amount proportional to the Advisor's waiver.
Each of the Investment Advisory Agreement and the Sub-Advisory
Agreement has an initial term of two years and will continue in effect from year
to year thereafter if such continuance is specifically approved at least
annually by the Fund's Board of Directors, including a majority of the
Independent Directors who have no direct or indirect financial interest in such
agreements, by votes cast in person at a meeting called for such purpose, and by
a vote of a majority of the outstanding Shares (as defined under "Capital
Stock"). The Fund or ICC may terminate the Investment Advisory Agreement on
sixty days' written notice without penalty. The Investment Advisory Agreement
will terminate automatically in the event of assignment (as defined in the 1940
Act). The Sub-Advisory Agreement has similar termination provisions.
Advisory fees paid by the Fund to ICC for the last three fiscal years
were as follows:
Fiscal Year Ended October 31,
-----------------------------
1998 1997 1996
---- ---- ----
$ 1,103,023 $ 782,095 $ 381,086
For the period from September 30, 1998 through October 31, 1998, Brown
Trust received $49,625 as compensation for sub-advisory services.
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."
7. DISTRIBUTION OF FUND SHARES
ICC Distributors, Inc. ("ICC Distributors" or the "Distributor") serves
as the exclusive distributor of each class of the Fund's Shares pursuant to a
Distribution Agreement (the "Distribution Agreement") effective August 31, 1997.
-14-
<PAGE>
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 outstanding
Shares of the Fund (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 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, so long as the Fund's 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
and most recently September 29, 1998.
With respect to the Class A, Class B and Institutional Shares, ICC
Distributors and certain broker-dealers ("Participating Dealers") have entered
into Sub-Distribution Agreements under which such broker 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 Brown Trust 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 Class A and Class B Shares, the Fund
may enter into Shareholder Servicing Agreements with certain financial
institutions, including 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 services. The Fund may also enter into Shareholder Servicing
Agreements pursuant to which the Advisor, the Distributor, or their respective
affiliates will provide compensation out of their own resources. Although
banking laws and regulations prohibit banks from distributing shares of open-end
investment companies such as the Fund, according to interpretations by various
bank regulatory authorities, financial institutions are not prohibited from
acting in other capacities for investment companies, such as the shareholder
servicing capacities described above. Should future legislative, judicial or
administrative action prohibit or restrict the activities of the Shareholder
Servicing Agents in connection with the Shareholder Servicing Agreements, the
Fund may be required to alter materially or discontinue its arrangements with
the Shareholder Servicing Agents. Such financial institutions may impose
separate fees in connection with these services and investors should review the
Prospectus and this Statement of Additional Information in conjunction with any
-15-
<PAGE>
such institution's fee schedule. In addition, state securities laws on this
issue may differ from the interpretations of federal law expressed herein, and
banks and financial institutions may be required to register as dealers pursuant
to state law.
As compensation for providing distribution services as described above
for the Class A Shares, ICC Distributors receives an annual fee, paid monthly,
equal to 0.25% of the average daily net assets of the Class A Shares. As
compensation for providing distribution services as described above, for the
Class B Shares, ICC Distributors receives an annual fee, paid monthly, equal to
0.75% of the average daily net assets of the Class B Shares. With respect to the
Class A Shares, ICC Distributors expects to allocate up to all of its fee to
Participating Dealers. With respect to the 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 Class B
Shares, the Fund will pay ICC Distributors a shareholder servicing fee at an
annual rate equal to 0.25% of the 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 Institutional Shares or the Brown
Trust Shares.
As compensation for providing distribution and shareholder services to
the Fund for the last three fiscal years, the Fund's distributor received
aggregate fees in the following amounts:
Fiscal Year Ended October 31,
-----------------------------
Fee 1998 1997 1996
--- ---- ---- ----
12b-1 Fees $223,094(1) $161,564(2) $ 100,956(4)
Class B Shareholder
Servicing Fee $ 14,536(1) $ 6,398(3) $ 255(4,5)
- -------------
(1) Received by ICC Distributors, the Fund's distributor.
(2) 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.
(3) 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.
(4) Fees received by Alex. Brown, the Fund's distributor.
(5) For Class B Shares, amounts represent fees received for the period from
June 20, 1996 (commencement of offering of 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 three separate Plans of
Distribution, one for the Class A Shares (the "Class A Plan") and one for the
Class B Shares (the "Class B Plan") (collectively, the "Plans"). Under the
Plans, the Fund pays fees as described above to ICC Distributors for
distribution and other shareholder servicing assistance as set forth in the
Distribution Agreement, and ICC Distributors is authorized to make payments out
of its fee to Participating Dealers and Shareholder Servicing Agents. The Plans
will remain in effect from year to year thereafter as specifically approved (a)
at least annually by the Fund's Board of Directors and (b) 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
Fund's Board of Directors, including a majority of the Independent Directors, on
September 29, 1998.
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 Fund.
The Plans may be terminated at any time, by the vote of a majority of the Fund's
Independent Directors or by a vote of a majority of the outstanding Shares of
the related class (as defined under "Capital Stock").
-16-
<PAGE>
During the continuance of the Plans, the Fund's Board of Directors will
be provided for their review, at least quarterly, a written report concerning
the payments made under the Plans to ICC Distributors pursuant to the
Distribution Agreement, to broker-dealers pursuant to any 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 such Plans. 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 Class A Shares is less than 0.25% of the
average daily net assets invested in that Class or Class B Shares is less than
0.75% of the average daily net assets invested in that Class for any period, the
unexpended portion of the distribution fees 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 any of the Plans 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
such Plan.
The Fund's distributor received commissions on the sale of the Class A
Shares and contingent deferred sales charges on the Class B Shares and retained
such commissions or sales charges in the following amounts:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
-----------------------------
1998 1997 1996
---- ---- ----
Class Received Retained Received Retained Received Retained
----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Class A Commissions $278,417(1) $0 $293,651(2) $213,280(4) $210,390(6) $201,445(6)
Class B Contingent $ 35,662(1) $0 $180,270(3) $78,625(5) $ 29,712(6,7) $29,712(6,7)
Deferred Sales
Charge
</TABLE>
- -------------
(1) By ICC Distributors, the Fund's distributor.
(2) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $227,165 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $66,486.
(3) Of this amount, Alex. Brown, the Fund's distributor prior to August 31,
1997, received $89,798 and ICC Distributors, the Fund's distributor
effective August 31, 1997 received $90,472.
(4) Of commissions received, Alex. Brown retained $213,280 and ICC Distributors
retained $0, respectively.
(5) Of sales charges received, Alex. Brown retained $78,625 and ICC
Distributors retained $0, respectively.
(6) By Alex. Brown, the Fund's distributor.
(7) For the period from June 20, 1996 (commencement of offering of Flag
Investors Class B Shares) through October 31, 1996.
-17-
<PAGE>
The Fund will pay all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
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
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and 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 registration and maintenance 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 Directors and 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
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 that 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 assumed by ICC or ICC
Distributors.
The address of ICC Distributors is Two Portland Square, Portland, Maine
04101.
8. BROKERAGE
Purchases and sales of securities on a securities exchange are effected
through broker-dealers who charge a commission for their services. Brokerage
commissions are subject to negotiation between ICC and the broker-dealers. 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 acts 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. The Fund believes that the limitation will
not affect its ability to carry out its present investment objective.
ICC's primary consideration in effecting securities transactions is to
obtain the best price and execution of orders on an overall basis. As described
below, however, ICC may, in its discretion, effect agency transactions with
broker-dealers that furnish statistical, research or other information or
services that 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
-18-
<PAGE>
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. In over-the-counter transactions, ICC
will not pay any commission or other remuneration for research services. 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 best
price and execution. Subject to periodic review by the Fund's Board of
Directors, ICC is also authorized to pay broker-dealers other than affiliates of
the Advisor higher commissions than another broker may have charged on brokerage
transactions for the Fund for brokerage or research services. The allocation of
orders among broker-dealers and the commission rates paid by the Fund will be
reviewed periodically by the Board. The foregoing policy under which the Fund
may pay higher commissions to certain broker-dealers in the case of agency
transactions, does not apply to transactions effected on a principal basis. In
addition, consistent with NASD Rules, and subject to seeking the most favorable
price and execution available and such other policies as the Board may
determine.
Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions through affiliates of the
Advisor. At the time of such authorization, the Board adopted certain policies
and procedures incorporating the standards of Rule 17e-1 under the Investment
Company Act, which requires that the commissions paid affiliates of the Advisor
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. In the fiscal year ended
October 31, 1998, the Fund paid no brokerage commissions to affiliates of the
Advisor.
ICC manages other investment accounts. 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 that it seeks to purchase or sell.
ICC directed transactions to broker-dealers and paid related
commissions because of research services in the following amounts:
-19-
<PAGE>
Fiscal Year Ended October 31,
-----------------------------
1998 1997 1996
---- ---- ----
Transactions Directed $ 4,112,107 $98,445,406 $ 4,091,824
Commissions Paid $ 13,081 $ 13,853 $ 11,346
- ----------------------------
The increasing amounts of commissions reflects the growth of the Fund.
The Fund is required to identify any securities of its "regular brokers
or dealers" (as such term is defined in the Investment Company Act) that the
Fund has acquired during its most recent fiscal year. As of October 31, 1998,
the Fund held a 5.25% repurchase agreement issued by Goldman Sachs & Co. valued
at $5,490,000. Goldman Sachs & Co. is a "regular broker or dealer" of the Fund.
9. CAPITAL STOCK
The Fund is authorized to issue 35 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 five 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 Class C Shares, Flag Investors Emerging Growth Fund Institutional
Shares and [Brown Investment Advisory & Trust Company] 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 [Brown Investment Advisory & Trust Company] Shares are offered only to
clients of Brown Investment Advisory & Trust Company and its affiliates. The
Flag Investors Emerging Growth Fund Class C Shares have not been offered prior
to the date of this Statement of Additional Information. 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. In such event, the remaining holders cannot elect any
members of the Board of Directors of 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.
-20-
<PAGE>
As used in this Statement of Additional Information, the term "majority
of the outstanding Shares" means the vote of the lesser of (i) 67% or more of
the Shares present at a meeting, if the holders of more than 50% of the
outstanding Shares are present or represented by proxy, or (ii) more than 50% of
the outstanding Shares.
10. SEMI-ANNUAL REPORTS
The Fund furnishes shareholders with semi-annual reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent accountants.
11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES
Bankers Trust Company ("Bankers Trust") 130 Liberty Street, New York,
New York 10006, 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 fiscal year ended October 31, 1998, Bankers Trust was paid $25,373 as
compensation for providing custody services to the Fund. Investment Company
Capital Corp., One South Street, Baltimore, Maryland 21202, has been retained to
act as transfer and dividend disbursing agent. As compensation for providing
these services, the Fund pays ICC up to $15.67 per account per year, plus
reimbursement for out-of-pocket expenses. For the fiscal year ended October 31,
1998, ICC received transfer agency fees of $87,294.
ICC also provides certain accounting services to the Fund. As
compensation for these services, ICC receives 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%
For the fiscal years ended October 31, 1998, 1997 and 1996 ICC received
accounting fees of $59,460, $53,054 and $41,911, respectively.
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.
-21-
<PAGE>
12. LEGAL MATTERS
Morgan, Lewis & Bockius LLP serves as counsel to the Fund.
13. INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 250 West Pratt Street, Baltimore, Maryland
21201, are independent accountants to the Fund.
14. 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 date the Fund (or a
class or series) commenced operations (or the later commencement of operations
of the series or class).
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, 1998 were as follows:
<TABLE>
<CAPTION>
One-Year Period Five-Year Period Ten-Year Period
Ended Ended Ended
October 31, 1998 October 31, 1998 October 31, 1998
---------------- ---------------- ----------------
Average Average Average
Ending Annual Ending Annual Ending Annual
Redeemable Total Redeemable Total Redeemable Total
Class Value Return Value Return Value Return
- ----- ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Class A
*December 30, 1987 $826.30 -17.37% $1,695.90 11.14% $2,619.40 10.11%
</TABLE>
-22-
<PAGE>
One-Year Period
Ended
October 31, 1998 Since Inception
---------------- ----------------------
Average Average
Ending Annual Ending Annual
Redeemable Total Redeemable Total
Class Value Return Value Return
- ----- ---------- ------- ---------- ------
Class B
*June 20, 1996 $818.90 -18.11% $1,033.70 1.41%
Institutional
*November 2, 1995 $866.10 -13.39% $1,274.80 8.44%
[Brown Trust] Shares
*May 9, 1997 $867.40 -13.26% $1,081.50 5.44%
- ----------
* 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 (as distinguished from the computation
required by the SEC where the $1,000 payment is reduced by sales charges before
being invested in Shares). The Fund will, however, disclose the maximum sales
charges and will also disclose that the performance data do not reflect sales
charges and that inclusion of sales charges would reduce the performance quoted.
