[FLAG INVESTORS LOGO]
Emerging Growth
Fund
Semi-Annual Report
April 30, 1999
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder,
The results for the last six months have been disappointing to us all,
and clearly not in keeping with our strong historical track record. The period
illustrates the volatility of the sector and emphasizes that it continues to be
difficult for smaller-company investors. In general, the recent market activity
has clearly been unusual by any historic standards. At the end of 1998, the fund
experienced a dramatic recovery, demonstrating the resilience of the high
quality, rapidly growing companies comprising the portfolio. At year-end, the
Fund outperformed the Russell 2000 by 800 basis points returning 6.6% for 12
months. Most of the 1998 return was experienced in the last few months of the
year. Subsequently, during the first four months of 1999, the small-cap sector
lost its momentum, for reasons to be discussed, and our fund experienced
significant short-term underperformance. At April 30, 1999, the Fund produced a
six-month return of 9.4%, compared to the Russell 2000 index return of 15.2%.
The table below provides detailed performance results through April 30, 1999.
<TABLE>
<CAPTION>
Fiscal One Year Fiscal Three Years Fiscal Five Years
4/30/98-4/30/99 4/30/96-4/30/99 4/30/94-4/30/99
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Flag Investors Emerging Growth
Fund -- Class A* -15.9% 5.1% 15.5%
NASDAQ (OTC) Industrial Index 7.3% 10.1% 14.3%
NASDAQ Composite Index 36.1% 28.8% 28.2%
Russell 2000 Index -9.3% 8.9% 13.0%
Russell 2000 Growth Index -3.8% 6.1% 12.6%
Lipper Small Capitalization Fund Index -10.1% 4.8% 12.2%
S&P 500 Index 21.8% 29.1% 26.9%
</TABLE>
* Please refer to the Additional Performance Section of this report starting
on page 6 for further information regarding performance. These figures
assume the reinvestment of dividends and capital gain distributions and
exclude the impact of any sales charge. The Russell 2000 Index, Russell
2000 Growth Index, NASDAQ (OTC) Industrial Index, NASDAQ Composite Index
and Standard & Poor's (S&P) 500 Index are unmanaged. The Russell 2000 Index
is an indicator of small company growth performance; the Russell 2000
Growth Index is comprised of the Russell 2000 Index securities with
greater-than-average growth orientations; the NASDAQ (OTC) Industrial Index
is comprised of more than 3,000 industrial issues covered by the NASDAQ
Composite Index; and the S&P 500 Index is an indicator of general market
performance. While the Lipper Small Capitalization Fund Index is unmanaged,
it is comprised of the total return performance of the 30 largest funds in
the Lipper Small Capitalization Fund Average, which are managed. You cannot
invest directly in an index.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
- --------------------------------------------------------------------------------
Flag Emerging Growth Fund Growth of $100 Since December 1993(1)
<TABLE>
<CAPTION>
FLAG EG Russell 2000 S&P 500 Russell 2000 Growth Russell 2000 Value
<S> <C> <C> <C> <C> <C>
Dec-93 100 100 100 100 100
102.054 103.133 103.363 102.662 103.562
105.1768524 102.7586272 100.5556609 102.2102872 103.2585633
99.42473034 97.34633031 96.19255079 95.93150926 98.63774263
Apr-94 96.38432209 97.92359405 97.4334347 96.07828447 99.60735164
94.90482274 96.82195362 99.02549702 93.92517011 99.46491313
88.08496218 93.55518091 96.56768418 89.91174759 96.88379863
91.45421199 95.09322808 99.76310885 91.19299 98.67421123
Aug-94 99.42444656 100.3899209 103.824465 97.8847316 102.555068
101.642606 100.0495991 101.3150277 98.29486863 101.463882
105.9979916 99.64539867 103.6584443 99.34170898 99.60303444
101.8895095 95.61872811 99.85625255 95.32234343 95.58205994
Dec-94 105.0297442 98.17844146 101.3261366 97.56813784 98.45047756
106.5138144 96.93844775 103.95251 95.58067488 97.97397725
113.4393427 100.9739953 107.9837884 99.99745786 101.6019536
115.5833462 102.7046896 111.1855077 102.9183836 102.0967551
Apr-95 112.5331017 104.9867878 114.4632565 104.4662761 105.1331126
114.2638608 106.7915107 118.9902783 105.8347843 107.3871666
126.6306385 112.3318543 121.7829801 113.1278593 111.0565861
132.8140126 118.8021691 125.8700169 121.9450447 115.1090409
Aug-95 138.3377473 121.260186 126.2111247 123.4498465 118.5289305
146.087428 123.4258929 131.513254 125.9916788 120.2985674
140.8940199 117.9062869 131.0345458 119.7941482 115.4938426
143.6414533 122.8595301 136.8013761 125.0818619 120.0835679
Dec-95 144.250493 126.1005645 139.3280975 127.8536759 123.8037569
140.6831783 125.9643759 144.1014782 126.7950475 124.6245758
