(Logo omitted)
FLAG INVESTORS
Investing With A Difference
Emerging Growth
Fund
Annual Report
October 31, 1999
<PAGE>
<PAGE>
LETTER TO SHAREHOLDERS
Dear Shareholders:
Fiscal year ending October 31, 1999 is best described as a year of
"haves" and "have-nots" in the market, unusual for investors by virtually any
standard. Ending on a strong note, the Flag Investors Emerging Growth Fund
advanced 13.6% in the final quarter and 27.7% for 12 months. More important, the
long-term relative returns remained competitive. For five years ending October
31, 1999, the Fund produced an average annual rate of return of 16.9%, as
compared to the Russell 2000 index return of 12.6%.
Table 1 below provides performance comparisons as of October 31, 1999.
Table 1
All Periods Ending October 31, 1999
<TABLE>
<CAPTION>
3 Years 5 Years
Fourth Quarter One Year Annualized Annualized
7/31/99- 10/31/98- 10/31/96- 10/31/94-
10/31/99 10/31/99 10/31/99 10/31/99
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Flag Investors Emerging Growth Fund--Class A* 13.6% 27.7% 11.6% 16.9%
- ---------------------------------------------------------------------------------------------------------------------
NASDAQ (OTC) Industrial Index 5.6% 50.2% 15.9% 16.3%
Russell 2000 Index -3.3% 14.9% 9.4% 12.6%
Russell 2000 Growth Index 0.6% 29.3% 9.6% 12.5%
Lipper Small Capitalization Growth Fund Index 8.1% 41.7% 11.2% 15.9%
S&P 500 Index 2.9% 25.7% 26.5% 26.0%
</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 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 Growth Fund Index is
unmanaged, it is comprised of the total return performance of the 30 largest
funds in the Lipper Small Capitalization Growth Fund Average, which are
managed. You cannot invest directly in an index.
Our investment strategy has remained unchanged during the last six
years. We invest in small, well-managed companies with a proprietary
advantage and a large market opportunity. Our goal is to hold the companies
for as long as they continue to grow.
Table 2 on page 2 substantiates our long-term investment approach.
During September 1999 when the Fund was comprised of 42 names, we identified the
number of those companies held in the portfolio for the last one, two, three,
four and five years. This exercise revealed that we have owned 57% of the
current holdings for two years and 19% of the portfolio for five years. To
further illustrate the point, the portfolio turnover continues to be very low -
38% for the last 12 months.
1
<PAGE>
LETTER TO SHAREHOLDERS (CONTINUED)
Table 2
Current Portfolio Comparisons Held at:
<TABLE>
<CAPTION>
1 Year 2 Years 3 Years 4 Years 5 Years
9/99 9/98 9/97 9/96 9/95 9/94
- ------------------------------------------------------------------------------------------
<S><C>
Number of Companies 42 32 24 17 11 8
% of Current Holdings 100% 76% 57% 40% 26% 19%
</TABLE>
While we have held our portfolio companies, aggregate earnings per
share for the Fund have risen at more than 35% per year. This relentless growth
in earnings has enabled the competitive long-term performance record illustrated
in the growth of $100 chart below. Furthermore, for taxable investors,
above-average performance and low turnover have provided high after-tax
efficiency.
Growth of $100 Since December 1993*
[Graphic omitted, plot points]
<TABLE>
<CAPTION>
FLAG Emerging Growth S&P 500 Russell 2000 Russell 2000 Value Russell 2000 Growth
<S><C>
Dec-93 100.00 100.00 100.00 100.00 100.00
Jan-94 102.05 103.40 103.13 103.56 102.66
Feb-94 105.18 100.59 102.76 103.26 102.21
Mar-94 99.42 96.21 97.35 98.64 95.93
Apr-94 96.38 97.44 97.92 99.61 96.08
May-94 94.90 99.04 96.82 99.46 93.93
Jun-94 88.08 96.61 93.56 96.88 89.91
Jul-94 91.45 99.79 95.09 98.67 91.19
Aug-94 99.42 103.88 100.39 102.56 97.88
Sep-94 101.64 101.34 100.05 101.46 98.29
Oct-94 106.00 103.61 99.65 99.60 99.34
Nov-94 101.89 99.84 95.62 95.58 95.32
Dec-94 105.03 101.32 98.18 98.45 97.57
Jan-95 106.51 103.95 96.94 97.97 95.58
Feb-95 113.44 108.00 100.97 101.60 100.00
Mar-95 115.58 111.19 102.70 102.10 102.92
Apr-95 112.53 114.46 104.99 105.13 104.47
May-95 114.26 119.04 106.79 107.39 105.83
Jun-95 126.63 121.80 112.33 111.06 113.13
Jul-95 132.81 125.84 118.80 115.11 121.95
Aug-95 138.34 126.16 121.26 118.53 123.45
Sep-95 146.09 131.48 123.43 120.30 125.99
Oct-95 140.89 131.01 117.91 115.49 119.79
Nov-95 143.64 136.76 122.86 120.08 125.08
Dec-95 144.25 139.40 126.10 123.80 127.85
Jan-96 140.68 144.14 125.96 124.62 126.80