Such alternative total return information will be given no greater prominence in
such advertising than the information prescribed under SEC rules and all
advertisements containing performance data will include a legend disclosing that
such performance data represent past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
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 U.S. Government securities and
securities with maturities of one year or less) may vary from year to year, as
well as within a year, depending on market conditions. In the fiscal year ended
October 31, 1998, the Fund's portfolio turnover rate was 23% and in the fiscal
year ended 1997, the Fund's portfolio turnover rate was 42%.
15. 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 outstanding Shares of a class of the Fund, as
of December 1, 1998.
-23-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Owned of Record Beneficially Owned Percentage Owned
---------------- --------------- ------------------ ----------------
<S> <C> <C> <C>
Brown Trust Custodian |X| 5.48% of [Brown Trust] Shares
FBO/01011707200019
19 South Street
Baltimore, MD 21202
T Rowe Price TR |X| 17.99% of Class A Shares
Alex. Brown & Sons Inc. Plan
#100460
Flag Investors Emerging Growth
Attn Asset Recon
P.O. Box 17215
Baltimore, MD 21297-1215
Mercantile Safe Deposit & Trust Co. |X| 6.53% of Institutional Shares
Cus U/A 04/28/93
Physicians Mem Hospital Pension Plan
2 Hopkins Plaza
Baltimore, MD 21201-2930
Mercantile Safe Deposit & Trust TR |X| 26.93% of Institutional Shares
College of Notre Dame
Attn Custody
2 Hopkins Plaza
Baltimore, MD 21201-2930
Frank Nominees LTD |X| 6.03% of Institutional Shares
P.O. Box 919
10 Fenchurch St
London EC 3M 3LB
United Kingdom
Light & Co |X| 8.11% of Institutional Shares
c/o First National Bank of Maryland
Attn Trust Operations #101-610
PO Box 1596
Baltimore, MD 21203-1596
The Haron Dahan Foundation Inc |X| 9.35% of Institutional Shares
2231 Conowingo Rd
Bel Air, MD 21015-1436
BT Alex. Brown Incorporated |X| 5.26% of Institutional Shares
FBO 201-97155-11
PO Box 1346
Baltimore, MD 21203-1346
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Name and Address Owned of Record Beneficially Owned Percentage Owned
---------------- --------------- ------------------ ----------------
<S> <C> <C> <C>
BT Alex. Brown Incorporated |X| 25.81% of Institutional Shares
FBO 601-20603-12
PO Box 1346
Baltimore, MD 21203-1346
Lewco Securities Corp |X| 5.21% of Class B Shares
FBO A/C #H34-100700-3-01
34 Exchange Pl Fl 4
Jersey City, NJ 07302-3885
</TABLE>
----------------
* 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 December 1, 1998.
16. FINANCIAL STATEMENTS
See next page.
-25-
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1998
No. of Value Percent of
Shares Security (Note 1) Net Assets
------ -------- -------- ----------
- --------------------------------------------------------------------------------
Common Stock: 94.9%
Business Services: 18.5%
80,550 AHL Services, Inc.* $ 2,718,562 2.2%
160,500 Central Garden & Pet Co.* 3,169,875 2.6
99,700 Dialogic Corp.* 2,243,250 1.8
149,400 Manugistics* 2,147,625 1.7
117,400 MemberWorks, Inc.* 2,714,875 2.2
145,600 QRS Corporation* 5,532,800 4.5
173,850 Wilmar Industries, Inc.* 4,302,787 3.5
------------ -----
22,829,774 18.5
Capital Goods: 2.5%
208,300 Advanced Lighting Technologies, Inc.* 1,692,437 1.4
101,400 ATMI, Inc.* 1,394,250 1.1
------------ -----
3,086,687 2.5
Consumer Services: 19.2%
91,037 Apollo Group, Inc. Cl-A* 2,924,564 2.4
331,150 Avado Brands, Inc. 2,607,806 2.1
69,800 Il Fornaio (America) Corp.* 558,400 0.5
236,000 Just For Feet* 3,997,250 3.2
299,112 O'Charleys, Inc.* 3,589,344 2.9
60,625 Papa John's International* 2,301,855 1.9
301,400 PETsMART, Inc.* 2,166,313 1.8
65,750 Starbucks Corp.* 2,851,906 2.3
85,725 Sylvan Learning Systems, Inc.* 2,646,759 2.1
------------ -----
23,644,197 19.2
Health Care Services: 10.9%
357,100 American Oncology Resources, Inc.* 4,753,894 3.9
34,900 Guilford Pharmaceuticals, Inc.* 571,487 0.5
24,900 Incyte Pharmaceuticals, Inc.* 759,450 0.6
267,350 PSS World Medical, Inc.* 5,915,119 4.8
132,700 Transition Systems, Inc.* 1,385,056 1.1
------------ -----
13,385,006 10.9
26
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Net Assets October 31, 1998
No. of Value Percent of
Shares Security (Note 1) Net Assets
------ -------- -------- ----------
- -------------------------------------------------------------------------------
Common Stock (concluded)
Health Equipment and Services: 4.0%
81,950 Arthrocare Corp* $ 1,454,613 1.2%
53,900 Bionx Implants, Inc.* 380,669 0.3
56,350 Heartport, Inc.* 239,488 0.2
117,775 Perclose* 2,811,878 2.3
------------ ----
4,886,648 4.0
Media/ Communications: 0.3%
32,900 Getty Images, Inc.* 405,081 0.3
------------ -----
Technology -- Software/Services: 15.0%
93,400 Aspect Development, Inc.* 2,950,856 2.4
153,600 Broadvision Inc.* 2,304,000 1.9
312,525 Integrated Systems, Inc.* 3,515,906 2.8
104,650 Mapics* 1,975,269 1.6
67,900 Summit Design, Inc.* 568,663 0.5
158,146 Synopsys, Inc.* 7,156,107 5.8
------------ -----
18,470,801 15.0
Technology -- Systems/Semiconductors: 13.1%
186,200 Applied Digital Access, Inc.* 581,875 0.5
197,925 Level One Communications, Inc.* 5,207,902 4.2
224,700 Security Dynamics Technologies, Inc.* 2,303,175 1.9
291,500 Sipex Corp.* 8,089,125 6.5
------------ -----
16,182,077 13.1
Telecommunication -- Long Distance: 4.9%
118,400 Geotel Communications Corp.* 3,078,400 2.5
102,500 Pacific Gateway Exchange, Inc.* 2,959,688 2.4
------------ -----
6,038,088 4.9
Transportation: 6.5%
161,150 Atlantic Coast Airlines, Inc.* 3,867,600 3.1
102,050 Coach USA, Inc.* 2,736,216 2.2
69,075 Forward Air Corporation* 1,062,028 0.9
69,075 Landair Services, Inc.* 345,375 0.3
------------ -----
8,011,219 6.5
Total Common Stock
(Cost $99,511,758) 116,939,578 94.9
------------ -----
27
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Net Assets (concluded) October 31, 1998
Par Value Percent of
(000) Security (Note 1) Net Assets
Repurchase Agreement: 4.4%
- --------------------------------------------------------------------------------
$5,490 Goldman Sachs & Co. 5.25%
Dated 10/30/98, to be repurchased
@ 5, 718,402 on 11/02/98, collater-
alized by U.S Treasury Bonds with
a market value of $5,600,451
(Cost $5,490,000) $ 5,490,000 4.4%
------------ -----
Total Investments in Securities
(Cost $105,001,758)** 122,429,578 99.3
------------
Other Assets in Excess of Liabilities 843,699 0.7
------------ -----
Net Assets $123,273,277 100.0%
Net Asset Value and Redemption Price Per:
Class A Share
($65,247,480 / 3,419,651 shares outstanding) $19.08
Class B Share
($5,154,618 / 275,767 shares outstanding) $18.69***
Institutional Share
($6,242,969 / 325,623 shares outstanding) $19.17
ABCAT Share
($46,628,210 / 2,430,133 shares outstanding) $19.19
Maximum Offering Price Per:
Class A Share
($19.08 / 0.955) $19.98
Class B Share $18.69
Institutional Share $19.17
ABCAT Share $19.19
- --------------------
* Non-income producing security.
** Aggregate cost for federal tax purposes was $105,001,758.
*** Redemption value is $17.94 following a 4% maximum contingent =
deferred sales charge.
See Notes to Financial Statements.
28
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Operations
For the
Year Ended
October 31,
- --------------------------------------------------------------------------------
1998
Investment Income:
Dividends ................................................ $ 11,447
Interest ................................................. 480,434
-----------
Total income .................................... 491,881
-----------
Expenses:
Investment advisory fee .................................. 1,103,023
Distribution fee ......................................... 237,630
Legal .................................................... 88,253
Transfer agent fee ....................................... 87,294
Accounting fee ........................................... 59,460
Registration fees ........................................ 55,889
Printing and postage ..................................... 43,716
Audit fees ............................................... 29,226
Custodian fee ............................................ 25,373
Directors' fees .......................................... 5,951
Miscellaneous ............................................ 8,726
------------
Total expenses .................................. 1,744,541
------------
Expenses in excess of investment income .................. (1,252,660)
------------
Realized and unrealized loss on investments:
Net realized lossfrom security transactions .............. (1,729,647)
Change in unrealized appreciation/depreciation
of investments ........................................ (15,958,185)
------------
Net loss on investments .................................. (17,687,832)
------------
Net decrease in net assets resulting from operations ........ $(18,940,492)
=============
See Notes to Financial Statements.
29
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
For the Years Ended October 31,
- --------------------------------------------------------------------------------
1998 1997
---- ----
Increase/(Decrease) in Net Assets:
Operations:
Expenses in excess of investment income . $ (1,252,660) $ (831,973)
Net realized gain/(loss) from security
transactions (1,729,647) 6,273,549
Change in unrealized appreciation/
depreciation of investments (15,958,185) 17,299,788
------------- -------------
Net increase/(decrease) in net assets
resulting from operations (18,940,492) 22,741,364
------------- -------------
Dividends to Shareholders from:
Net realized short-term gains:
Class A Shares (655,545) (509,733)
Class B Shares (53,761) (12,155)
Institutional Shares (117,815) (262,737)
ABCAT Shares (320,098) --
Net realized mid-term and long-term gains:
Class A Shares (2,622,180) (1,286,527)
Class B Shares 215,043) (28,797)
Institutional Shares (471,259) (663,099)
ABCAT Shares (1,280,392) --
------------- -------------
Total distributions (5,736,093) (2,763,048)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares 51,002,445 77,654,561
Value of shares issued in
reinvestment of dividends 5,494,066 2,667,198
Cost of shares repurchased (34,109,172) (40,585,610)
------------- -------------
Increase in net assets derived from capital
share transactions 22,387,339 39,736,149
------------- -------------
Total increase/(decrease) in net assets .. (2,289,246) 9,714,465
Net Assets:
Beginning of year 125,562,523 65,848,058
------------- -------------
End of year $ 123,273,277 $ 125,562,523
============= =============
See Notes to Financial Statements
30
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each year)
For the
Year Ended
October 31, 1998
Per Share Operating Performance:
Net asset value at beginning of year $ 23.17
--------
Income from Investment Operations:
Expenses in excess of investment income (0.22)
Net realized and unrealized gain/(loss) on investments (2.82)
--------
Total from Investment Operations (3.04)
Less Distributions:
Distributions from net realized short-term gains (0.21)
Distributions from net realized mid-term and long-term gains (0.84)
--------
Total distributions (1.05)
--------
Net asset value end of year $ 19.08
========
Total Return(1) (13.48)%
Ratios to Average Daily Net Assets:
Expenses 1.41%
Expenses in excess of investment income (1.03)%
Supplemental Data:
Net assets at end of year (000) $ 65,247
Portfolio turnover rate 23%
31
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended October 31,
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
------ --------- --------- ---------
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of year $19.14 $ 17.09 $ 12.90 $ 14.02
------ --------- --------- ---------
Income from Investment Operations:
Expenses in excess of investment income (0.18) (0.15) (0.09) (0.08)
Net realized and unrealized gain/(loss) on investments 4.95 3.10 4.32 0.47
------ --------- --------- ---------
Total from Investment Operations 4.77 2.95 4.23 0.39
Less Distributions:
Distributions from net realized short-term gains (0.21) (0.30) -- --
Distributions from net realized mid-term and long-term gains (0.53) (0.60) (0.04) (1.51)
------ --------- --------- ---------
Total distributions (0.74) (0.90) (0.04) (1.51)
------ --------- --------- ---------
Net asset value end of year $23.17 $ 19.14 $ 17.09 $ 12.90
====== ========= ========= =========
Total Return(1) 25.93% 18.19% 32.92% 3.75%
Ratios to Average Daily Net Assets:
Expenses 1.44% 1.50% 1.50% 1.50%
Expenses in excess of investment income (0.97)% (0.83)% (0.64)% (0.73)%
Supplemental Data:
Net assets at end of year (000) $71,123 $ 45,325 $ 38,127 $ 23,302
Portfolio turnover rate 42% 24% 39% 86%
</TABLE>
- ----------
(1) Total return excludes the effect of sales charge.