153.2110154 129.8906854 145.4920574 132.5769016 126.5774429
153.7334649 132.5339609 146.9236993 135.197947 129.2343034
Apr-96 171.1345558 139.6205518 149.1143316 145.5770934 132.7598152
178.8783945 145.1229977 152.9584991 153.0422867 136.1212937
172.4405611 139.1642474 153.5902177 143.0975989 134.5137012
151.2114036 127.0096421 146.7585248 125.6282441 127.3629529
Aug-96 163.3914822 134.3838219 149.8918193 134.928503 132.8892314
175.3108908 139.6355416 158.326232 141.8773209 136.5171074
166.5243089 137.483758 162.7451171 135.7567333 138.1007059
171.9196965 143.1480888 175.1283931 139.532128 145.5319049
Dec-96 170.509955 146.9000002 171.7186433 142.2530045 150.2558705
182.9571817 149.8350622 182.4012601 145.8064846 152.5653032
168.4852687 146.2015619 183.8750623 137.001231 154.013148
153.8270503 139.3008482 176.2203434 127.328944 149.8855956
Apr-97 154.365445 139.6908906 186.698405 125.8519283 152.0889138
183.2317832 155.2245176 198.1448843 144.7674731 164.1951914
192.8148054 161.8836494 206.9623316 149.6750905 172.5034681
197.4230793 169.4112391 223.5607106 157.3384551 179.7486137
Aug-97 205.6556217 173.2907565 211.0413108 162.0586087 182.6066167
223.115784 185.9756399 222.5430622 174.9908857 194.7499567
209.6395906 177.8113093 215.1991412 164.4739335 189.4527579
208.2769333 176.6555358 225.0552619 160.5594539 191.5367382
Dec-97 205.7984378 179.7470076 228.8812013 161.5228106 198.0298336
203.6992937 176.9070049 231.4675589 159.3745572 194.4454936
224.2321825 189.9804326 248.1100764 173.4473306 206.209446
240.8702105 197.8076264 260.8381233 180.7321185 214.5815495
Apr-98 235.9323712 198.8955684 263.5769236 181.8345844 215.6329991
209.5079456 188.1750972 258.9643274 168.6333936 207.9995909
213.8866616 188.5702649 269.5041755 170.3534542 206.8347932
189.8458009 173.2960735 266.56658 156.1289408 190.6396289
Aug-98 147.1684648 139.641976 228.0210526 120.0943812 160.785463
164.5637774 150.5759427 242.842421 132.2719515 169.8698417
181.3986518 156.7164297 262.4980865 139.1712565 174.9132773
192.7179277 164.9268034 278.3923457 149.9667709 179.6481797
Dec-98 219.5057196 175.132474 294.5892123 163.537264 185.2819466
209.7157645 177.4617359 306.8441236 170.8964408 181.0760464
189.2684775 163.0873353 297.3319557 152.9523145 168.7085525
190.8772596 165.6314977 309.1955008 158.3974169 167.3251423
Apr-99 198.4932622 180.4720799 320.9758493 172.3839089 182.6019278
</TABLE>
(1)Past performance is not an indicator of future results.
The long-term performance in the chart above illustrates the historical
success of our strategy. We invest in small, rapidly growing companies that have
the ability to sustain that growth for many years. This means they must each
have an enormous market opportunity, a unique approach within its market, a
business model that makes sense and a management team that can put it all
together to create profitable growth for many years. In deploying this
philosophy, our strategy has been, and continues to be, to buy and hold such
companies in order to participate in their long-term growth and not to be
distracted in that process by short-term stock action, investment fads or swings
in sentiment.
During the last four months, as is usually the case in a portfolio of
small, rapidly growing companies, a few of our portfolio companies missed
"Street" expectations. Quarter-by-quarter growth rate fluctuations are the norm
in this sector. What was unusual, however, was the trouncing these shares took
in the market, in some cases declining by 50% in one day. This was only a small
part of the story, however. More importantly, many companies that continued to
do well, reporting results at or above expectations, were also severely punished
by the market. Examples of such declines include; American Oncology Resources
(-38%), Coach USA (-31%), and Sylvan Learning (-17%). These and many like them
are very solid growth companies, yet investors seemed to become highly skittish,
looking for reasons to sell many such companies.
2
<PAGE>
We think the reasons for this phenomenon are three fold and suggest that it
is a temporary aberration, not a long-term trend. First, mutual fund redemptions
in the small-cap sector were substantial for the quarter. A Morgan Stanley Dean
Witter study of mutual fund money flows states that small-cap fund net
redemptions for the first quarter 1999 were $6.2 billion, versus an inflow of
$1.8 billion for the same period a year ago. This forced portfolio managers to
raise cash--negatively impacting relatively illiquid stocks, resulting in
downward pressure on the sector.