Feb-96 153.21 145.48 129.89 126.58 132.58
Mar-96 153.73 146.88 132.53 129.23 135.20
Apr-96 171.13 149.04 139.62 132.76 145.58
May-96 178.88 152.89 145.12 136.12 153.04
Jun-96 172.44 153.47 139.16 134.51 143.10
Jul-96 151.21 146.69 127.01 127.36 125.63
Aug-96 163.39 149.78 134.38 132.89 134.93
Sep-96 175.31 158.21 139.64 136.52 141.88
Oct-96 166.52 162.58 137.48 138.10 135.76
Nov-96 171.92 174.86 143.15 145.53 139.53
Dec-96 170.51 171.40 146.90 150.26 142.25
Jan-97 182.96 182.11 149.84 152.57 145.81
Feb-97 168.49 183.54 146.20 154.01 137.00
Mar-97 153.83 176.00 139.30 149.89 127.33
Apr-97 154.37 186.50 139.69 152.09 125.85
May-97 183.23 197.86 155.22 164.20 144.77
Jun-97 192.81 206.72 161.88 172.50 149.68
Jul-97 197.42 223.17 169.41 179.75 157.34
Aug-97 205.66 210.67 173.29 182.61 162.06
Sep-97 223.12 222.21 185.98 194.75 174.99
Oct-97 209.64 214.78 177.81 189.45 164.47
Nov-97 208.28 224.73 176.66 191.54 160.56
Dec-97 205.80 228.59 179.75 198.03 161.52
Jan-98 203.70 231.11 176.91 194.45 159.37
Feb-98 224.23 247.78 189.98 206.21 173.45
Mar-98 240.87 260.47 197.81 214.58 180.73
Apr-98 235.93 263.09 198.90 215.63 181.83
May-98 209.51 258.57 188.18 208.00 168.63
Jun-98 213.89 269.07 188.57 206.83 170.35
Jul-98 189.85 266.19 173.30 190.64 156.13
Aug-98 147.17 227.70 139.64 160.79 120.09
Sep-98 164.56 242.29 150.58 169.87 132.27
Oct-98 181.40 262.00 156.72 174.91 139.17
Nov-98 192.72 277.88 164.93 179.65 149.97
Dec-98 219.51 293.89 175.13 185.28 163.54
Jan-99 209.72 306.18 177.46 181.08 170.90
Feb-99 189.27 296.66 163.09 168.71 152.95
Mar-99 190.88 308.53 165.63 167.33 158.40
Apr-99 198.49 320.48 180.47 182.60 172.38
May-99 200.86 312.92 183.11 188.21 172.66
Jun-99 214.45 330.28 191.38 195.02 181.76
Jul-99 204.07 319.97 186.14 190.40 176.14
Aug-99 201.97 318.37 179.25 183.45 169.55
Sep-99 215.38 309.65 179.29 179.78 172.83
Oct-99 231.45 329.25 180.02 176.18 177.25
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
*This chart represents the performance of the Fund's A Shares for a certain time
frame. Past Performance is no guarantee of future return. The returns listed
assume the reinvestment of dividends and capital gain distributions and exclude
the impact of any sales charges. The average annual return of the Fund's Class
A Shares ending 10/31/99 for the 1 year, 5 year, and 10 year time frames are
27.67%, 16.92%, and 9.79%, respectively. Please review additional performance
information on page 6.
Our philosophy is built on the evidence that historically, carefully
selected emerging growth companies have produced superior returns for investors
who resolutely held their shares while these companies compounded their sales
and earnings at high rates. However, during the last year, this concept of
superior earnings growth has not necessarily produced superior stock
performance.
2
<PAGE>
Today's market of "haves" and "have-nots" has created extreme high and
low stock prices and valuations. The portfolio has both benefited and suffered
from this market aberration. The "haves", a smaller percentage of the small-cap
sector, are generally technology or internet-related companies, whose sales,
earnings, margins or some other measure of progress have surprised the "Street"
on the upside. These stocks have had spectacular price increases and ultimately
high valuations characteristic of a bull market. Portfolio holdings benefiting
from this trend include BroadVision, ArthroCare Corporation and QRS Corporation.
Conversely, the "have-nots", the majority of the sector, experienced
severe price declines and valuations normally associated with bear markets.
Examples of "have-nots" are:
1) Companies that have missed some measure of progress such as earnings or
sales estimates,
2) Companies impacted by company-specific or industry issues that have
clouded investor perceptions causing stock prices to remain flat and
decline, in spite of continued growth, and
3) Companies out of favor for fundamental reasons.
Several portfolio holdings fell in these "have-not" scenarios and were
negatively impacted. In the cases where the investment thesis remained intact,
we capitalized on short-term price declines by adding to positions at depressed
valuations, ultimately benefiting from their recoveries. Those companies
included Aspect Development, Getty Images, and RSA Security. However, in other
cases where it became apparent that our company's investment thesis had been
violated, we eliminated positions such as Manugistics, Just for Feet, Central
Garden & Pet Co.