(2) Calculation based on average shares.
See Notes to Financial Statements.
32
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
For the Period
June 20, 1996(1)
through
For the Years Ended October 31, October 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $ 22.88 $ 19.10 $ 19.22
------------ ----------- ----------
Income from Investment Operations:
Expenses in excess of income .......... (0.37)(2) (0.18) (0.12)
Net realized and unrealized gain/(loss)
on investments ..................... (2.77) 4.70 --
------------ ----------- ----------
Total from Investment Operations ...... (3.14) 4.52 (0.12)
------------ ----------- ----------
Less Distributions:
Distributions from net realized
short-term gains ................... (0.21) (0.21) --
Distributions from net realized
mid-term and long-term gains ....... (0.84) (0.53) --
------------ ---------- ----------
Total distributions ................... (1.05) (0.74) --
------------ ---------- ----------
Net asset value at end of period ...... $ 18.69 $ 22.88 $ 19.10
============ ========= ==========
Total Return(2) .......................... (14.11)% 24.69% (0.62)%
Ratios to Average Daily Net Assets:
Expenses .............................. 2.16% 2.19% 2.25%(3)
Expenses in excess of income .......... (1.77)% (1.73)% (1.67)%(3)
Supplemental Data:
Net assets at end of period (000) ..... $ 5,155 $ 5,719 $ 772
Portfolio turnover rate ............... 23% 42% 24%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Total return excludes the effect of sales charge.
(4) Annualized.
See Notes to Financial Statements.
33
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
For the Period
November 2,
1995(1) through
For the Years Ended October 31, October 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period $23.25 $ 19.15 $ 17.45
------ ------- -------
Income from Investment Operations:
Expenses in excess of investment
income ............................. (0.17)(2) (0.26) (0.12)
Net realized and unrealized gain/(loss)
on investments ..................... (2.86) 5.10 2.72
------ ------- -------
Total from Investment Operations ...... (3.03) 4.84 2.60
------ ------- -------
Less Distributions:
Distributions from net realized
short-term gains ................... (0.21) (0.21) (0.30)
Distributions from net realized
mid-term and long-term gains ....... (0.84) (0.53) (0.60)
------ ------- -------
Total distributions ................... (1.05) (0.74) (0.90)
------ ------- -------
Net asset value at end of period ...... $19.17 $ 23.25 $ 19.15
====== ====== =======
Total Return ............................. (13.39)% 26.36% 16.48%
Ratios to Average Daily Net Assets:
Expenses .............................. 1.16% 1.19% 1.25%(2)
Expenses in excess of income .......... (0.76)% (0.74)% (0.61)%(2)
Supplemental Data:
Net assets at end of period (000) ..... $6,243 $ 13,068 $ 19,751
Portfolio turnover rate ............... 23% 42% 24%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Annualized.
See Notes to Financial Statements.
34
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- ABCAT Shares
(For a share outstanding throughout each period)
For the Period
For the May 9, 1997(1)
Year Ended through
October 31, October 31,
---------- --------------
1998 1997
---- ----
Per Share Operating Performance:
Net asset value at beginning of period $ 23.24 $ 18.64
-------- --------
Income from Investment Operations:
Expenses in excess of income (0.17)(2) (0.06)
Net realized and unrealized
gain/(loss) on investments (2.83) 4.66
-------- -------
Total from Investment Operations (3.00) 4.60
-------- --------
Less Distributions:
Distributions from net realized
short-term gains (0.21) --
Distributions from net realized
mid-term and long-term gains (0.84) --
-------- --------
Total Distributions (1.05) --
-------- --------
Net asset value at end of period $ 19.19 $ 23.24
======== =======
Total Return (13.26)% 24.68%
Ratios to Average Daily Net Assets:
Expenses 1.16% 1.19%(2)
Expenses in excess of income (0.80)% (0.69)%(2)
Supplemental Data:
Net assets at end of period (000) $46,628 $35,653
Portfolio turnover rate 23% 42%
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Annualized.
See Notes to Financial Statements.
35
<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 management investment 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 not readily available,
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
36
<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 has a
capital loss carryforward in the amount of $1,873,591 expiring in 2006.
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 or excise 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 amortization of premiums and
accretion of discounts when appropriate. Income and common expenses are
allocated to each class based on its respective average net assets. Class
specific expenses are charged directly to each class. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
NOTE 2 -- Investment Advisory Fees, Transactions with Affiliates and
Other Fees
Investment Company Capital Corp. ("ICC"), an indirect subsidiary of Bankers
Trust Corporation, is the Fund's investment advisor. The Advisory
37
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTE 2 -- concluded
Agreement provides for ICC to receive an annual fee equal to 0.85% of the Fund's
average daily net assets. However, the actual amount of the fee is contractually
limited to an amount that would result in total expenses on Class A Shares of no
more than 1.50%. The Fund paid ICC $1,103,023 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, 1998. At October 31, 1998, the Fund owed $76,693 in advisory fees.
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 based upon its average daily net assets and paid
monthly. The Fund paid ICC $59,460 for accounting services for the year ended
October 31, 1998. At October 31, 1998, the Fund owed $4,744 in accounting
services fees.
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 $87,294 for
transfer agent services for the year ended October 31, 1998. At October 31,
1998, the Fund owed $16,361 in transfer agent services fees.
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, 1998,
distribution fees aggregated $237,630, of which $179,510 was attributable to the
Class A Shares and $58,120 was attributable to the Class B Shares. No
distribution fees were charged to the Institutional and ABCAT Shares. At October
31, 1998, the Fund owed $15,703 in distribution fees of which $11,992 was
attributable to Class A and $3,711 was attributable to Class B.
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, 1998 was $2,643, and the accrued liability was $5,974.
38
<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, 1998 Oct. 31, 1997
------------ -----------
Shares sold 1,026,573 1,220,895
Shares issued to shareholders on
reinvestment of dividends 148,041 92,972
Shares redeemed (823,988) (612,803)
------------ -----------
Net increase in shares outstanding 350,626 701,064
======= =======
Proceeds from sale of shares $ 21,111,802 $24,515,195
Value of reinvested dividends 3,068,894 1,709,779
Cost of shares redeemed (16,839,860) (12,465,235)
------------ -----------
Net increase from capital share
transactions $ 7,340,836 $13,759,739
============ ===========
Class B Shares
------------------------------
For the For the
Year Ended Year Ended
Oct. 31, 1998 Oct. 31, 1997
------------ -----------
Shares sold 107,106 234,480
Shares issued to shareholders on
reinvestment of dividends 12,906 2,231
Shares redeemed (94,232) (27,166)
------------ -----------
Net increase in shares outstanding 25,780 209,545
============ ===========
Proceeds from sale of shares $ 2,245,546 $ 5,012,881
Value of reinvested dividends 263,666 40,890
Cost of shares redeemed (1,909,628) (564,373)
------------ -----------
Net increase from capital share
transactions $ 599,584 $ 4,489,398
============ ===========
39
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Institutional Shares
------------------------------
For the For the
Year Ended Year Ended
Oct. 31, 1998 Oct. 31, 1997
------------- ------------
Shares sold 20,073 834,599
Shares issued to shareholders on
reinvestment of dividends 27,198 49,811
Shares redeemed (283,690) (1,353,795)(2)
------------ -----------
Net decrease in shares
outstanding (236,419) (469,385)
=========== =============
Proceeds from sale of shares $ 509,820 $16,289,665
Value of reinvested dividends 566,256 916,529
Cost of shares redeemed (6,892,979) (26,372,242)(2)
------------ -----------
Net decrease from capital share
transactions $(5,816,903) $ (9,166,048)
=========== =============
ABCAT Shares
----------------------------------
For the For the Period
Year Ended May 9, 1997(1) to
Oct. 31, 1998 Oct. 31, 1997
------------- -----------------
Shares sold 1,257,491 1,587,453(3)
Shares issued to shareholders on
reinvestment of dividends 76,695 --
Shares redeemed (437,945) (53,561)
------------ -----------
Net increase in shares outstanding 896,241 1,533,892
=========== =============
Proceeds from sale of shares $27,135,277 $31,836,820(3)
Value of reinvested dividends 1,595,250 --
Cost of shares redeemed (8,466,705) (1,183,760)
------------ -----------
Net increase from capital share
transactions $ 20,263,822 $30,653,060
=========== =============
- -----------
(1) Commencement of operations.
(2) The number of shares redeemed and cost of shares redeemed for the year
ended October 31, 1998 include an exchange of shares from Institutional
Shares into ABCAT Shares.
(3) The number of shares sold and proceeds from sale of shares for the year
ended October 31, 1998 include an exchange of shares from Institutional
Shares into ABCAT Shares.
40
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $49,818,578 and sales of investment securities aggregated $28,611,680
for the year ended October 31, 1998.
For federal income tax purposes, the tax cost of investments held at
October 31, 1998 was $105,293,620. On October 31, 1998, aggregate net unrealized
appreciation over tax cost for portfolio securities was $17,427,820 of which
$30,217,516 related to appreciated securities and $12,789,696 related to
depreciated securities.
NOTE 5 -- Net Assets
On October 31, 1998, net assets consisted of:
Paid-in capital
Class A Shares $48,166,449
Class B Shares 5,797,620
Institutional Shares 3,726,681
ABCAT Shares 50,324,632
Accumulated net realized loss from security transactions (2,169,925)
Unrealized appreciation of investments 17,427,820
------------
$123,273,277
============
NOTE 6 -- Risks of Investing Small and Emerging Growth Companies
There are risks to investors inherent in the characteristics of emerging
growth companies. 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.
41
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTE 7 -- Federal Income Tax Information
On October 31, 1998, there was a tax capital loss carryforward of
approximately $1,828,277, expiring October 31, 2006. This carryforward will be
used to offset future net capital gains.
NOTE 8 -- Tax Information (Unaudited)
The following information summarizes all per share distributions paid by
the Fund during the taxable period ending October 31, 1998.
Total
Record Payable Ordinary Long-Term
Date Date Income Capital Gains
-------- -------- -------- -----------
12/15/97 12/19/97 $0.21 $0.84
NOTE 9 -- Shareholder Meeting
On September 25, 1998, the Flag Investors Emerging Growth Fund held a
special meeting for its shareholders. During the meeting, the shareholders
elected the following directors: Truman T. Semans, James J. Cunnane, Richard T.
Hale, Joseph R. Hardiman, Louis E. Levy, Rebecca W. Rimel, and Carl W. Vogt. The
shareholders also approved a new sub-advisory agreement amongst the Fund,
Investment Conference Capital Corp., and Alex. Brown Capital Advisory and Trust
Company.
42
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Shareholders and Directors of
Flag Investors Emerging Growth Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Flag Investors Emerging Growth Fund, Inc. (the "Fund") at October 31, 1998, and
the results of its operations, the changes in its net assets and the financial
highlights for each of the fiscal periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
December 1, 1998
43
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) (1) Articles of Incorporation incorporated by reference to
Exhibit 1(a) to Post-Effective No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-95-000392) on August 18, 1995.
(2) Articles of Amendment incorporated by reference to Exhibit
1(b) to Post-Effective No. 10 to Registrant's Registration
Statement on Form N-1A (File No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
950116-95-000392) on August 18, 1995.
(3) Articles Supplementary incorporated by reference to Exhibit
1(c) to Post-Effective No. 10 to Registrant's Registration
Statement on Form N-1A (File No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No.
950116-95-000392) on August 18, 1995.
(4) Articles Supplementary incorporated by reference to Exhibit
1(d) to Post-Effective Amendment No. 11 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-06-000107) on February 28, 1996.