Second, the so-called "Internet craze" clearly attracted many institutional
and individual investors alike. Shares of such companies seemed to rise
dramatically on a daily basis despite a lack of profitability and, in many
cases, business models that were yet to be proven. Significant funds moved out
of other growth companies and into this hot sector. In many cases, it was the
dramatic performance of such issues that skewed the performance of the indices
upward, which is illustrated by the quarter's returns for the Russell 2000
index. A study prepared by Prudential Securities revealed that the Russell 2000
and the Russell 2000 Growth got the biggest boost from the Internet for the
quarter.
Third, during the first quarter, several non-growth economic sectors
performed well. For example, both the energy and utility sectors significantly
out-performed. Their momentum alone seemed to attract significant investor
attention--yet another distraction from growth.
Average Annual Returns
Index Return Internet
Periods Ended 3/31/99 Index Return (Excluding Internet) Contribution
- --------------------------------------------------------------------------------
Russell 2000 Value -5.42% -8.27% +2.85%
- --------------------------------------------------------------------------------
Russell 2000 Growth -1.68 -7.15% +5.47%
As long-term investors, we cannot be distracted by what we consider to be
temporary investor fads. We continue to focus on the best companies with high,
sustainable growth. The fact that many such companies seem to have been ignored
as investors responded to fund redemptions and focused on a few narrow groups
has, in our opinion, created some superb opportunities among our portfolio
companies. We have taken the opportunity to add to many of our holdings, as well
as initiate positions in new names. In addition, we think that the Internet is
creating enormous opportunities for many companies. For
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- --------------------------------------------------------------------------------
example, we are enthusiastic about Broadvision and QRS, Corp.--Internet-related
companies with proven, profitable business models with long-term staying power.
In conclusion, we are enthusiastic about the opportunities that the recent
market environment has created. In keeping with our strategy, our companies have
continued to grow rapidly--in aggregate 35%+ annually. Our outlook for these
companies continues to be very positive and we are optimistic that our long-term
strategy will ultimately be rewarded.
Sincerely yours,
/s/ Frederick L. Meserve, Jr.
- ----------------------------------
Frederick L. Meserve, Jr.
Portfolio Manager
May 17, 1999
4
<PAGE>
FIVE LARGEST HOLDINGS
- --------------------------------------------------------------------------------
Percent of
Company Net Assets
- --------------------------------------------------------------------------------
o Broadvision, Inc. 6.6%
Develops, markets and supports fully integrated application
software solutions. The Company's solutions manage one-to-one
relationships for the extended enterprise. The Company's software
is used by the financial services, retail, distribution, high
technology, telecommunications, and travel industries.
o QRS Corp. (Computer Service) 5.6%
Provides merchandise and logistics solutions throughout the
entire retail demand chain. Facilitates and optimizes the flow of
information, goods, and services throughout the retail industry.
o Pacific Gateway 4.6%
Provides telecommunications services to both wholesale and retail
customers worldwide. Pacific conducts operations in the United
States, the United Kingdom, Germany, France, Russia, Japan,
Australia, and New Zealand.
o Synopsys, Inc. 4.4%
Develops, markets and supports high-level design automation
software for designers of integrated circuits and electronics
systems. The company has license agreements with over 400
customers, including major international semi-conductor,
computer, communications, military and aerospace companies.
o Memberworks, Inc. 3.7%
Designs and provides innovative membership service programs. The
Company currently offers nine membership programs such as health,
dental, travel, entertainment, sports, financial, computers, and
fitness.
- --------------------------------------------------------------------------------
5
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Additional Performance Information
The shareholder letter included in this report contains statistics designed
to help you evaluate the performance of your Fund's management. To further
assist in this evaluation, the Securities and Exchange Commission (SEC) requires
that we include the Fund's total return of each class, according to a
standardized formula, for various time periods through the end of the most
recent calendar quarter.
The SEC standardized total return figures include the impact of the maximum
initial sales charge for the Class A Shares and the contingent deferred sales
charge applicable to the specified time period for the Class B Shares. Returns
would be higher for Class A Shares investors who qualified for a lower initial
sales charge or for Class B Shares investors who continued to hold their shares
past the end of the specified time period.
Periods Ended 3/31/99 1 Year 5 Years Since Inception*
- --------------------------------------------------------------------------------
Class A Shares (24.36)% 12.88% 9.31%
- --------------------------------------------------------------------------------
Class B Shares (25.45)% -- % 2.98%
- --------------------------------------------------------------------------------
Institutional Shares (20.73)% -- % 9.03%
- --------------------------------------------------------------------------------
BIAT Shares (20.59)% -- % 7.11%
- --------------------------------------------------------------------------------
- ---------
* Inception dates: Class A 6/15/88, Class B 6/20/96, Institutional 11/2/95,
BIAT 5/9/97.