A noteworthy event that impacted the portfolio during the year was
the unusually high number of mergers and acquisitions (M&A). The companies
mentioned below were either acquired or sold at a premium resulting from M&A
activity:
Holding Acquirer Status
- ---------------------------------------------------------------------------
Transition Systems Eclipsys Held
Level One Communications Intel Sold
GeoTel Communications Cisco Sold
Coach USA Stage Coach, UK Tendered
Integrated Systems Wind River Pending
Perclose Abbott Labs Pending
We are optimistic about the long-term growth prospects of our portfolio
companies. Our research suggests that these companies have the business
opportunities and management skills to successfully execute their plans,
allowing them to enjoy higher than average earnings growth. In spite of
temporary market aberrations, we remain confident
3
<PAGE>
LETTER TO SHAREHOLDERS (CONCLUDED)
- -------------------------------------------------------------------------------
Chart 1
[Graphic ommited, plot points]
Relative P/E Multiple
Date Relative P/E
Dec-79 1.0405
Mar-80 0.9701
Jun-80 1.0556
Sep-80 1.1358
Dec-80 1.1176
Mar-81 1.2262
Jun-81 1.2326
Sep-81 1.1622
Dec-81 1.1818
Mar-82 1.1571
Jun-82 1.1806
Sep-82 1.1585
Dec-82 1.2143
Mar-83 1.3271
Jun-83 1.4320
Sep-83 1.5537
Dec-83 1.3659
Mar-84 1.3796
Jun-84 1.3854
Sep-84 1.3267
Dec-84 1.2500
Mar-85 1.3832
Jun-85 1.3475
Sep-85 1.3534
Dec-85 1.4135
Mar-86 1.4211
Jun-86 1.4465
Sep-86 1.4514
Dec-86 1.4145
Jan-87 1.3736
Feb-87 1.4713
Mar-87 1.5198
Apr-87 1.4713
May-87 1.5200
Jun-87 1.3500
Jul-87 1.2684
Aug-87 1.2667
Sep-87 1.2461
Oct-87 1.1479
Nov-87 1.2016
Dec-87 1.1544
Jan-88 1.2273
Feb-88 1.2537
Mar-88 1.3876
Apr-88 1.4560
May-88 1.4113
Jun-88 1.3538
Jul-88 1.3701
Aug-88 1.4474
Sep-88 1.4407
Oct-88 1.3898
Nov-88 1.3772
Dec-88 1.4609
Jan-89 1.4215
Feb-89 1.4661
Mar-89 1.4132
Apr-89 1.4309
May-89 1.4488
Jun-89 1.3840
Jul-89 1.3259
Aug-89 1.3630
Sep-89 1.3507
Oct-89 1.2761
Nov-89 1.2878
Dec-89 1.2606
Jan-90 1.2313
Feb-90 1.2555
Mar-90 1.2643
Apr-90 1.2500
May-90 1.2229
Jun-90 1.1859
Jul-90 1.1210
Aug-90 1.0769
Sep-90 1.0292
Oct-90 1.0222
Nov-90 1.0345
Dec-90 1.0544
Jan-91 1.1419
Feb-91 1.1750
Mar-91 1.2500
Apr-91 1.2970
May-91 1.3353
Jun-91 1.1879
Jul-91 1.2197
Aug-91 1.2584
Sep-91 1.3161
Oct-91 1.3135
Nov-91 1.2737
Dec-91 1.1950
Jan-92 1.2160
Feb-92 1.1921
Mar-92 1.1422
Apr-92 1.0042
May-92 0.9830
Jun-92 0.9697
Jul-92 1.0045
Aug-92 1.0093
Sep-92 1.0184
Oct-92 1.0577
Nov-92 1.1226
Dec-92 1.1449
Jan-93 1.2296
Feb-93 1.0566
Mar-93 1.0744
Apr-93 1.0583
May-93 1.0957
Jun-93 1.0433
Jul-93 1.0693
Aug-93 1.1014
Sep-93 1.1471
Oct-93 1.1667
Nov-93 1.1650
Dec-93 1.2100
Jan-94 1.1531
Feb-94 1.2280
Mar-94 1.2011
Apr-94 1.1813
May-94 1.1429
Jun-94 1.1429
Jul-94 1.0955
Aug-94 1.1436
Sep-94 1.1808
Oct-94 1.1850
Nov-94 1.2050
Dec-94 1.1902
Jan-95 1.2000
Feb-95 1.2250
Mar-95 1.2160
Apr-95 1.2342
May-95 1.2050
Jun-95 1.2805
Jul-95 1.3436
Aug-95 1.3750
Sep-95 1.3413
Oct-95 1.3148
Nov-95 1.3077
Dec-95 1.3198
Jan-96 1.2222
Feb-96 1.2609
Mar-96 1.2888
Apr-96 1.3158
May-96 1.3368
Jun-96 1.3077
Jul-96 1.2363
Aug-96 1.2703
Sep-96 1.2487
Oct-96 1.2176
Nov-96 1.1546
Dec-96 1.1951
Jan-97 1.1921
Feb-97 1.1650
Mar-97 1.1263
Apr-97 1.0663