(5) Articles Supplementary with respect to the creation of the
ABCAT Shares Class incorporated by reference to Exhibit 1(e)
to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-97-000363) on February 26, 1997.
(6) Articles Supplementary dated October 23, 1998, filed herewith.
(b) By-Laws as amended through December 18, 1996, incorporated by
reference to Exhibit 2 to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-000363) on February 26, 1997.
(c) Instruments Defining Rights of Securities Holders incorporated by
reference to Exhibit 1(Articles of Incorporation) of Post-Effective
Amendments Nos. 10, 11 and 14 to Registrant's Registration Statement
on Form N-1A (File No. 33-21119), 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) of
Post-Effective Amendment No. 14 to such Registration Statement filed
with the Securities and Exchange Commission via EDGAR on February
26, 1997.
(d) (1) Investment Advisory Agreement between Registrant and
Investment Company Capital Corp. incorporated by reference to
Exhibit 5 to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed
C-1
<PAGE>
with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000482) on February 26, 1998.
(2) Investment Sub-Advisory Agreement dated October 1, 1998
between Registrant, Investment Company Capital Corp. and Alex.
Brown Capital Advisory & Trust Company, filed herewith.
(e) (1) Distribution Agreement dated as of August 31, 1997 between
Registrant and ICC Distributors, Inc. incorporated by
reference to Exhibit (6)(a) to Post-Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000482) on February 26,
1998.
(2) Form of Sub-Distribution Agreement between ICC Distributors,
Inc. and Participating Dealers incorporated by reference to
Exhibit (6)(b) to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000482) on February 26,
1998.
(3) Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents incorporated by reference to
Exhibit (6)(c) to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116- 98-000482) on February 26,
1998.
(f) None.
(g) Custodian Agreement dated June 5, 1998, between Registrant and
Bankers Trust Company, filed herewith.
(h) Master Services Agreement between Registrant and Investment Company
Capital Corp. with Appendices for the provision of Transfer Agency
and Accounting Services incorporated by reference to Exhibit 9(a) to
Post-Effective No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000392) on August 18,
1995.
(i) Opinion of Counsel incorporated by reference to Exhibit 10 to
Post-Effective No. 10 to Registrant's Registration Statement on Form
N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-95-000392) on August 18,
1995.
(j) Consent of PricewaterhouseCoopers LLP, filed herewith.
(k) None.
(l) Subscription Agreements between Registrant and Investors
incorporated by reference to Exhibit 13 to Post-Effective No. 10 to
Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-95-000392) on August 18, 1995.
C-2
<PAGE>
(m) (1) Distribution Plan with respect to Flag Investors Emerging
Growth Fund Class A Shares incorporated by reference to
Exhibit (15)(a) to Post-Effective No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-95-000392) on August 18, 1995.
(2) Distribution Plan with respect to Flag Investors Emerging
Growth Fund Class B Shares incorporated by reference to
Exhibit (15)(b) to Post-Effective Amendment No. 12 to
Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-96-000161) on March 25, 1996.
(3) Amended Distribution Plan with respect to Flag Investors
Emerging Growth Fund Class A Shares incorporated by reference
to Exhibit (15)(c) to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000482) on February 26,
1998.
(4) Amended Distribution Plan with respect to Flag Investors
Emerging Growth Fund Class B Shares incorporated by reference
to Exhibit (15)(d) to Post-Effective Amendment No. 15 to
Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000482) on February 26,
1998.
(n) Financial Date Schedule, filed herewith.
(o) (1) Rule 18f-3 Plan incorporated by reference to Exhibit
(18)(a) to Post-Effective Amendment No. 13 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed
with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-96-001119) on October 18, 1996.
(2) Rule 18f-3 Plan, as amended through March 26, 1997
incorporated by reference to Exhibit (18)(b) to Post-Effective
Amendment No. 14 to Registrant's Registration Statement on
Form N-1A (File No. 33-21119), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-97-000363)
on February 26, 1997.
(3) Amended Rule 18f-3 Plan, filed herewith.
(p) Powers of Attorney, filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant.
Provide a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant. For any person controlled by
another person, disclose the percentage of voting securities owned by the
immediately controlling person or other basis of that person's control. For each
company, also provide the state or sovereign power under the law of which the
company is organized.
C-3
<PAGE>
None.
Item 25. 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 against any liability incurred in their official
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 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 26. Business and Other Connections of Investment Advisor.
C-4
<PAGE>
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor and each director, officer or
partner of the investment advisor, is or has been engaged within the last two
fiscal years, for his or her own account or in the capacity of director,
officer, employee, partner or trustee. (Disclose the name and principal business
address of any company for which a person listed above serves in the capacity of
director, officer, employee, partner or trustee, and the nature of the
relationship.)
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 that of the business of investment management and, through affiliates,
investment banking.
Item 27. Principal Underwriters
(a) State the name of each investment company (other than the Registrant)
for which each principal underwriter currently distributing securities of the
Registrant also acts as a principal underwriter, depositor or investment
advisor.
ICC Distributors, Inc. acts as distributor for BT Alex. Brown Cash
Reserve Fund, Inc., Flag Investors Communications Fund, Inc. (formerly 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 Flag Investors Intermediate-Term Income Fund,
Inc.), Flag Investors Value Builder Fund, Inc., Flag Investors Real Estate
Securities Fund, Inc. and Flag Investors Equity Partners Fund, Inc., all
registered open-end management investment companies.
(b) Provide the information with respect to each director, officer or
partner of each principal underwriter named in answer to Item 21.
<TABLE>
<CAPTION>
Names and Principal Position and Offices Position and Offices
Business Address* with Principal Underwriter with Registrant
- --------------------- -------------------------- ---------------
<S> <C> <C>
John Y. Keffer President None
Sara M. Morris Treasurer None
David I. Goldstein Secretary None
Benjamin L. Niles 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 28. Location of Accounts and Records.
State the name and address of each person maintaining principal possession
of 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] thereunder.
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
custodian or transfer agent), all receipts and disbursements of cash, and
all other debts and credits.
Item 29. Management Services.
Provide a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form disclosing the
parties to the contract and the total amount paid and by whom, for the
Registrant's last three fiscal years.
See Exhibit g.
Item 30. 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-6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has duly caused this
Post-Effective Amendment No. 16 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 29th day of December, 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:
* Chairman and Director December 29, 1998
- ------------------------- -----------------
Truman T. Semans Date
* Director December 29, 1998
- ------------------------- -----------------
James J. Cunnane Date
* Director December 29, 1998
- ------------------------- -----------------
Richard T. Hale Date
* Director December 29, 1998
- ------------------------- -----------------
Joseph R. Hardiman Date
* Director December 29, 1998
- ------------------------- -----------------
Louis E. Levy Date
* Director December 29, 1998
- ------------------------- -----------------
Eugene J. McDonald Date
* Director December 29, 1998
- ------------------------- -----------------
Rebecca W. Rimel Date
* Director December 29, 1998
- ------------------------- -----------------
Carl W. Vogt Date
/s/Harry Woolf President December 29, 1998
- ------------------------- -----------------
Harry Woolf Date
/s/Joseph A. Finelli Chief Financial December 29, 1998
- ------------------------- -----------------
Joseph A. Finelli and Accounting Date
Officer
* By: /s/Amy M. Olmert
-------------------
Amy M. Olmert
Attorney-In-Fact
<PAGE>
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Exhibit Index
- ------ -------------
<S> <C>
(a)(1) Articles of Incorporation incorporated by reference to Exhibit 1(a) to Post-Effective No.
10 to Registrant's Registration Statement on Form N-1A (File No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-95-000392) on August 18, 1995.
(2) Articles of Amendment incorporated by reference to Exhibit 1(b) to Post-Effective No. 10 to
Registrant's Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 950116-95-000392) on August 18, 1995.
(3) Articles Supplementary incorporated by reference to Exhibit 1(c) to Post-Effective No. 10 to
Registrant's Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 950116-95-000392) on August 18, 1995.
(4) Articles Supplementary incorporated by reference to Exhibit 1(d) to Post-Effective Amendment
No. 11 to Registrant's Registration Statement on Form N-1A (File No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-06- 000107) on February 28,
1996.
(5) Articles Supplementary with respect to the creation of the ABCAT Shares Class incorporated by
reference to Exhibit 1(e) to Post-Effective Amendment No. 14 to Registrant's Registration
Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-97-000363) on February 26, EX-99.B 1997.
EX-99.B (6) Articles Supplementary dated October 23, 1998, filed herewith.
(b) By-Laws as amended through December 18, 1996, incorporated by reference to Exhibit 2 to
Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-97-000363) on February 26, 1997.
(c) Instruments Defining Rights of Securities Holders incorporated by reference to Exhibit
1(Articles of Incorporation) of Post-Effective Amendments Nos. 10, 11 and 14 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR on August 18, 1995, February 28, 1996 and February 26, 1997, respective, and
Exhibit 2 (By-Laws) of Post-Effective Amendment No. 14 to such Registration Statement filed with
the Securities and Exchange Commission via EDGAR on February 26, 1997.
(d)(1) Investment Advisory Agreement between Registrant and Investment Company Capital Corp.
incorporated by reference to Exhibit 5 to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000482) on February 26, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Exhibit Index
- ------ -------------
<S> <C>
EX-99.B (2) Investment Sub-Advisory Agreement dated October 1, 1998 between Registrant,
Investment Company Capital Corp. and Alex. Brown Capital Advisory & Trust Company, filed
herewith.
(e)(1) Distribution Agreement dated as of August 31, 1997 between Registrant and ICC
Distributors, Inc. incorporated by reference to Exhibit (6)(a) to Post-Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A (File No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-98-000482) on February 26,
1998.
(2) Form of Sub-Distribution Agreement between ICC Distributors, Inc. and Participating Dealers
incorporated by reference to Exhibit (6)(b) to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000482) on February 26, 1998.
(3) Shareholder Servicing Agreement between Registrant and Shareholder Servicing Agents
incorporated by reference to Exhibit (6)(c) to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000482) on February 26, 1998. (f) None.
EX-99.B (g) Custodian Agreement dated June 5, 1998, between Registrant and Bankers Trust Company, filed herewith.
(h) Master Services Agreement between Registrant and Investment Company Capital Corp. with
Appendices for the provision of Transfer Agency and Accounting Services incorporated by reference
to Exhibit 9(a) to Post-Effective No. 10 to Registrant's Registration Statement on Form N-1A
(File No. 33-21119), filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-95-000392) on August 18, 1995.
(i) Opinion of Counsel incorporated by reference to Exhibit 10 to Post-Effective No. 10 to
Registrant's Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities
and Exchange Commission via EDGAR (Accession No. 950116-95-000392) on August 18, 1995.
EX-99.B (j) Consent of PricewaterhouseCoopers LLP, filed herewith.
(k) None.
(l) Subscription Agreements between Registrant and Investors incorporated by reference to Exhibit
13 to Post-Effective No. 10 to Registrant's Registration Statement on Form N-1A (File No.
33-21119), filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-95-000392) on August 18, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EDGAR
Exhibit
Number Exhibit Index
- ------ -------------
<S> <C>
(m)(1) Distribution Plan with respect to Flag Investors Emerging Growth Fund Class A Shares
incorporated by reference to Exhibit (15)(a) to Post-Effective No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities and
Exchange Commission via EDGAR (Accession No. 950116-95-000392) on August 18, 1995.
(2) Distribution Plan with respect to Flag Investors Emerging Growth Fund Class B Shares
incorporated by reference to Exhibit (15)(b) to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-96-000161) on March 25, 1996.
(3) Amended Distribution Plan with respect to Flag Investors Emerging Growth Fund Class A Shares
incorporated by reference to Exhibit (15)(c) to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange
Commission via EDGAR (Accession No. 950116-98-000482) on February 26, 1998. (4) Amended
Distribution Plan with respect to Flag Investors Emerging Growth Fund Class B Shares incorporated
by reference to Exhibit (15)(d) to Post-Effective Amendment No. 15 to Registrant's Registration
Statement on Form N-1A (File No. 33-21119), filed with the Securities and Exchange Commission via
EDGAR (Accession No. 950116-98-000482) on February 26, 1998.
EX-99.B (n) Financial Date Schedule, filed herewith.
(o)(1) Rule 18f-3 Plan incorporated by reference to Exhibit (18)(a) to Post-Effective Amendment
No. 13 to Registrant's Registration Statement on Form N-1A (File No. 33-21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-96- 001119) on October 18,
1996.