While the total return figures are required by SEC rules, such comparisons
are of limited utility since the total return of the Fund's classes are adjusted
for sales charges and expenses while the total return of the indices are not. In
fact, if you wished to replicate the total return of these indices, you would
have to purchase the securities they represent, an effort that would require a
considerable amount of money and would incur expenses that are not reflected in
the index results.
The SEC total return figures may differ from total return figures in the
shareholder letter because the time periods may be different and because the SEC
figures include the impact of sales charges while the total return figures in
the shareholder letter do not. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate,
and investor's shares may be worth more or less than their original cost when
redeemed. Past performance is not an indicator of future results.
6
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statement of Net Assets April 30, 1999
(Unaudited)
No. of Percent of
Shares Security Value Net Assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK - 93.8%
Building & Construction - 0.5%
41,250 Trex Company, Inc.* $ 660,000 0.5%
------------ -----
Business Services - 17.4%
119,850 AHL Services, Inc.* 3,625,462 2.7
214,000 Central Garden & Pet Co.* 2,996,000 2.2
99,550 Documentum, Inc.* 1,555,469 1.2
114,300 MemberWorks, Inc.* 5,000,625 3.7
143,900 QRS Corporation* 7,914,500 5.8
205,050 Wilmar Industries, Inc.* 2,486,231 1.8
------------ -----
23,578,287 17.4
------------ -----
Capital Goods - 3.6%
203,600 Advanced Lighting Technologies, Inc.* 1,323,400 1.0
126,500 ATMI, Inc.* 2,909,500 2.1
60,650 Railworks Corp.* 651,987 0.5
------------ -----
4,884,887 3.6
------------ -----
Consumer Services - 21.2%
122,937 Apollo Group, Inc. Cl-A* 3,042,691 2.3
435,050 Avado Brands, Inc. 3,371,637 2.5
71,100 Il Fornaio (America) Corp.* 719,887 0.5
308,900 Just For Feet* 3,899,862 2.9
304,412 O'Charleys, Inc.* 4,242,742 3.1
61,825 Papa John's International* 2,484,592 1.8
306,500 PETsMART, Inc.* 2,854,281 2.1
123,700 Starbucks Corp.* 4,569,169 3.4
140,125 Sylvan Learning Systems, Inc.* 3,520,641 2.6
------------ -----
28,705,502 21.2
------------ -----
Health Care Services - 9.0%
433,800 American Oncology Resources, Inc.* 3,877,087 2.9
70,737 Eclipsys Corp.* 1,556,214 1.2
35,600 Guilford Pharmaceuticals, Inc.* 382,700 0.3
46,300 Incyte Pharmaceuticals, Inc.* 836,294 0.6
366,750 PSS World Medical, Inc.* 3,575,813 2.6
48,800 Sunrise Assisted Living, Inc.* 1,952,000 1.4
------------ -----
12,180,108 9.0
------------ -----
</TABLE>
7
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Statement of Net Assets (continued) April 30, 1999
(Unaudited)
No. of Percent of
Shares Security Value Net Assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Health Equipment and Services - 5.0%
79,550 Arthrocare Corp* $ 1,372,238 1.0%
55,000 Bionx Implants, Inc.* 330,000 0.3
55,950 Heartport, Inc.* 304,228 0.3
119,975 Perclose* 4,559,050 3.4
------------ -----
6,565,516 5.0
------------ -----
Media/Communications - 1.2%
64,400 Getty Images, Inc.* 1,674,400 1.2
------------ -----
Technology Software/Services - 15.6%
157,300 Aspect Development, Inc.* 1,720,469 1.3
153,400 Broadvision, Inc.* 8,906,788 6.6
314,325 Integrated Systems, Inc.* 4,282,678 3.2
64,100 Summit Design, Inc.* 218,341 0.1
126,946 Synopsys, Inc.* 5,982,330 4.4
------------ -----
21,110,606 15.6
------------ -----
Technology Systems/Semi Conductors - 6.8%
56,050 Astropower, Inc.* 875,781 0.6
225,100 Security Dynamics Technologies, Inc.* 4,895,925 3.6
247,250 Sipex Corp.* 3,461,500 2.6
------------ -----
9,233,206 6.8
------------ -----
Telecommunication - Long Distance - 5.8%
30,200 Geotel Communications Corp.* 1,698,750 1.2
154,900 Pacific Gateway Exchange, Inc.* 6,196,000 4.6
------------ -----
7,894,750 5.8
------------ -----
Transportation - 7.7%
109,850 Atlantic Coast Airlines, Inc.* 3,391,619 2.5
149,150 Coach USA, Inc.* 3,542,313 2.6
140,750 Forward Air Corporation* 3,131,688 2.3
70,375 Landair Services, Inc.* 351,875 0.3
------------ -----
10,417,495 7.7
------------ -----
Total Common Stock
(Cost $106,062,553) 126,904,757 93.8
------------ -----
</TABLE>
8
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Statement of Net Assets (concluded) April 30, 1999
(Unaudited)
Par Percent of
(000) Security Value Net Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - 6.1%
$ 8,289 Goldman Sachs & Co., 4.80%,
Dated 4/30/99, due on 5/03/99,
collateralized by U.S Treasury Note
with a par value $8,046,000, coupon
rate of 5.265%, due 5/15/08, with
a market value of $8,455,318
(Cost $8,289,000) $ 8,289,000 6.1%
------------ -----
Total Investments
(Cost $114,351,553)** 135,193,757 99.9
Other Assets in Excess of Liabilities 168,879 0.1
------------ -----
Net Assets $135,362,636 100.0%
============ =====
Net Asset Value and Redemption Price Per:
Class A Share
($65,639,535 / 3,145,595 shares outstanding) $20.87
======
Class B Share
($4,150,048 / 203,868 shares outstanding) $20.36***
======
Institutional Share
($6,513,986 / 310,277 shares outstanding) $20.99
======
BIAT Share
($59,059,067 / 2,810,854 shares outstanding) $21.01
======
Maximum Offering Price Per:
Class A Share
($20.87 / 0.955) $21.85
======
Class B Share $20.36
======
Institutional Share $20.99
======
BIAT Share $21.01
======
</TABLE>
- --------------------
* Non-income producing security.