May-97 1.1111
Jun-97 1.1442
Jul-97 1.1216
Aug-97 1.1620
Sep-97 1.1826
Oct-97 1.1312
Nov-97 1.0649
Dec-97 1.0823
Jan-98 1.0474
Feb-98 1.0201
Mar-98 1.0266
Apr-98 0.9962
May-98 0.9845
Jun-98 0.9480
Jul-98 0.8764
Aug-98 0.8664
Sep-98 0.8443
Oct-98 0.7881
Nov-98 0.7797
Dec-98 0.7987
Jan-99 0.8486
Feb-99 0.7735
Mar-99 0.8168
Apr-99 0.8375
May-99 0.8914
Jun-99 0.8476
Jul-99 0.8778
Aug-99 0.8581
Sep-99 0.894
Oct-99 0.8682
- -------------------------------------------------------------------------------
Chart 2
[Graphic ommited, plot points]
Relative EPS Growth
Date Relative EPS Growth
Dec-79 1.4324
Mar-80 1.7411
Jun-80 1.6581
Sep-80 1.2574
Dec-80 1.2953
Mar-81 1.7582
Jun-81 1.6914
Sep-81 1.3297
Dec-81 1.5643
Mar-82 1.8936
Jun-82 2.1308
Sep-82 1.3440
Dec-82 1.2458
Mar-83 1.2843
Jun-83 1.5906
Sep-83 1.4714
Dec-83 1.6329
Mar-84 1.4274
Jun-84 1.3554
Sep-84 1.3958
Dec-84 1.3743
Mar-85 1.5870
Jun-85 1.5859
Sep-85 1.7217
Dec-85 1.4907
Mar-86 1.7769
Jun-86 1.8333
Sep-86 1.8130
Dec-86 1.8880
Jan-87 1.6474
Feb-87 1.5936
Mar-87 1.5619
Apr-87 1.5204
May-87 1.5821
Jun-87 1.3861
Jul-87 1.5024
Aug-87 1.4009
Sep-87 1.4009
Oct-87 1.5415
Nov-87 1.4061
Dec-87 1.4948
Jan-88 1.7193
Feb-88 1.7371
Mar-88 1.8012
Apr-88 1.7679
May-88 1.5508
Jun-88 1.3958
Jul-88 1.4824
Aug-88 1.4023
Sep-88 1.3631
Oct-88 1.3721
Nov-88 1.3892
Dec-88 1.3455
Jan-89 1.9655
Feb-89 1.8142
Mar-89 1.7542
Apr-89 1.8889
May-89 1.8067
Jun-89 1.6102
Jul-89 1.6303
Aug-89 1.7414
Sep-89 1.8000
Oct-89 1.7632
Nov-89 1.7679
Dec-89 1.8981
Jan-90 1.6336
Feb-90 1.8362
Mar-90 1.9009
Apr-90 2.1020
May-90 2.0408
Jun-90 1.8763
Jul-90 1.6772
Aug-90 1.8017
Sep-90 1.8793
Oct-90 1.8257
Nov-90 1.9381
Dec-90 1.8427
Jan-91 1.7091
Feb-91 1.9072
Mar-91 2.1412
Apr-91 2.6618
May-91 2.8030
Jun-91 2.9649
Jul-91 2.0000
Aug-91 1.9429
Sep-91 2.0577
Oct-91 2.1881
Nov-91 2.3299
Dec-91 2.4348
Jan-92 1.5030
Feb-92 1.5432
Mar-92 1.5414
Apr-92 1.5667
May-92 1.5867
Jun-92 1.4094
Jul-92 1.5621
Aug-92 1.5828
Sep-92 1.5741
Oct-92 1.5926
Nov-92 1.6689
Dec-92 1.7286
Jan-93 1.4693
Feb-93 1.6753
Mar-93 1.7162
Apr-93 1.7986
May-93 1.8483
Jun-93 1.5486
Jul-93 1.4645
Aug-93 1.4969
Sep-93 1.4810
Oct-93 1.5419
Nov-93 1.5526
Dec-93 1.5638
Jan-94 1.7482
Feb-94 1.8385
Mar-94 1.8106
Apr-94 2.0315
May-94 2.0313
Jun-94 1.7266
Jul-94 1.4937
Aug-94 1.5125
Sep-94 1.5250
Oct-94 1.4877
Nov-94 1.4815
Dec-94 1.4479
Jan-95 1.4688
Feb-95 1.4870
Mar-95 1.4610
Apr-95 1.3375
May-95 1.4516
Jun-95 1.1667
Jul-95 1.4383
Aug-95 1.4390
Sep-95 1.4479
Oct-95 1.4845
Nov-95 1.4713
Dec-95 1.5163
Jan-96 1.6978
Feb-96 1.7970
Mar-96 1.7769
Apr-96 1.7813
May-96 1.7710
Jun-96 1.5926
Jul-96 1.5882
Aug-96 1.6222
Sep-96 1.7015
Oct-96 1.6277
Nov-96 1.5870
Dec-96 1.5942
Jan-97 1.3436
Feb-97 1.3904
Mar-97 1.4604
Apr-97 1.4286
May-97 1.3851
Jun-97 1.5101
Jul-97 1.5646
Aug-97 1.5811
Sep-97 1.6507
Oct-97 1.6294
Nov-97 1.6596
Dec-97 1.6594
Jan-98 1.6569
Feb-98 1.7355
Mar-98 1.9259
Apr-98 2.0196
May-98 2.0196
Jun-98 1.9057
Jul-98 1.8545
Aug-98 1.8056
Sep-98 1.5600
Oct-98 1.5455
Nov-98 1.5289
Dec-98 1.5246
Jan-99 1.1319
Feb-99 1.1124
Mar-99 1.1071
Apr-99 1.1098
May-99 1.0726
Jun-99 0.9396
Jul-99 1.1005
Aug-99 1.1534
Sep-99 1.1117
Oct-99 1.1465
that investors will ultimately reap the rewards of such earnings performance.