(2) Rule 18f-3 Plan, as amended through March 26, 1997 incorporated by reference to Exhibit
(18)(b) to Post-Effective Amendment No. 14 to Registrant's Registration Statement on Form N-1A
(File No. 33-21119), filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-97-000363) on February 26, 1997.
EX-99.B (3) Amended Rule 18f-3 Plan, filed herewith.
EX-99.B (p) Powers of Attorney, filed herewith.
</TABLE>
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
ARTICLES SUPPLEMENTARY
FLAG INVESTORS EMERGING GROWTH FUND, INC. (the "Corporation"), having
its principal office in the City of Baltimore, certifies that:
FIRST: The Corporation's Board of Directors in accordance with
Section 2-105(c) of the Maryland General Corporation Law at a meeting duly
convened and held on September 28, 1998 has adopted a resolution designating a
new class of shares and increasing the total number of shares of capital stock
which the Corporation has the authority to issue to thirty-five million
(35,000,000) shares of Common Stock, par value $.001 per share, having an
aggregate par value of thirty-five thousand dollars ($35,000.00), all of which
shares are designated and classified as follows: eight million (8,000,000)
shares are designated "Flag Investors Emerging Growth Fund Class A Shares," one
million (1,000,000) shares are designated "Flag Investors Emerging Growth Fund
Class B Shares," fifteen million (15,000,000) shares are designated "Flag
Investors Emerging Growth Fund Class C Shares" (the "Class C Shares"), five
million (5,000,000) shares are designated "Flag Investors Emerging Growth Fund
Institutional Shares," five million (5,000,000) shares are designated "Alex.
Brown Capital Advisory & Trust Emerging Growth Shares" and one million
(1,000,000) shares remain undesignated.
SECOND: Immediately before the increase in authorized shares
and the designation of the Class C Shares, the Corporation was authorized to
issue twenty million (20,000,000) shares of Common Stock, par value $.001 per
share, having an aggregate par value of twenty thousand dollars ($20,000.00),
all of which shares were designated and classified as follows: eight million
(8,000,000) shares were designated "Flag Investors Emerging Growth Fund Class A
Shares," one million (1,000,000) shares were designated "Flag Investors Emerging
Growth Fund Class B Shares," five million (5,000,000) shares were designated
"Flag Investors Emerging Growth Fund Institutional Shares," five million
(5,000,000) shares were designated "Alex. Brown Capital Advisory & Trust
Emerging Growth Shares" and one million (1,000,000) shares remained
undesignated.
THIRD: The Corporation is registered as an open-end investment
company under the Investment Company Act of 1940, as amended.
<PAGE>
IN WITNESS WHEREOF, Flag Investors Emerging Growth Fund, Inc.
has caused these Articles Supplementary to be executed by its President and its
corporate seal to be affixed and attested by its Secretary on this 23rd day of
October, 1998.
[CORPORATE SEAL]
FLAG INVESTORS EMERGING GROWTH FUND, INC.
By: /s/ Harry Woolf
------------------
Harry Woolf
President
Attest: /s/ Amy M. Olmert
----------------------
Amy M. Olmert
Secretary
The undersigned, President of FLAG INVESTORS EMERGING GROWTH
FUND, INC., who executed on behalf of said corporation the foregoing Articles
Supplementary to the Articles of Incorporation of which this certificate is made
a part, hereby acknowledges, in the name and on behalf of said corporation, the
foregoing Articles Supplementary to the Articles of Incorporation to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof are true in all material respects, under the
penalties of perjury.
By: /s/ Harry Woolf
------------------
Harry Woolf
President
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT is made as of the 1st
day of October, 1998 by and among FLAG INVESTORS EMERGING GROWTH FUND, INC., a
Maryland corporation (the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation (the "Advisor"), and ALEX. BROWN CAPITAL ADVISORY & TRUST, a
Maryland trust company (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to 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 of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the Fund's
Board of Directors and the Advisor, and the Sub-Advisor hereby accepts such
appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on July
2, 1987 and all amendments thereto (such Articles of Incorporation, as
presently in effect and as they shall from time to time be amended, are
herein called the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as filed
with the Securities and Exchange Commission (the "SEC") on September 8,
1987;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-21119)
and under the 1940 Act as filed with the SEC on April 8, 1988 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 the "Prospectus").
<PAGE>
The Fund will furnish the Sub-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 Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub-Advisor shall, subject to overall supervision by
the Advisor:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(c) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund;
(e) 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
(f) 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 Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-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. In selecting a
broker-dealer to execute each particular transaction, the Sub-Advisor will take
the following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Sub-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-dealer that provides brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-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-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the orders placed by it
on behalf of the Fund to such broker-dealers who also provide research or
statistical material or other services to the Fund or the Sub-Advisor. Such
-2-
<PAGE>
allocation shall be in such amounts and proportions as the Sub-Advisor shall
determine and the Sub-Advisor will report on said allocation regularly to the
Board of Directors of the Fund, indicating the brokers to whom such allocations
have been made and the basis therefor.
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
Sub-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 Sub-Advisor may direct BT Alex. Brown
Incorporated ("BT Alex. Brown") to execute portfolio transactions for the Fund
on an agency basis. The commissions paid to BT 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
accounts of the Sub-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 Sub-Advisor. BT Alex. Brown and the Sub-Advisor 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 Sub-Advisor or BT Alex. Brown
in any transaction in which the Sub-Advisor or BT Alex. Brown acts as a
principal with respect to any part of the Fund's order. If BT 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 Fund's Board of Directors. Any activities
undertaken by the Sub-Advisor on behalf of the Fund pursuant hereto, shall at
all times be subject to any applicable directives of the Board of Directors of
the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of Incorporation;
(d) the provisions of the By-Laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable among the Fund, the Sub-Advisor and the Advisor as follows:
(a) The Sub-Advisor shall, subject to compliance with
applicable banking regulations, furnish, at its expense and without
cost to the Fund, the services of one or more officers of
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<PAGE>
the Fund, to the extent that such officers may be required by the Fund
for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense
and without cost to the Fund, a trading function in order to carry out
its obligations under Section 3 hereof to place orders for the purchase
and sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Advisor under the Investment Advisory Agreement between
the Fund and the Advisor; the charges and expenses of any registrar,
any custodian or any 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 the registration and 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 of proxy statements and reports to shareholders; fees and
travel expenses of Directors or 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
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 the 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, 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. Compensation. For the services to be rendered hereunder by
the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly compensation
equal to the sum of 0.55% of the Fund's average daily net assets provided that,
if necessary, the Sub-Advisor's annual compensation will be reduced in an amount
proportional to the Advisor's waiver so that the Fund's total expenses for that
year do not exceed 1.50% of the Flag Investors Class A Shares' 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
Sub-Advisor's compensation for the preceding month shall be made as promptly as
possible.
9. Additional Responsibilities. The Sub-Advisor may, but shall
not be under any 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 Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to examination by the Fund's independent certified public accountants. Payment
or assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is not
required to pay or assume under this Agreement shall not relieve the Sub-Advisor
of any of its obligations to the Fund nor obligate the Sub-Advisor to pay or
assume any similar Fund expenses on any subsequent occasions.
-4-
<PAGE>
10. Term. This Agreement shall become effective at 12:01 a.m.
on the date hereof and shall remain in force and effect, subject to Section 12
hereof, for two years from the date hereof.
11. Renewal. Following the expiration of its initial two-year
term, this Agreement shall continue in force and effect from year to year,
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 a majority of the outstanding voting securities of the Fund
(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"
of a party to this Agreement (other than as Directors of the Fund) by
votes cast in person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of Directors or
by vote of a majority of the outstanding voting securities of the Fund (as
defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days' written notice
to the Advisor and the Sub-Advisor. This Agreement may be terminated at any
time, without the payment of any penalty, by the Advisor or the Sub-Advisor on
sixty (60) days' written notice to the Fund and the other party. Upon the
termination of the Investment Advisory Agreement, this Agreement shall
automatically terminate on sixty (60) days written notice. The notice provided
for herein may be waived by any person to whom such notice is required. This
Agreement shall automatically terminate in the event of its assignment (as
defined in Section 2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or 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 Sub-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 Sub-Advisor to the extent permitted by
law; and that the officers and Directors of the Sub-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, trustees or directors of
any other firm, trust or corporation, including other investment companies.
14. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Sub-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
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-Advisor for this purpose shall be 19-21 South Street, Baltimore, Maryland
21202, and the address of the Advisor and the Fund shall be One South Street,
Baltimore, Maryland 21202.
16. Questions and 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
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<PAGE>
orders of the SEC 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 SEC, such provision shall be deemed
to incorporate the effect of such rule, regulation or order. Otherwise the
provisions of this Agreement shall be interpreted in accordance with the laws of
Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
Attest: FLAG INVESTORS EMERGING GROWTH FUND, INC.
/S/ Amy M. Olmert By: /S/ Harry Woolf
- ------------------------- -----------------------------------------
Name: Amy M. Olmert Name: Harry Woolf
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
/S/ Amy M. Olmert By: /S/ Edward J. Veilleux
- ------------------------- ------------------------------------------
Name: Amy M. Olmert Name: Edward J. Veilleux
Title: Executive Vice President
Attest: ALEX. BROWN CAPITAL ADVISORY & TRUST
/S/ Amy M. Olmert By: /S/ D. M. Churchill
- ------------------------- ------------------------------------------
Name: Amy M. Olmert Name: D. M. Churchill
Title: CFO
-6-
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT dated as of June 5, 1998 between BANKERS TRUST COMPANY (the
"Custodian") and FLAG INVESTORS EMERGING GROWTH FUND, INC. (the "Customer").
WHEREAS, the Customer desires to appoint the Custodian as custodian on
behalf of the Customer 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 the Customer which are delivered to and accepted
by the Custodian or any Subcustodian (as that term is defined in Section 4)
("Property") pursuant to the terms and conditions set forth herein. For purposes
of this Agreement, "delivery" of Property shall include the acquisition of a
security entitlement (as that term is defined in the New York Uniform Commercial
Code ("UCC")) with respect thereto. 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 non-cash investment property
of the Customer ("Securities") and cash from any source and in any currency
("Cash"), provided that the Custodian shall have the right, in its sole
discretion, to refuse to accept as Property any property of a Customer that the
Custodian considers not to be appropriate or in proper form for deposit for any
reason. The Custodian shall not be responsible for any property of the Customer
held or received by the Customer or others and not delivered to the Custodian or
any Subcustodian.
2. Maintenance of Property 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 Property in that country.
3. Custody Account. The Custodian agrees to establish and maintain a
custody account or accounts on its books in the name of the Customer (the
"Account") for any and all Property received and accepted by the Custodian or
any Subcustodian for the account of the Customer. The Customer 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 Account
<PAGE>
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
Account, on behalf of the Customer, all Property in such Account and, to the
extent such Property constitutes financial assets for purposes of the New York
UCC, shall maintain those financial assets in such Account as security
entitlements in favor of the Customer. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions, 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 Account;
(b) present for payment all Securities held in the Account which
are called, redeemed or retired 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 the 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
the 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 the 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 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 the 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 the Account;
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<PAGE>
(f) pay for the Account, any and all taxes and levies in the
nature of taxes imposed on interest, dividends or other
similar income on the Property in the Account by any
governmental authority. In the event there is insufficient
Cash available in the 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 the 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 maintain the Property in the Account directly in one
of its U.S. branches or indirectly through custody accounts which have been
established by the Custodian with the following other securities intermediaries:
(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 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,
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<PAGE>
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 Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems 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 Directors 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 normal 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 the Account which
is maintained by the Custodian through a Subcustodian employed pursuant to
Section 4:
(a) The Custodian will identify on its books as belonging to the
Customer, any Property maintained through 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
Subcustodian with respect to maintaining Property shall
require that (i) the Account will be adequately indemnified or
its losses adequately insured; (ii) the Securities so
maintained will not be 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 related thereto, (iii) beneficial
ownership of such Securities will be freely transferable
without the payment of money or value other than for safe
custody or administration and expenses related thereto; and
(iv) adequate records will be maintained identifying the
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<PAGE>
Property maintained 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
which is maintained by the Custodian or any Subcustodian through a Securities
System employed pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian shall be required by
its agreement with the Custodian to, identify on its books
such Property as being maintained for the account of the
Custodian or Subcustodian for its customers.
(b) Any Property maintained through 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.
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8. Records, Ownership of Property, Statements, Opinions of Independent
Certified Public Accountants.