** Also aggregate cost for federal tax purposes.
*** Redemption value is $19.54 following a 4% maximum contingent deferred sales
charge.
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS EMERGING GROWTH FUND
- ---------------------------------------------------------------------------------------
Statement of Operations
For the Six
Months Ended
April 30,
- ---------------------------------------------------------------------------------------
1999(1)
<S> <C>
Investment Income:
Dividends ........................................................... $ 9,578
Interest ............................................................ 142,831
------------
Total income ............................................... 152,409
------------
Expenses:
Investment advisory fees ............................................ 578,475
Distribution fees ................................................... 111,192
Legal fees .......................................................... 62,197
Transfer agent fee .................................................. 32,344
Accounting fees ..................................................... 30,045
Custodian fees ...................................................... 21,613
Registration fees ................................................... 12,186
Directors' fees ..................................................... 2,900
Miscellaneous ....................................................... 28,081
------------
Total expenses ............................................. 879,033
------------
Expenses in excess of investment income ................................ (726,624)
------------
Realized and unrealized gain on investments:
Net realized gain from security transactions ........................ 9,101,252
Change in unrealized appreciation/depreciation of investments ....... 3,414,384
------------
Net gain on investments ............................................. 12,515,636
------------
Net increase in net assets resulting from operations ................... $ 11,789,012
============
</TABLE>
- ------------
(1) Unaudited.
See Notes to Financial Statements.
10
<PAGE>
<TABLE>
<CAPTION>
FLAG INVESTORS EMERGING GROWTH FUND
- ----------------------------------------------------------------------------------------
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
April 30, October 31,
- ----------------------------------------------------------------------------------------
1999(1) 1998
<S> <C> <C>
Increase in Net Assets:
Operations:
Expenses in excess of investment income ............ $ (726,624) $ (1,252,660)
Net realized gain/(loss) from security
transactions .................................... 9,101,252 (1,729,647)
Change in unrealized appreciation/
depreciation of investments ..................... 3,414,384 (15,958,185)
------------- -------------
Net increase/(decrease) in net assets resulting
from operations ................................. 11,789,012 (18,940,492)
------------- -------------
Dividends to Shareholders from:
Net investment income and short-term gains:
Class A Shares .................................. -- (655,545)
Class B Shares .................................. -- (53,761)
Institutional Shares ............................ -- (117,815)
BIAT Shares ..................................... -- (320,098)
Net realized long-term gains:
Class A Shares .................................. -- (2,622,180)
Class B Shares .................................. -- (215,043)
Institutional Shares ............................ -- (471,259)
BIAT Shares ..................................... -- (1,280,392)
------------- -------------
Total distributions ................................ -- (5,736,093)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares ....................... 33,369,905 51,002,445
Value of shares issued in
reinvestment of dividends ....................... -- 5,494,066
Cost of shares repurchased ......................... (33,069,558) (34,109,172)
------------- -------------
Increase in net assets derived from capital
share transactions .............................. 300,347 22,387,339
------------- -------------
Total increase/(decrease) in net assets ............ 12,089,359 (2,289,246)
Net Assets:
Beginning of period ................................ 123,273,277 125,562,523
------------- -------------
End of period (including undistributed net
investment income of $722,798 and $0,
respectively) ................................... $ 135,362,636 $ 123,273,277
============= =============
</TABLE>
- ------------
(1) Unaudited.
See Notes to Financial Statements.