In addition, price-to-earnings ratios (Chart 1) and historical relative
earnings-per-share growth (Chart 2) indicate that the small-cap sector remains
extremely attractive.
In closing, I would like to welcome Steven A. Rockwell to the Flag
Investors Emerging Growth Fund investment team. Steve joins Charlie Reid, Nick
Coutros and me as an integral member of the research effort. Steve spent 19
years in Alex. Brown's research department, most recently as a Managing Director
responsible for the food services industry. During his tenure, Steve gained
national recognition, for both himself and the firm, as a leader in the food
service industry. Prior to joining Brown Investment Advisory, Steve served as
Director of Research at Ferris Baker Watts. He has over 23 years of investment
experience and complements the emerging growth team with his in-depth knowledge
of consumer companies.
Sincerely yours,
/s/ Frederick L. Meserve, Jr.
FREDERICK L. MESERVE, JR.
Portfolio Manager
November 22, 1999
4
<PAGE>
FIVE LARGEST HOLDINGS
Percent of
Company Net Assets
- -----------------------------------------------------------------------------
o BroadVision, Inc. 15.0%
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. 6.8%
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 RSA Security, Inc. 5.4%
Delivers internet security solutions for electronic
business worldwide. The Company provides a full range
of products through its global direct sales force and
authorized channel partners. RSA offers products in
electronic security--authentication, encryption, and
public key infrastructure.
o ArthroCare Corp. 5.2%
Develops, manufactures, and markets patented Coblation
and PORT technologies. The Company's medical devices
allow surgeons to operate with increased precision and
accuracy, with minimal damage to surrounding tissues.
ArthroCare's systems are used to perform many types of
closed joint surgery, as well as cosmetic surgery.
o Synopsys, Inc. 5.1%
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.
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, on an annual basis, a line graph comparing the Fund's
performance to that of an appropriate market index. This graph must measure the
growth of a $10,000 hypothetical investment from the Fund's initial public
offering on June 15, 1988 through the most recent fiscal year-end and must
reflect the impact of the Fund's total expenses and the currently effective
4.50% maximum sales charge for the Fund's Flag Investors Class A Shares and
4.00% maximum contingent deferred sales charge for the Fund's Flag Investors
Class B Shares.
While the following charts are required by SECrules, such comparisons
are of limited utility since the indices shown are not adjusted for sales
charges and ongoing management, distribution and operating expenses applicable
to the Fund. An investor who wished to replicate the total return of these
indices would have had to own the securities that they represent. Acquiring
these securities would require a considerable amount of money and would incur
expenses that are not reflected in the index results.
The SEC also requires that we report the Fund's total return, according
to a standardized formula, for various time periods through the end of the most
recent calendar quarter. The SECtotal return figures differ from those we
reported because the time periods may be different and because the
SECcalculation includes the impact of the currently effective 4.50% maximum
sales charge for the Fund's Flag Investors Class AShares and the 4.00% maximum
contingent deferred sales charge for the Fund's Flag Investors Class B Shares.
These total returns correspond to those experienced by individual shareholders
only if their shares were purchased on the first day of each time period and the
maximum sales charge was paid. Any performance figures shown are for the full
period indicated. Since investment return and principal value will fluctuate, an
investor's shares may be worth more or less than their original cost when
redeemed.