(a) The ownership of the Property whether maintained directly by the
Custodian or indirectly through a Subcustodian or a Securities System as
authorized herein, shall be clearly recorded on the Custodian's books as
belonging to the Account and not for the Custodian's own interest. The Custodian
shall keep accurate and detailed accounts of all investments, receipts,
disbursements and other transactions for the 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 the Account maintained 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
N-1A 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 Property,
including Property 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 a hard copy various reports of Account activity and of Property being
held in the Account. To the extent that such service shall include market values
of Securities in the 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 the Account
which are maintained by the Custodian or any Subcustodian may be held directly
by such entity in the name of the Customer or in bearer form or maintained in
the Custodian's or Subcustodian's name, or in the name of the Custodian's or
Subcustodian's nominee. Securities that are maintained through 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 the 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. Securities maintained
with a Securities System shall be maintained subject to the rules of that
Securities System governing the rights and obligations among the Securities
System and its participants.
10. Proxies, etc. With respect to any proxies, notices, reports or
other communications relative to any of the Securities in the 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 A
attached hereto (as such service therein described may be in effect from time to
time) (the "Proxy Service") or (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 the
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 the Customer.
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 the Account and delivery of Securities
out of the Account may be effected in accordance with the
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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 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, the Account, on a contractual basis, as outlined
in the applicable Service Standards as defined below and provided to the
Customer by the Custodian, the Custodian may, at its sole option, reverse such
credits or debits to the 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.
The applicable Service Standards shall be defined as the Global Guide,
the Policies and Standards Manual, and any other documents issued by the
Custodian from time to time specifying the procedures for communicating with the
Customer, the terms of any additional services to be provided to the Customer,
and such other matters as may be agreed between the Customer and the Custodian
from time to time.
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 in 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 provisionally credit the Securities to the Account by making a conditional
entry on its books and
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records ("Conditional Credit"), pending receipt of sufficient immediately
available funds in the relevant currency in the Account.
(c) If, within a reasonable time after 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 charges at a rate which the Custodian customarily charges for similar
extensions of credit.
(d) If (i) within a reasonable time from the posting of a Conditional
Credit, immediately available funds at least equal to the resultant Debit on a
Settlement Date are not on deposit in the Account, or (ii) any Proceeding shall
occur, the Custodian may sell such of the Securities subject to the Conditional
Credit as it selects in its sole discretion and shall apply the net proceeds of
such sale to cover such Debit, including related late charges, and any remaining
proceeds shall be credited to the Account. If such proceeds are insufficient to
satisfy such debt in full, the Customer shall continue to be liable to the
Custodian for any shortfall. The Custodian shall make the Conditional Credit a
final entry on its books as to the Securities not required to be sold to satisfy
such Debit. Pending payment in full by the Customer of the purchase price for
Securities subject to a Conditional Credit, and the Custodian's making a
Conditional Credit a final entry on its books, and unless consented to by the
Custodian, the Customer shall have no right to give further Instructions in
respect of Securities subject to a Conditional Credit. The Custodian shall have
the sole discretion to determine which Securities shall be deemed to have been
paid for by the Customer out of funds available in the Account. Any such
Conditional Credit may be reversed (and any corresponding Debit shall be
canceled) by the Custodian unless and until the Custodian makes a final entry on
its books crediting such Securities to the Account. The term "Proceeding" shall
mean any insolvency, bankruptcy, receivership, reorganization or similar
proceeding relating to the Customer, whether voluntary or involuntary.
(e) The Customer agrees that it will not intentionally 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 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.
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(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 or in order
to satisfy requirements for additional or substitute collateral.
(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, the Portfolio's investment advisor 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 or 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.
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<PAGE>
(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 21.
(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 in accordance with 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 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 right 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 the 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
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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 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 the 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 the 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 or
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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 pursuant to any contract or any law or regulation.
The provisions of this Section shall survive termination of this Agreement.
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 B. Such fees will not be abated by, nor shall the Custodian be required
to account for, any profits or commissions received by the Custodian in
connection with its provision of custody services under this Agreement. 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 the
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 the Account. The Custodian is authorized to charge the Account for such items
and the Custodian shall have a lien on the Property in the 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 the Account, the
Custodian shall perform such services with respect thereto as are described in
Exhibit C attached hereto and shall in connection therewith be subject to the
standard of care set forth in such Exhibit C. Such standard of care shall not be
affected by any other term of this Agreement.
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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. 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 the Account and to whom the Cash in
the 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 the Account and to whom the
Cash in the Account shall be paid. In either case, the Custodian will deliver
such Property to the persons so specified, after deducting therefrom any amounts
which the Custodian determines to be owed to it hereunder. In addition, the
Custodian may in its discretion withhold from such delivery such Property as may
be necessary 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 the Account and to whom the Cash in
the 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.
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 answerback.
23. Security for Payment. To secure payment of all obligations due
hereunder, the Customer hereby grants to the Custodian a continuing security
interest in and right of setoff against the Account and all Property held
therein from time to time in the full amount of such obligations. Should the
Customer fail to pay promptly any amounts owed hereunder, the Custodian shall be
entitled to use available Cash in the Account, and to dispose of Securities in
the Account as is necessary. In any such case and without limiting the
foregoing, the Custodian shall be entitled to
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take such other actions or exercise such other options, powers and rights as the
Custodian now or hereafter has as a secured creditor under the New York UCC or
any other applicable law.
24. 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 the Account as herein provided, is not
prohibited by law or any governing documents or contracts to which it is
subject;
(ii) the terms of this Agreement do not violate any obligation
by which it 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 it in accordance
with its terms; and
(iv) it will deliver to the Custodian a duly executed
Secretary's Certificate in the form of Exhibit D attached 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 it 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 it in accordance
with its terms;
(iii) it 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
(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.
25. 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.
26. Publicity. Customer shall furnish to Custodian in accordance with
Section 22 above, prior to any distribution thereof, copies of any material
prepared for distribution to any persons who
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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.
27. 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.
28. 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.
29. 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 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.
30. 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.
31. 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.
32. Headings. The headings of the paragraphs hereof are included for
convenience of reference only and do not form a part of this Agreement.
- 16 -
<PAGE>
33. 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.
FLAG INVESTORS EMERGING GROWTH
FUND, INC.
By: /s/ Amy M. Olmert
---------------------------
Name: Amy M. Olmert
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ Richard Fogarty
---------------------------
Name: Richard Fogarty
Title: Vice President
- 17 -
<PAGE>
EXHIBIT A
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Emerging Growth Fund, Inc..
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 applicable Service Standards.
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 than 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.
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.
<PAGE>
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 will 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 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
applicable Service Standards. The Custodian will notify the Customer as to the
inclusion of additional countries or deletion of existing countries after their
inclusion or deletion and this Exhibit A will be deemed to be automatically
amended to include or delete such countries as the case may be.
<PAGE>
EXHIBIT B
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Emerging Growth Fund, Inc.
BANKERS TRUST CUSTODY FEE SCHEDULE
FOR
BT ALEX. BROWN MUTUAL FUNDS
(FLAG INVESTORS FUNDS AND ISI FUNDS )
Effective October 1, 1997
Custody Fees
1. Domestic Safekeeping Fees
Annual Asset Fee (by Fund- except Cash Reserve)
Market Value Basis Point
$0 - $100 million 1.00
Over $100 million 0.75
Annual Asset Fee (Cash Reserve Fund)
Market Value Basis Point
$0 - $1 billion 1.00
$1 billion - $3 billion 0.75
Over $3 billion 0.50
2. Domestic Transaction Fees
Transaction Type $USD
---------------- ----
Automated Depository: DTC/PTC/FED 10.00
Manual Depository: DTC/PTC/ FED 15.00
Physical Automated 15.00
Physical Manual 20.00
P&I Payments 5.00
Redemptions 10.00
Reorganizations Included in safekeeping charge
- 2 -
<PAGE>
3. Global Safekeeping and Asset Fees
Receive and
Annual Deliver
Country Asset Fee Transactions
- ------- --------- ------------
Argentina 35 Basis Points $100
Australia 3 Basis Points $50
Austria 5 Basis Points $75
Bangladesh 40 Basis Points $150
Belgium 4 Basis Points $60
Botswana 50 Basis Points $150
Brazil 30 Basis Points $70
Canada 2 Basis Points $20
Cedel/Euroclear 3 Basis Points $20
Chile 30 Basis Points $80
China 30 Basis Points $75
Columbia 35 Basis Points $100
Czech Republic 20 Basis Points $70
Denmark 4 Basis Points $50
Ecuador 45 Basis Points $100
Egypt 45 Basis Points $80
Finland 10 Basis Points $75
France 5 Basis Points $50
Germany 3 Basis Points $30
Ghana 50 Basis Points $150
Greece 35 Basis Points $120
Hong Kong 5 Basis Points $30
Hungary 45 Basis Points $150
India (Physical) 60 Basis Points $200
India (Dematerialized) 25 Basis Points $140
Indonesia 8 Basis Points $35
Ireland 5 Basis Points $50
Israel 40 Basis Points $50
Italy 3 Basis Points $50
Japan 3 Basis Points $35
Jordan 30 Basis Points $100
Kenya 50 Basis Points $150
Luxembourg 4 Basis Points $60
Malaysia 7 Basis Points $50
-3-
<PAGE>
Receive and
Annual Deliver
Country Asset Fee Transactions
- ------- --------- ------------
Mauritius 50 Basis Points $140
Mexico 5 Basis Points $30
Morocco 30 Basis Points $130
Netherlands 4 Basis Points $45
New Zealand 4 Basis Points $50
Norway 5 Basis Points $50
Pakistan 30 Basis Points $150
Peru 50 Basis Points $100
Philippines 8 Basis Points $30
Poland 45 Basis Points $100
Portugal 4 Basis Points $75
Russia 50 Basis Points $300
Singapore 7 Basis Points $50
Slovakia 25 Basis Points $100
South Africa 5 Basis Points $30
South Korea 15 Basis Points $50
Spain 6 Basis Points $50
Sri Lanka 12 Basis Points $60
Sweden 4 Basis Points $50
Switzerland 3 Basis Points $50
Taiwan 15 Basis Points $100
Thailand 7 Basis Points $100
Tunisia 45 Basis Points $50
Turkey 15 Basis Points $50
United Kingdom 2 Basis Points $15
Venezuela 35 Basis Points $100
Zambia 50 Basis Points $150
Zimbabwe 50 Basis Points $150
- -------------------------------- ---------------------- ----------------------
-4 -
<PAGE>
4. DDA Related Charges
Cash Connector Services $25 per month per account
(MTC, MTD, EBR, BTC Reporting)
Statement Rendition (CDS) Services
Account Maintenance $50 per month per account
Debit Postings $0.35 per posting
Credit Postings $0.35 per posting
Money Transfer Charges*
Outgoing Payments $6.00
Incoming Payments No Charge
Book to Book Transfers No Charge
*Above Money Transfer Charges assume electronic instruction via bank-provided
software. Manual instructions received via facsimile, etc. will incur a charge
of $25 per transaction.
Overdraft Rate: Prime + 1.00%
NOTES
o Market Values will be provided by the Fund Accountant at
month-end to determine monthly assets for billing purposes.
o A manual transaction is an instruction that is received in
writing, i.e. facsimile
o The standard Global Custody Service includes: asset
safekeeping, trade settlement, income collection, corporate
action processing including proxy voting and tax reclaims
where appropriate.
o Third party FX transactions and other cash movements with no
associated security transaction (e.g. free
payments/receipts) are charged at $10 per U.S. wire
and $25 per non-U.S. wire. No fee is levied for FX
transactions executed with Bankers Trust.
o Fees are billed monthly in arrears.
This Exhibit B shall be amended upon delivery by the Custodian of a new Exhibit
B 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.
-5-
<PAGE>
EXHIBIT C
To Custodian Agreement dated as of June 5, 1998 between Bankers Trust
Company and Flag Investors Emerging Growth Fund, Inc.
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 the Account in
the countries specified in the applicable Service Standards. 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, 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.
<PAGE>
EXHIBIT D
[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
"Customer"), and as such I am duly authorized to, and do hereby, certify that:
1. Good Standing. The Customer's organizational documents, and
all amendments thereto, have been filed with the appropriate governmental
officials of _____________________[jurisdiction], the Customer 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. Organizational Documents. The Customer's [name of
organizational documents - i.e., Bylaws, Articles of Incorporation, etc.] have
been duly adopted and no action has been taken to repeal such [name of
organizational documents], the same being in full force and effect.