11
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
Period Ended
April 30, For the Years Ended October 31,
- --------------------------------------------------------------------------------------------------------------------------------
1999(3) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of period ................... $ 19.08 $ 23.17 $ 19.14 $ 17.09 $ 12.90 $ 14.02
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Expenses in excess of investment income .................. (0.13) (0.22) (0.18) (0.15) (0.09) (0.08)
Net realized and unrealized gain/(loss) on investments ... 1.92 (2.82) 4.95 3.10 4.32 0.47
------- ------- ------- ------- ------- -------
Total from Investment Operations 1.79 (3.04) 4.77 2.95 4.23 0.39
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) (0.04) (1.51)
------- ------- ------- ------- ------- -------
Total distributions ...................................... -- (1.05) (0.74) (0.90) (0.04) (1.51)
------- ------- ------- ------- ------- -------
Net asset value end of period ............................ $ 20.87 $ 19.08 $ 23.17 $ 19.14 $ 17.09 $ 12.90
======= ======= ======= ======== ======== =======
Total Return(1) ............................................. 9.38% (13.48)% 25.93% 18.19% 32.92% 3.75%
Ratios to Average Daily Net Assets:
Expenses ................................................. 1.38%(2) 1.41% 1.44% 1.50% 1.50% 1.50%
Expenses in excess of investment income .................. (1.15)%(2) (1.03)% (0.97)% (0.83)% (0.64)% (0.73)%
Supplemental Data:
Net assets at end of period (000) ........................ $65,640 $65,247 $71,123 $45,325 $38,127 $23,302
Portfolio turnover rate .................................. 20% 23% 42% 24% 39% 86%
</TABLE>
- ------------
(1) Total return excludes the effect of sales charge.
(2) Annualized.
(3) Unaudited.
See Notes to Financial Statements.
12 and 13
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Class B Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the June 20, 1996(1)
Period Ended For the Years through
April 30, Ended October 31, October 31,
- ----------------------------------------------------------------------------------------
1999(5) 1998 1997 1996
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning
of period ......................... $18.69 $ 22.88 $ 19.10 $ 19.22
------- ------- ------- -------
Income from Investment Operations:
Expenses in excess of income ......... (0.23) (0.37)(2) (0.18) (0.12)
Net realized and unrealized
gain/(loss) on investments ........ 1.90 (2.77) 4.70 --
------- ------- ------- -------
Total from Investment Operations ..... 1.67 (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 ..... $ 20.36 $ 18.69 $ 22.88 $ 19.10
======= ======= ======= =======
Total Return(3) ......................... 8.94% (14.11)% 24.69% (0.62)%
Ratios to Average Daily Net Assets:
Expenses ............................. 2.13%(4) 2.16% 2.19% 2.25%(4)
Expenses in excess of income ......... (1.90)%(4) (1.77)% (1.73)% (1.67)%(4)
Supplemental Data:
Net assets at end of period (000) .... $4,150 $ 5,155 $ 5,719 $ 772
Portfolio turnover rate .............. 20% 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.
(5) Unaudited.
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- Institutional Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the June 20, 1996(1)
Period Ended For the Years through
April 30, Ended October 31, October 31,
- ----------------------------------------------------------------------------------------
1999(5) 1998 1997 1996
<S> <C> <C> <C> <C>
Per Share Operating Performance:
Net asset value at beginning of
period ............................ $ 19.17 $ 23.25 $ 19.15 $ 17.45
------- ------- ------- -------
Income from Investment Operations:
Expenses in excess of investment
income ............................ (0.10) (0.17)(2) (0.26) (0.12)
Net realized and unrealized
gain/(loss) on investments ........ 1.92 (2.86) 5.10 2.72
------- ------- ------- -------
Total from Investment Operations ..... 1.82 (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 ..... $ 20.99 $ 19.17 $ 23.25 $ 19.15
======= ======= ======== =======
Total Return ............................ 9.49% (13.39)% 26.36% 16.48%
Ratios to Average Daily Net Assets:
Expenses ............................. 1.13%(3) 1.16% 1.19% 1.25%(3)
Expenses in excess of income ......... (0.90)%(3) (0.76)% (0.74)% (0.61)%(3)
Supplemental Data:
Net assets at end of period (000) .... $6,514 $ 6,243 $13,068 $19,751
Portfolio turnover rate .............. 20% 23% 42% 24%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Annualized.
(4) Unaudited.
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Financial Highlights -- BIAT Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
For the May 9, 1997(1)
Period Ended For the Year through
April 30, Ended October 31, October 31,
- --------------------------------------------------------------------------------------
1999(4) 1998 1997
<S> <C> <C> <C>
Per Share Operating Performance:
Net asset value at
beginning of period ............. $ 19.19 $ 23.24 $ 18.64
------- ------- -------
Income from Investment Operations:
Expenses in excess of income ....... (0.09) (0.17)(2) (0.06)
Net realized and unrealized
gain/(loss) on investments ...... 1.91 (2.83) 4.66
------- ------- -------
Total from Investment
Operations ...................... 1.82 (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 ...... $ 21.01 $ 19.19 $ 23.24
======= ======= =======
Total Return .......................... 9.48% (13.26)% 24.68%
Ratios to Average Daily Net Assets:
Expenses ........................... 1.13%(3) 1.16% 1.19%(3)
Expenses in excess of income ....... (0.90)%(3) (0.80)% (0.69)%(3)
Supplemental Data:
Net assets at end of period (000) .. $59,059 $46,628 $35,653
Portfolio turnover rate ............ 20% 23% 42%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Annualized.