6
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class A Shares(1)
June 15, 1988-October 31, 1999
[Graphic omitted, plot points]
Flag Investors NASDAQ (OTC)
Emerging Growth S&P 500 Industrial
Fund $31,722 Index $67,173 Index $43,011
6/88 9,550 10,000 10,000
10/88 9,059 10,313 9,225
10/89 12,468 13,036 11,000
10/90 8,524 12,061 8,891
10/91 14,539 16,101 15,045
10/92 12,916 17,705 16,184
10/93 13,992 20,350 20,001
10/94 14,517 21,137 19,957
10/95 19,296 26,726 24,057
10/96 22,805 33,167 27,668
10/97 28,718 43,816 32,745
10/98 23,729 53,452 28,642
10/99 31,722 67,173 43,011
Average Annual Total Return(1)
Periods Ended 10/31/99 1 Year 5 Years 10 Year Since Inception(2)
Class A Shares 21.93% 15.85% 9.28% 10.68%
- --------------------------------------------------------------------------------
(1) These figures assume the reinvestment of dividends and capital gain
distributions and include the Fund's 4.50% maximum sales charge. Past
performance is not an indicator of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost.
(2) 6/15/88.
7
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Class B Shares(1)
June 20, 1996-October 31, 1999
[Graphic ommited, plot points]
Flag Investors NASDAQ (OTC)
Emerging Growth S&P 500 Industrial
Fund $13,171 Index $21,452 Index $15,085
6/96 10,000 10,000 10,000
10/96 9,932 10,593 9,703
10/97 12,385 13,994 11,485
10/98 10,337 17,071 10,046
10/99 13,171 21,452 15,085
Average Annual Total Return(1)
Periods Ended 10/31/99 1 Year Since Inception(2)
Class B Shares 22.64% 8.53%
- ------------------------------------------------------------------------------
(1) These figures assume the reinvestment of dividends and capital gain
distributions and include the Fund's 4.00% maximum contingent deferred sales
charge. Past performance is not an indicator of future results. Investment
return and principal value will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost.
(2) 6/20/96.
8
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Additional Performance Information (continued)
Change in Value of a $10,000 Investment in Institutional Shares(1)
November 2, 1995-October 31, 1999
[Graphic ommited, plot points]
Flag Investors
Emerging Growth S&P 500 NASDAQ (OTC)
Fund $16,318 Index $24,072 Industrial $17,310
11/95 10,000 10,000 10,000
10/96 11,648 11,887 11,134
10/97 14,718 15,702 13,178
10/98 12,748 19,155 11,527
10/99 16,318 24,072 17,310
Average Annual Total Return(1)
Periods Ended 10/31/99 1 Year Since Inception(2)
Institutional Shares 28.01% 13.04%
- ------------------------------------------------------------------------
(1) These figures assume the reinvestment of dividends and capital gain
distributions. Past performance is not an indicator of future results.
Investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
(2) 11/2/95.
9
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Additional Performance Information (concluded)
Change in Value of a $10,000 Investment in Brown Investment Advisory & Trust
(BIAT) Shares(1)
(formerly Alex. Brown Capital Advisory&Trust Shares)
May 9, 1997-October 31, 1999
[graphic omitted, plot points]
Flag Investors S&P 500 NASDAQ (OTC)
Growth Fund $13,841 Index $17,655 Industrial $16,900
5/97 10,000 10,000 10,000
10/97 12,468 11,516 12,866
10/98 10,815 14,048 11,254
10/99 13,841 17,655 16,900
Average Annual Total Return(1)
Periods Ended 10/31/99 1 Year Since Inception(2)
BIAT Shares 27.98% 14.02%
- -----------------------------------------------------------------------------
(1) These figures assume the reinvestment of dividends and capital gain
distributions. Past performance is not an indicator of future results.
Investment return and principal value will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
(2) 5/9/97.
10
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Statement of Net Assets October 31, 1999
<TABLE>
<CAPTION>
No. of Percent of
Shares Security Value Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S><C>
Common Stock - 99.2%
Building & Construction - 0.6%
37,650 Trex Company, Inc.* $ 891,834 0.6%
------------ ------
Business Services - 18.6%
133,800 AHL Services, Inc.* 2,542,200 1.8