3. Resolutions. Resolutions have been duly adopted on behalf
of the Customer, 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 Customer now in force relating to or
affecting the matters referred to therein, including, without limitation,
confirming that the Customer is duly authorized to appoint Bankers Trust Company
as Custodian of assets delivered to it by the Customer and enter into a certain
custody agreement with Bankers Trust Company (the "Agreement") setting forth the
terms and conditions of such appointment, and that certain designated officers,
including those identified in paragraph 4 of this Certificate, are authorized to
(a) execute said Agreement in such form as the officers executing the same have
approved, such approval to be conclusively evidenced by their execution and
delivery thereof, and (b) execute any instructions in connection with the
Agreement, in conformity with the requirements of the Customer's [name of
organizational documents], and other pertinent documents to which the Customer
may be bound.
4. Incumbency. The following named individuals are duly
elected (or appointed), qualified and acting officers of the Customer holding
those offices set forth opposite their respective names as of the date hereof,
each having full authority, acting individually, to bind the Customer, as a
legal matter, with respect to all matters pertaining to the Agreement, and to
execute and deliver said Agreement on behalf of the Customer, and the signatures
set forth opposite the respective names and titles of said officers are their
true, authentic signatures:
- 2 -
<PAGE>
Name Title Signature
---- ----- ---------
_____________________ ___________________ _________________________
_____________________ ___________________ _________________________
IN WITNESS WHEREOF, I have hereunto set my hand this ____ day
of _______________[Date], 1997.
By: _________________________
Name: _________________________
Title: Secretary
I, __________________________[Name of Confirming Officer],
__________________[Title] of the Customer, hereby certify that on this ___ day
of _______________[Date], 19__, _____________________[NAME OF SECRETARY] is the
duly elected Secretary of the Customer and that the signature above is his/her
genuine signature.
By:_________________________________
Name:_______________________________
Title:______________________________
- 3 -
<PAGE>
EXHIBIT E
CASH MANAGEMENT ADDENDUM (this "Addendum") to the CUSTODIAN
AGREEMENT (the "Agreement") between BANKERS TRUST COMPANY (the "Custodian") and
FLAG INVESTORS EMERGING GROWTH FUND, INC. (the "Customer").
WHEREAS, the Custodian will provide cash management services
to the Customer, and the Custodian and the Customer desire to confirm their
understanding with respect to such services;
NOW, THEREFORE, the Custodian and the Customer agree as
follows:
1. Until the Custodian receives Instructions to the contrary,
the Custodian will hold all Cash received for the Account in deposit accounts
maintained with Subcustodians for the benefit of the Custodian's clients, will
credit to the Account interest on such Cash at rates and times the Custodian
shall from time to time determine and will receive compensation therefor out of
any amounts paid by Subcustodians in respect of such Cash.
2. To the extent the Custodian may from time to time inform
the Customer with respect to one or more currencies, the Custodian will sweep
Cash in such currencies to deposit accounts maintained with one or more
Subcustodians until the Custodian notifies the Customer otherwise or receives
Instructions to the contrary.
3. The Customer acknowledges that it has received and reviewed
the current policies of the Custodian regarding cash management services, which
are attached to this Addendum.
4. Capitalized terms used but not defined in this Addendum are
used with the respective meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, this Addendum has been executed as of the
date of the Agreement.
BANKERS TRUST COMPANY
By: /s/ Richard Fogarty
----------------------------
FLAG INVESTORS EMERGING GROWTH
FUND, INC.
By: /s/ Amy M. Olmert
----------------------------
- 4 -
<PAGE>
Global Custody Cash Management Program
In the Global Custody cash management program, currencies on
which Bankers Trust pays interest are divided into two categories: (1)
currencies on which we pay interest based on a market benchmark rate for
overnight deposits, and (2) currencies on which we pay interest based on a rate
paid by the London branch of Bankers Trust Company or the local subcustodian.
Currencies on which we pay interest based on a market
benchmark rate for overnight deposits (which we call "Benchmark Rate
Currencies"):
o For each of these currencies, the interest rate we pay is
based on a specific market benchmark (such as Effective Fed
Funds) and is calculated by taking an average of the benchmark
rate and subtracting a spread. (See Schedule A)
o Currently, the only Benchmark Rate Currency is the U.S.
Dollar. Over time we will be considering additional currencies
to include in this category.
o Operationally, most balances in Benchmark Rate Currencies are
swept overnight into deposits at the London branch of Bankers
Trust Company. Where you have selected a short-term investment
fund, your U.S. Dollar balances in the U.S. will be swept
overnight in accordance with your instructions.
Currencies on which we pay interest based on a rate paid by
the London branch of Bankers Trust Company or the local subcustodian (which we
call "Base Rate Currencies"):
o For each of these currencies, the interest rate we pay is
based on the rate paid by the London branch or the local
subcustodian on overnight deposits in the currency. In either
case, interest is calculated by using the overnight rate
(which will be the actual overnight, a weekly average, or
monthly average rate, depending on the currency) and
subtracting a spread.
(See Schedule A)
o Currencies that are part of the sweep program will earn
interest based on the base rate, which will be the higher of
the rate offered by the London branch of Bankers Trust Company
or the local subcustodian.
o Currencies that are not part of the sweep program will
generally earn interest based on the rate paid by the local
subcustodian. We may at times be able to sweep certain
currency balances into deposits of Bankers Trust Company's
London branch in order to be able to earn a higher rate for
you. On those days, any such currency will be
<PAGE>
treated as part of the sweep program, and you will earn
interest on all of your balances in that currency at the
higher rate for that day.
o Currently, there are 39 Base Rate Currencies, 21 of which are
included in our sweep program to the London branch.
o Operationally, most balances in Base Rate Currencies that are
part of our sweep program are swept overnight into deposits at
the London branch, while balances in Base Rate Currencies that
are not part of our sweep program remain with the local
subcustodian.
For each currency on which we pay interest:
o We will notify you periodically in writing of changes in
spreads and updates to the cash management program. These
program updates also will be available through Global Custody
Flash Notices.
o You earn interest at the calculated rate on your entire
contractual balance without any action on your part and
without any minimum balance requirements. This is the case
regardless of whether we are able to invest your balances at
or near the applicable benchmark or base rate and regardless
of whether your contractual balance may exceed your actual
balance.
o Our program generally requires that overnight balances in each
currency remain with (or are swept to) a subcustodian we
designate for that currency. Nevertheless, we pay our stated
rate of interest on any balances that, because of transactions
in your account, are held overnight with an alternate
subcustodian if we receive interest on that currency from that
subcustodian. If the alternate subcustodian does not pay
interest, however, these balances are excluded from our
program.
o The minimum rate paid is 0.50%, except for the Japanese Yen
(for which it is 0.05%) and the Singapore Dollar (for which it
is 0.25%). Please note that this is also subject to change as
appropriate for any currency.
o You will have continuous access through GlobeView, BTWorld, or
GlobeLink or other agreed electronic on-line system to the
interest rate earned during the previous "rate averaging
period". Because we may use weekly or monthly average rates to
calculate the interest you earn, we do not know the actual
interest rate until the weekly or monthly period is completed.
o For swept currencies, from time to time we may not be able to
sweep the full amount of your balances to the London branch
because of operational constraints
- 2 -
<PAGE>
or because your balance on a contractual basis temporarily
exceeds your actual balance. You will, however, always receive
credit for interest based on your entire contractual balance.
To the extent you would have earned a lower rate on balances
not swept, we will make up the difference. To the extent that
actual balances are higher than contractually posted balances
due to purchase fails or otherwise, we will retain the
interest earned as compensation.
o The effective rate we pay on overnight balances will generally
differ from the effective rate we receive (whether from the
London branch or the local subcustodian). Any difference
between the effective rate we receive and the effective rate
we pay (which may be positive or negative, but is generally
positive) is kept by us and covers our fee for running the
cash management program and the related costs we absorb.
Obviously, there will be currencies on which we will not pay
interest because of local regulations, insufficient scale, or other reasons.
However, we hope to identify additional currencies where we can begin paying
interest and we will announce those to you as soon as practical.
Although currently most cash balances in our overnight sweep
program are swept into deposits at the London branch of Bankers Trust Company,
we reserve the right to utilize other branches or affiliates for the overnight
sweep program.
As you know, overdrafts are not permitted in the normal course
of business in any currency. Should they occur in any currency, your account
will be charged a fee to settle transactions in advance of receipt of funds. If
the overdraft is not promptly cured (and in any event upon the expiration of 30
days) after the investment manager has been notified of the outstanding
overdraft, the account's home currency will be used to cure the overdraft and
the associated foreign exchange will be done by Bankers Trust at market rates.
(Other currencies may be utilized to the extent the home currency is
insufficient.) Investment managers that have not cured overdrafts within such
period will be deemed to have directed such foreign exchange transaction.
Accounts subject to ERISA will be deemed to have engaged in the transaction
under the authority of the class exemptions available to qualified professional
asset managers and in-house investment managers. To the extent that the
overdraft is less than the U.S. dollar equivalent of $50,000, Bankers Trust's
foreign exchange desk will bundle the transaction with other small amounts for
other clients.
- 3 -
<PAGE>
Schedule A
New Cash Management Program - Global Custody
Overnight Uninvested Cash Balances
(* - Denotes currencies in sweep program)
Currencies Rates
---------- -----
Argentine Peso Base Rate less 100
Australian Dollar* Base Rate less 130
Austrian Schilling* Base Rate less 125
Belgian Franc* Base Rate less 225
British Pound Sterling* Base Rate less 165
Canadian Dollar* Base Rate less 150
Czech Koruna Base Rate less 75
Danish Krone* Base Rate less 100
Deutsche Mark* Base Rate less 150
Dutch Guilder* Base Rate less 175
European Currency Unit* Base Rate less 125
Finnish Markka* Base Rate less 150
French Franc* Base Rate less 110
Greek Drachma Base Rate less 75
Hong Kong Dollar* Base Rate less 225
Hungarian Forint Base Rate less 75
Indonesian Rupiah Base Rate less 100
Irish Punt* Base Rate less 100
Israeli Shekel Base Rate less 75
Italian Lira* Base Rate less 125
Japanese Yen Base Rate less 75
Jordanian Dinar Base Rate less 150
Korean Won Base Rate less 75
Malaysian Ringgit Base Rate less 150
Mexican Peso Base Rate less 150
New Taiwan Dollar Base Rate less 75
New Zealand Dollar* Base Rate less 100
Norwegian Krone* Base Rate less 150
Philippine Peso Base Rate less 100
Polish Zloty Base Rate less 150
Portuguese Escudo* Base Rate less 125
- 4 -
<PAGE>
Singapore Dollar Base Rate less 150
Slovak Koruna Base Rate less 100
South African Rand* Base Rate less 200
Spanish Peseta* Base Rate less 200
Swedish Krona* Base Rate less 200
Swiss Franc* Base Rate less 100
Thai Baht Base Rate less 150
Turkish Lira Base Rate less 75
U.S. Dollar* Effective Fed Funds less 100 1
We reserve the right, in our sole discretion, to adjust the base rates and
benchmark rates used and the spreads charged at any time and for any reason. We
will notify you periodically in writing of changes in spreads and updates to the
cash management program. These program updates also will be available through
Global Custody Flash Notices.