(4) Unaudited.
See Notes to Financial Statements.
16
<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 Brown Investment Advisory & Trust
Shares (BIAT Shares) (formerly, Alex. Brown Capital Advisory & Trust 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 BIAT 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 which approximates fair market value.
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 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
17
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
NOTE 1 -- concluded
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 cost 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 and Brown Investment
Advisory & Trust (BIAT) is the Fund's sub-advisor. As compensation for its
advisory services the Fund pays ICC an annual fee equal to 0.85% of the Fund's
average daily net assets. As compensation for its subadvisory services, ICC pays
BIAT an annual fee equal to 0.55% of the Fund's average daily net assets. For
the six months ended April 30, 1999 ICC's advisory fee was $578,475 of which
$90,884 was payable at the end of the period.
Certain officers and directors of the Fund are also officers or directors
of the Fund's investment advisor.
ICC also provides accounting services to the Fund for which the Fund pays
ICC an annual fee that is calculated daily based upon its average daily net
assets and paid monthly. For the six month period ended April 30, 1999 ICC's fee
was $30,045, of which $4,892 was payable at the end of the period.
18
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTE 2 -- concluded
ICC also provides transfer agency services for the Fund for which the Fund
pays ICC a per account fee that is calculated and paid monthly. For the six
month period ended April 30, 1999. ICC's fee was $32,344 of which $12,669 was
payable at the end of the period.
Bankers Trust Co. is the Fund's custodian. For the six month period ending
April 30, 1999. Banker's Trust's fee was $21,613 of which $10,104 was payable at
the end of the period.
ICC Distributors, Inc. ("ICC Distributors"), a member of the Forum
Financial Group of companies provides distribution services to the Fund for
which ICC Distributors is paid 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. No distribution
fees are charged to the Institutional and BIAT Shares. For the six month period
ended April 30, 1999, ICC Distributors fee was $111,192 of which $16,350 was
payable at the end of the period.
The Fund's complex offers a retirement plan for eligible Directors. The
actuarially computed pension expense allocated to the Fund for the six months
ended April 30, 1999 was $1,127, and the accrued liability was $6,277.
On November 30, 1998, Bankers Trust Corporation entered into an Agreement
and Plan of Merger with Deutsche Bank AG under which Bankers Trust Corporation
would merge with and into a subsidiary of Deutsche Bank AG. Deutsche Bank AG is
a major global banking institution that is engaged in a wide range of financial
services, including investment management, mutual funds, retail and commercial
banking, investment banking and insurance. The transaction is contingent upon
various regulatory approvals, and continuation of the Fund's advisory
relationship with ICC thereafter is subject to the approval of Fund
shareholders. On March 30, 1999, the Board of Directors approved a new advisory
agreement between ICC and the Fund in the event the merger is approved and
completed. The new advisory agreement and a new sub-advisory agreement will be
subject to shareholder approval. If the transaction is approved and completed,
Deutsche Bank AG, as ICC's new parent company, will control its operations as
investment advisor. ICC believes that, under this new arrangement, the services
provided to the Fund will be maintained at their current level.
19
<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 Brown Investment Advisory & Trust and 1 million undesignated).
Transactions in shares of the Fund are listed below.
Class A Shares
----------------------------------
For the Six For the
Months Ended Year Ended
April 30, 1999(1) Oct. 31, 1998
----------------- -------------
Shares sold ............................ 804,208 1,026,573
Shares issued to shareholders on
reinvestment of dividends ........... -- 148,041
Shares redeemed ........................ (1,078,263) (823,988)
------------ ------------
Net increase/(decrease) in shares
outstanding .......................... (274,055) 350,626
============ ============
Proceeds from sale of shares ........... $ 16,646,133 $ 21,111,802
Value of reinvested dividends .......... -- 3,068,894
Cost of shares redeemed ................ (22,515,377) (16,839,860)
------------ ------------
Net increase/(decrease) from capital
share transactions .................. $ (5,869,244) $ 7,340,836
============ ============
Class B Shares
----------------------------------
For the Six For the
Months Ended Year Ended
April 30, 1999(1) Oct. 31, 1998
---------------- -------------
Shares sold .............................. 17,483 107,106
Shares issued to shareholders on
reinvestment of dividends ............. -- 12,906
Shares redeemed .......................... (89,381) (94,232)
----------- -----------
Net increase/(decrease) in shares
outstanding ............................ (71,898) 25,780
=========== ===========
Proceeds from sale of shares ............. $ 347,666 $ 2,245,546
Value of reinvested dividends ............ -- 263,666
Cost of shares redeemed .................. (1,798,081) (1,909,628)
----------- -----------
Net increase/(decrease) from capital
share transactions ..................... $(1,450,415) $ 599,584
=========== ===========
- ------------
(1) Unaudited.