160,100 Aspect Development, Inc.* 5,663,538 3.9
90,750 Documentum, Inc.* 2,575,031 1.8
150,600 MemberWorks, Inc.* 4,009,725 2.7
179,950 QRS Corp.* 10,009,719 6.8
191,850 Wilmar Industries, Inc.* 2,350,162 1.6
------------ ------
27,150,375 18.6
------------ ------
Capital Goods - 3.4%
191,300 Advanced Lighting Technologies, Inc.* 1,183,669 0.8
116,800 ATMI, Inc.* 3,146,300 2.2
59,450 Railworks Corp.* 598,216 0.4
------------ ------
4,928,185 3.4
------------ ------
Consumer Services - 15.9%
214,137 Apollo Group, Inc. - Class A* 5,634,480 3.8
410,300 Avado Brands, Inc. 2,307,937 1.6
57,000 Bright Horizons Family Solutions* 837,187 0.6
67,000 Il Fornaio (America) Corp.* 586,250 0.4
287,112 O'Charleys, Inc.* 4,396,402 3.0
83,625 Papa John's International* 3,125,484 2.1
116,200 Starbucks Corp.* 3,159,187 2.2
248,125 Sylvan Learning Systems, Inc.* 3,210,117 2.2
------------ ------
23,257,044 15.9
------------ ------
Health Care Services - 9.6%
46,700 Collagenex Pharmaceuticals, Inc.* 793,900 0.5
231,287 Eclipsys Corp.* 3,671,681 2.5
33,900 Guilford Pharmaceuticals, Inc.* 533,925 0.4
45,650 Incyte Pharmaceuticals, Inc.* 878,763 0.6
367,950 PSS World Medical, Inc.* 2,851,613 2.0
282,950 Sunrise Assisted Living, Inc.* 3,112,450 2.1
479,900 US Oncology, Inc.* 2,144,553 1.5
------------ ------
13,986,885 9.6
------------ ------
</TABLE>
11
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Statement of Net Assets (concluded) October 31, 1999
<TABLE>
<CAPTION>
No. of Percent of
Shares Security Value Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S><C>
Health Equipment and Services - 9.0%
104,700 ArthroCare Corp.* $ 7,590,750 5.2%
42,800 Bionx Implants, Inc.* 144,450 0.1
112,475 Perclose* 5,497,216 3.7
------------ ------
13,232,416 9.0
------------ ------
Media/Communications - 3.4%
2,400 Cumulus Media, Inc. - Class A* 86,100 0.0
160,900 Getty Images, Inc.* 4,957,731 3.4
------------ ------
5,043,831 3.4
------------ ------
Technology Software/Services - 29.2%
298,800 BroadVision, Inc.* 21,999,150 15.0
311,325 Integrated Systems, Inc.* 5,234,152 3.6
14,600 Novadigm, Inc.* 190,713 0.1
224,900 RSA Security, Inc.* 7,983,950 5.4
119,646 Synopsys, Inc.* 7,455,441 5.1
------------ ------
42,863,406 29.2
------------ ------
Technology Systems/Semi Conductors - 2.8%
105,150 Astropower, Inc.* 1,360,378 0.9
234,950 Sipex Corp.* 2,701,925 1.9
------------ ------
4,062,303 2.8
------------ ------
Telecommunication - Long Distance - 2.1%
137,850 Pacific Gateway Exchange, Inc.* 3,136,088 2.1
------------ ------
Transportation - 4.6%
107,050 Atlantic Coast Airlines, Inc.* 2,488,913 1.7
132,650 Forward Air Corp.* 3,904,884 2.6
66,975 Landair Services, Inc.* 414,408 0.3
------------ ------
6,808,205 4.6
------------ ------
Total Common Stock
(Cost $99,534,368) 145,360,572 99.2
------------ ------
</TABLE>
12
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
Par Percent of
(000) Security Value Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S><C>
Repurchase Agreement - 0.9%
$ 1,342 Goldman Sachs & Co., 5.10%,
Dated 10/29/99, to be repurchased
for $1,342,573 on 11/1/99,
collateralized by U.S. Treasury Bonds,
5.625% due 2/28/01with a market
value of $1,369,425
(Cost $1,342,000) $ 1,342,000 0.9%
------------ ------
Total Investments
(Cost $100,876,368)** 146,702,572 100.1
Liabilities in Excess of Other Assets (205,166) (0.1)
------------ ------
Net Assets $146,497,406 100.0%
============ ======
Net Asset Value and Redemption Price Per:
Class A Share
($70,236,178 / 2,883,616 shares outstanding) $24.36
======
Class B Share
($3,662,064 / 154,704 shares outstanding) $23.67***
======
Institutional Share
($7,578,320 / 308,850 shares outstanding) $24.54
======
BIAT Share
($65,020,844 / 2,647,766 shares outstanding) $24.56
======
Maximum Offering Price Per:
Class A Share
($24.36 / 0.955) $25.51
======
Class B Share $23.67
======
Institutional Share $24.54
======
BIAT Share $24.56
======
</TABLE>
- --------------
*Non-income producing security.
**Aggregate cost for federal tax purposes was $102,316,490.
***Redemption value is $22.72 following a 4% maximum contingent deferred
sales charge.
See Notes to Financial Statements.