1 Not applicable if U.S. Dollars are swept to a short-term investment fund.
- 5 -
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 16 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
December 1, 1998, relating to the financial statements and financial highlights
of the Flag Investors Emerging Growth Fund, Inc., which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants" in such Statement of Additional Information and to the reference to
us under the heading "Financial Highlights" in such Prospectus.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Baltimore, Maryland
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Flag Emerging Growth
<CIK> 0000831675
<NAME> EMERGING GROWTH A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 105,001,758
<INVESTMENTS-AT-VALUE> 122,429,578
<RECEIVABLES> 1,237,225
<ASSETS-OTHER> 36,734
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,703,537
<PAYABLE-FOR-SECURITIES> 219,744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210,516
<TOTAL-LIABILITIES> 430,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 48,166,449
<SHARES-COMMON-STOCK> 3,419,651
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<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> (2,169,925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,427,820
<NET-ASSETS> 65,247,480
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<INTEREST-INCOME> 480,434
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<EXPENSES-NET> 1,744,541
<NET-INVESTMENT-INCOME> (1,252,660)
<REALIZED-GAINS-CURRENT> (1,729,647)
<APPREC-INCREASE-CURRENT> (15,958,185)
<NET-CHANGE-FROM-OPS> (18,940,492)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,277,725)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,026,573
<NUMBER-OF-SHARES-REDEEMED> (823,988)
<SHARES-REINVESTED> 148,041
<NET-CHANGE-IN-ASSETS> (2,289,246)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,277,279
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,103,023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,744,541
<AVERAGE-NET-ASSETS> 71,805,767
<PER-SHARE-NAV-BEGIN> 23.17
<PER-SHARE-NII> (0.22)
<PER-SHARE-GAIN-APPREC> (2.82)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.08
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Flag Emerging Growth
<CIK> 0000831675
<NAME> EMERGING GROWTH B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 105,001,758
<INVESTMENTS-AT-VALUE> 122,429,578
<RECEIVABLES> 1,237,225
<ASSETS-OTHER> 36,734
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,703,537
<PAYABLE-FOR-SECURITIES> 219,744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210,516
<TOTAL-LIABILITIES> 430,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,797,620
<SHARES-COMMON-STOCK> 275,767
<SHARES-COMMON-PRIOR> 249,987
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,169,925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,427,820
<NET-ASSETS> 5,154,618
<DIVIDEND-INCOME> 11,447
<INTEREST-INCOME> 480,434
<OTHER-INCOME> 0
<EXPENSES-NET> 1,744,541
<NET-INVESTMENT-INCOME> (1,252,660)
<REALIZED-GAINS-CURRENT> (1,729,647)
<APPREC-INCREASE-CURRENT> (15,958,185)
<NET-CHANGE-FROM-OPS> (18,940,492)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (268,804)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 107,106
<NUMBER-OF-SHARES-REDEEMED> (94,232)
<SHARES-REINVESTED> 12,906
<NET-CHANGE-IN-ASSETS> (2,289,246)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,277,279
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,103,023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,744,541
<AVERAGE-NET-ASSETS> 5,811,592
<PER-SHARE-NAV-BEGIN> 22.88
<PER-SHARE-NII> (0.37)
<PER-SHARE-GAIN-APPREC> (2.77)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.69
<EXPENSE-RATIO> 2.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> Flag Emerging Growth
<CIK> 0000831675
<NAME> EMERGING GROWTH 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 105,001,758
<INVESTMENTS-AT-VALUE> 122,429,578
<RECEIVABLES> 1,237,225
<ASSETS-OTHER> 36,734
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,703,537
<PAYABLE-FOR-SECURITIES> 219,744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210,516
<TOTAL-LIABILITIES> 430,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,726,681
<SHARES-COMMON-STOCK> 325,623
<SHARES-COMMON-PRIOR> 562,042
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,169,925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,427,820
<NET-ASSETS> 6,242,969
<DIVIDEND-INCOME> 11,447
<INTEREST-INCOME> 480,434
<OTHER-INCOME> 0
<EXPENSES-NET> 1,744,541
<NET-INVESTMENT-INCOME> (1,252,660)
<REALIZED-GAINS-CURRENT> (1,729,647)
<APPREC-INCREASE-CURRENT> (15,958,185)
<NET-CHANGE-FROM-OPS> (18,940,492)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (589,074)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,073
<NUMBER-OF-SHARES-REDEEMED> (283,690)
<SHARES-REINVESTED> 27,198
<NET-CHANGE-IN-ASSETS> (2,289,246)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,277,279
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,103,023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,744,541
<AVERAGE-NET-ASSETS> 9,355,848
<PER-SHARE-NAV-BEGIN> 23.25
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> (2.86)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.17
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> Flag Emerging Growth
<CIK> 0000831675
<NAME> EMERGING GROWTH ABCAT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 105,001,758
<INVESTMENTS-AT-VALUE> 122,429,578
<RECEIVABLES> 1,237,225
<ASSETS-OTHER> 36,734
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,703,537
<PAYABLE-FOR-SECURITIES> 219,744
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 210,516
<TOTAL-LIABILITIES> 430,260
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 50,324,632
<SHARES-COMMON-STOCK> 2,430,133
<SHARES-COMMON-PRIOR> 1,533,892
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,169,925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,427,820
<NET-ASSETS> 46,628,210
<DIVIDEND-INCOME> 11,447
<INTEREST-INCOME> 480,434
<OTHER-INCOME> 0
<EXPENSES-NET> 1,744,541
<NET-INVESTMENT-INCOME> (1,252,660)
<REALIZED-GAINS-CURRENT> (1,729,647)
<APPREC-INCREASE-CURRENT> (15,958,185)
<NET-CHANGE-FROM-OPS> (18,940,492)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (1,600,490)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,257,491
<NUMBER-OF-SHARES-REDEEMED> (437,945)
<SHARES-REINVESTED> 76,695
<NET-CHANGE-IN-ASSETS> (2,289,246)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,277,279
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,103,023
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,744,541
<AVERAGE-NET-ASSETS> 42,794,248
<PER-SHARE-NAV-BEGIN> 23.24
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> (2.83)
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.19
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
Flag Investors Emerging Growth Fund, Inc.
Rule 18f-3 Multiple Class Plan
for
Flag Investors Class A, Flag Investors Class B, Flag Investors Class C
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
With Exhibits through September 28, 1998
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 Class C, 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. The Flag Investors Class C Shares have not yet been offered.
C. Adoption of Plan; Amendment of Plan; and Periodic Review. Pursuant
to Rule 18f-3, the Fund is required to create a written plan specifying all of
the differences among the Fund's classes, including shareholder services,
distribution arrangements, expense allocations, and any related conversion
features or exchange options. The Board has created the Plan to meet this
requirement. The Board, including a majority of the Independent Directors, must
periodically review the Plan for its continued appropriateness, and must approve
any material amendment of the Plan as it relates to any class of any Series
covered by the Plan. This Plan must be amended to properly describe (through
additional exhibits hereto or otherwise) each additional class of shares
approved by the Fund's Board of Directors. 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.
<PAGE>
B. With respect to any class of shares of a Series, the following
requirements shall apply. Each share of a particular Series shall represent an
equal pro rata interest in the Series and shall have identical voting, dividend,
liquidation and other rights, preferences, powers, restrictions, limitations,
qualifications, designations and terms and conditions, except that (i) each
class shall have a different class designation (e.g., Class A, Class B, Class C,
etc.); (ii) each class of shares shall separately bear any distribution expenses
in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a
"Rule 12b-1 Plan"), if any, for such class (and any other costs relating to
obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an
amendment of such plan) and shall separately bear any expenses associated with
any non-Rule 12b-1 Plan service payments ("service fees") that are made under
any servicing agreement, if any, entered into with respect to that class; (iii)
holders of the shares of the class shall have exclusive voting rights regarding
the Rule 12b-1 Plan relating to such class (e.g., the adoption, amendment or
termination of a Rule 12b-1 Plan), regarding the servicing agreements relating
to such class and regarding any matter submitted to shareholders in which the
interests of that class differ from the interests of any other class; (iv) each
new class of shares may bear, to the extent consistent with rulings and other
published statements of position by the Internal Revenue Service, the expenses
of the Fund's operation that are directly attributable to such class ("Class
Expenses")1/; and (v) each class may have conversion features unique to such
class, permitting conversion of shares of such class to shares of another class,
subject to the requirements set forth in Rule 18f-3.
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
<PAGE>
Approval of Plans of Distribution for
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.
Approved: March 27, 1998
Approval of Restated Distribution Agreements and Form
of Sub-Distribution and Shareholder Servicing Agreements
RESOLVED, that the proposed Restated Distribution Agreement
between Flag Investors Emerging Growth Fund, Inc. and ICC Distributors, Inc. for
each class of the Fund's 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 enter
into and execute such Distribution Agreement with such modifications as said
officers shall deem necessary or appropriate or as may be required to conform
with the requirements of any applicable statute, regulation or regulatory body.
RESOLVED, that the proposed form of Sub-Distribution Agreement
for the Flag Investors Family of Funds be, and hereby is, approved in
substantially the form presented to this meeting; and
FURTHER RESOLVED, that the proposed form of Shareholder
Servicing Agreement for the Flag Investors Family of Funds be, and the same
hereby is, approved in substantially the form submitted to this meeting.
FURTHER RESOLVED, that the proper officers of each of Flag
Investors Emerging Growth be, and they hereby are, authorized and directed in
the name and on behalf of their respective Funds, to take all necessary or
appropriate actions to effect the purposes of the foregoing resolutions.
Approved: September 28, 1998
<PAGE>
Establishment of Flag Investors Class C
Shares, Authorization to Increase Authorized
Amounts, Designate New Shares, File Articles Supplementary
to the Fund's Articles of Incorporation and Take Other Necessary or
Appropriate Action
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 be, and hereby is, increased from twenty million (20,000,000) shares,
having the aggregate par value of twenty thousand dollars ($20,000), to
thirty-five million (35,000,000) shares, having the aggregate par value of
thirty-five thousand dollars ($35,000), and that from such amount, fifteen
million (15,000,000) authorized and unissued shares be, and they hereby are,
designated and classified as the "Flag Investors Emerging Growth Fund Class C
Shares" (the "Flag Investors Class C 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
execute and file Articles Supplementary to the Fund's Articles of Incorporation
to effectuate the increase in authorized shares and to designate and classify
the Flag Investors Class C Shares;
FURTHER RESOLVED, that the proper officers of Flag Investors Emerging
Growth Fund, Inc. be, and they hereby are, authorized and directed in the name
and on behalf of the Fund to file with the Securities and Exchange Commission a
supplement to the Fund's prospectus and to take all other actions and make all
other filings that the officer so acting may deem necessary or appropriate in
connection with the establishment of the Flag Investors Class C Shares, the
taking of any such action to establish conclusively such officer's authority
therefor and the approval and ratification thereof by the Fund; and
FURTHER RESOLVED, that any and all actions heretofore or hereafter
taken by such officer or officers within the terms of the foregoing resolutions
be, and they hereby are, ratified and confirmed as the authorized act and deed
of Flag Investors Emerging Growth Fund, Inc.
<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 of Amendment and Articles Supplementary filed as
Exhibits (1)(b) and (1)(c), respectively, to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form N1-A (Registration No. 33-21119),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
0000950116-95-000392) on August 18, 1995 are incorporated herein by reference.
3. Registrant's Articles Supplementary filed as Exhibit (1)(d) to Post-Effective
Amendment No. 11 to Registrant's Registration Statement on Form N1-A
(Registration No. 33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 0000950116-96-000107) on February 28, 1996 is
incorporated herein by reference.
4. 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 is incorporated herein by reference.
5. Registrant's Articles Supplementary establishing the Class C Shares is filed
as Exhibit (a)(6) to this Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-21119), filed herewith
is incorporated herein by reference.
6. 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 are incorporated herein by
reference.
7. Registrant's Distribution Agreement between Registrant and ICC Distributors
Inc. filed as Exhibit (6)(a) to Post-Effective Amendment No. 15 to Registrant's
Registration Statement on Form N-1A (Registration No. 33- 21119), filed with the
Securities and Exchange Commission via EDGAR (Accession No. 950116-98-000482) on
February 26, 1998 is incorporated herein by reference.
8. Registrant's Sub-Distribution Agreement between ICC Distributors, Inc. and
Participating Broker-Dealers is filed as Exhibit (6)(b) to Post-Effective
Amendment No. 15 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-21119), filed with the Securities and Exchange Commission
via EDGAR (Accession No. 950116-98-000482) on February 26, 1998 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 Post-Effective Amendment No. 15
to Registrant's Registration Statement on Form N-1A (Registration No. 33-21119),
filed with the Securities and Exchange Commission via EDGAR (Accession No.
950116-98-000482) on February 26, 1998 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 Post-Effective Amendment
No. 15 to Registrant's Registration Statement on Form N-1A (Registration No.
33-21119), filed with the Securities and Exchange Commission via EDGAR
(Accession No. 950116-98-000482) on February 26, 1998 is incorporated herein by
reference.
<PAGE>
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>
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: December 29, 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: December 29, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Joseph R. Hardiman, 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/Joseph R. Hardiman
---------------------
Joseph R. Hardiman
Date: December 29, 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: December 29, 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: December 29, 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: December 29, 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: December 29, 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: December 29, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that, Harry Woolf, whose signature
appears below, does hereby constitute and appoint Edward J. Veilleux and 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 President of the Fund such Registration
Statement and any and all such pre-and post-effective amendments filed with the
Securities and Exchange Commission under the 1933 Act and the 1940 Act, and any
other instruments or documents related thereto, and the undersigned does hereby
ratify and confirm all that said attorney-in-fact and agent, or either of them
or their substitute or substitutes, shall lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal
as of the date set forth below.
/s/Harry Woolf
--------------
Harry Woolf
Date: December 29, 1998