20
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
NOTE 3 -- concluded
Institutional Shares
----------------------------------
For the Six For the
Months Ended Year Ended
April 30, 1999(1) Oct. 31, 1998
----------------- -------------
Shares sold ................................ 73,800 20,073
Shares issued to shareholders on
reinvestment of dividends ............... -- 27,198
Shares redeemed ............................ (89,146) (283,690)
----------- -----------
Net decrease in shares outstanding ......... (15,346) (236,419)
=========== ===========
Proceeds from sale of shares ............... $ 1,475,500 $ 509,820
Value of reinvested dividends .............. -- 566,256
Cost of shares redeemed .................... (1,827,712) (6,892,979)
----------- -----------
Net increase/(decrease) from capital share
transactions ............................ $ 352,212 $(5,816,903)
=========== ===========
BIAT Shares
----------------------------------
For the Six For the Period
Months Ended May 9, 1997(2) to
April 30, 1999(1) Oct. 31, 1998
----------------- -----------------
Shares sold ............................ 715,207 1,257,491
Shares issued to shareholders on
reinvestment of dividends ........... -- 76,695
Shares redeemed ........................ (334,487) (437,945)
------------ ------------
Net increase in shares outstanding ..... 380,720 896,241
============ ============
Proceeds from sale of shares ........... $ 14,900,606 $ 27,135,277
Value of reinvested dividends .......... -- 1,595,250
Cost of shares redeemed ................ (6,928,388) (8,466,705)
------------ ------------
Net increase from capital share
transactions ......................... $ 7,972,218 $ 20,263,822
============ ============
21
- ------------
(1) Unaudited.
(2) Commencement of operations.
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Notes to Financial Statements (concluded)
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $25,614,027 and sales of investment securities aggregated $28,164,484
for the six months ended April 30, 1999. At April 30, 1999 the Fund owed $98,012
for investments purchased.
On April 30, 1999, aggregate net unrealized appreciation over tax cost for
portfolio securities was $20,842,204 of which $38,175,949 related to appreciated
securities and $17,333,745 related to depreciated securities.
NOTE 5 -- Net Assets
At April 30, 1999, net assets consisted of:
Paid-in capital
Class A Shares ......................................... $ 42,297,205
Class B Shares ......................................... 4,347,205
Institutional Shares ................................... 3,374,469
BIAT Shares ............................................ 58,296,850
Accumulated net realized gain from security transactions .. 6,931,327
Unrealized appreciation of investments .................... 20,842,204
Undistributed net investment income ....................... (726,624)
-------------
$ 135,362,636
=============
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.
22
<PAGE>
This page intentionally left blank.
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
- --------------------------------------------------------------------------------
Directors and Officers
TRUMAN T. SEMANS
Chairman
JAMES J. CUNNANE REBECCA W. RIMEL
Director Director
RICHARD T. HALE CARL W. VOGT, ESQ.
Director Director
JOSEPH R. HARDIMAN HARRY WOOLF
Director President
LOUIS E. LEVY AMY M. OLMERT
Director Secretary
EUGENE J. MCDONALD JOSEPH A. FINELLI
Director Treasurer
SCOTT J. LIOTTA
Assistant Secretary
Investment Objective
An open-end mutual fund seeking long-term capital appreciation primarily through
investment in a diversified portfolio of small and mid-sized emerging growth
companies.
24
<PAGE>
This report is prepared for the general
information of shareholders. It is authorized for
distribution to prospective investors only when
preceded or accompanied by an effective
prospectus.
For more complete information regarding any
of the Flag Investors Funds, including charges and
expenses, obtain a prospectus from your investment
representative or directly from the Fund at
1-800-767-FLAG. Read it carefully before you
invest.
<PAGE>
[FLAG INVESTORS GRAPHIC]
Growth
Flag Investors Emerging Growth Fund
Flag Investors Equity Partners Fund
Flag Investors International Fund
Specialty
Flag Investors Communications Fund
Flag Investors Real Estate Securities Fund
Balanced
Flag Investors Value Builder Fund
Fixed Income
Flag Investors Short-Intermediate Income Fund
Flag Investors Total Return U.S. Treasury Fund Shares
Tax-Free Income
Flag Investors Managed Municipal Fund Shares
Money Market
Flag Investors Cash Reserve Prime Shares
P.O. Box 515
Baltimore, Maryland 21203
800-767-FLAG
Distributed by:
ICC Distributors, Inc.
EGSA
(6/99)