13
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Statement of Operations
<TABLE>
<CAPTION>
For the
Year Ended
October 31,
1999
- -----------------------------------------------------------------------------------------------
<S><C>
Investment Income:
Dividends $ 22,445
Interest 264,825
-------------
Total investment income 287,270
-------------
Expenses:
Investment advisory fee 1,169,346
Distribution fees 213,998
Professional fees 145,011
Transfer agent fee 81,307
Accounting fees 60,637
Custodian fees 47,252
Registration fees 35,724
Printing and Postage 26,696
Directors' fees 5,847
Miscellaneous 4,059
-------------
Total expenses 1,789,877
-------------
Expenses in excess of investment income (1,502,607)
-------------
Realized and unrealized gain on investments:
Net realized gain from security transactions 6,595,357
Change in unrealized appreciation/depreciation of investments 28,398,384
-------------
Net gain on investments 34,993,741
-------------
Net increase in net assets resulting from operations $33,491,134
=============
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Years Ended October 31,
1999 1998
<S><C>
Increase/(Decrease) in Net Assets:
Operations:
Expenses in excess of investment income $ (1,502,607) $ (1,252,660)
Net realized gain/(loss) from security
transactions 6,595,357 (1,729,647)
Change in unrealized appreciation/
depreciation of investments 28,398,384 (15,958,185)
------------ ------------
Net increase/(decrease) in net assets resulting
from operations 33,491,134 (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 62,295,373 51,002,445
Value of shares issued in
reinvestment of dividends -- 5,494,066
Cost of shares repurchased (72,562,378) (34,109,172)
------------ ------------
Increase/(decrease) in net assets derived from
capital share transactions (10,267,005) 22,387,339
------------ ------------
Total increase/(decrease) in net assets 23,224,129 (2,289,246)
Net Assets:
Beginning of year 123,273,277 125,562,523
------------ ------------
End of year (including accumulated net
investment loss of $(6,233) and $0,
respectively) $146,497,406 $123,273,277
============ ============
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Financial Highlights -- Class A Shares
(For a share outstanding throughout each year)
<TABLE>
<CAPTION>
For the
Year Ended
October 31,
1999
- ------------------------------------------------------------------------------------
<S><C>
Per Share Operating Performance:
Net asset value at beginning of year $ 19.08
---------
Income from Investment Operations:
Expenses in excess of investment income (0.28)
Net realized and unrealized gain/(loss) on investments 5.56
---------
Total from Investment Operations 5.28
Less Distributions:
Distributions from net realized short-term gains --
Distributions from net realized long-term gains --
---------
Total distributions --
---------
Net asset value end of year $ 24.36
---------
Total Return(1) 27.67%
Ratios to Average Daily Net Assets:
Expenses 1.40%
Expenses in excess of investment income (1.19)%
Supplemental Data:
Net assets at end of year (000) $ 70,236
Portfolio turnover rate 38%
</TABLE>
- ------------
(1) Total return excludes the effect of sales charge.
(2) Calculated based on
average shares.
16
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
For the Years Ended October 31,
1998 1997 1996 1995
$ 23.17 $ 19.14 $ 17.09 $ 12.90
-------- -------- -------- -------
(0.22)(2) (0.18) (0.15) (0.09)
(2.82) 4.95 3.10 4.32
-------- -------- -------- -------
(3.04) 4.77 2.95 4.23
(0.21) (0.21) (0.30) --
(0.84) (0.53) (0.60) (0.04)
-------- -------- -------- -------
(1.05) (0.74) (0.90) (0.04)
-------- -------- -------- -------
$ 19.08 $ 23.17 $ 19.14 $ 17.09
======== ======== ======== =======
(13.48)% 25.93% 18.19% 32.92%
1.41% 1.44% 1.50% 1.50%
(1.03)% (0.97)% (0.83)% (0.64)%
$65,247 $71,123 $45,325 $38,127
23% 42% 24% 39%
See Notes to Financial Statements.
17
<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,
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
<S><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 investment
income (0.55) (0.37)(2) (0.18) (0.12)
Net realized and unrealized
gain/(loss) on investments 5.53 (2.77) 4.70
------- ------- ------- -------
Total from Investment Operations 4.98 (3.14) 4.52 (0.12)
------- ------- ------- -------
Less Distributions:
Distributions from net realized
short-term gains -- (0.21) (0.21) --
Distributions from net realized
long-term gains -- (0.84) (0.53) --
------- ------- ------- -------
Total distributions -- (1.05) (0.74) --
------- ------- ------- -------
Net asset value at end of period $ 23.67 $ 18.69 $ 22.88 $ 19.10
======= ======= ======= =======
Total Return(3) 26.65% (14.11)% 24.69% (0.62)%
Ratios to Average Daily Net Assets:
Expenses 2.15% 2.16% 2.19% 2.25%(4)
Expenses in excess of investment
income (1.94)% (1.77)% (1.73)% (1.67)%(4)
Supplemental Data:
Net assets at end of period (000) $ 3,662 $ 5,155 $ 5,719 $ 772
Portfolio turnover rate 38% 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.
18
<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,
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996
<S><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 (0.21) (0.17)(2) (0.26) (0.12)
Net realized and unrealized
gain/(loss) on investments 5.58 (2.86) 5.10 2.72
------- ------- ------- -------
Total from Investment Operations 5.37 (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
long-term gains -- (0.84) (0.53) (0.60)
------- ------- ------- -------
Total distributions -- (1.05) (0.74) (0.90)
------- ------- ------- -------
Net asset value at end of period $ 24.54 $19.17 $ 23.25 $ 19.15
------- ------- ------- -------
Total Return 28.01% (13.39)% 26.36% 16.48%
Ratios to Average Daily Net Assets:
Expenses 1.15% 1.16% 1.19% 1.25%(3)
Expenses in excess of investment
income (0.94)% (0.76)% (0.74)% (0.61)%(3)
Supplemental Data:
Net assets at end of period (000) $7,578 $6,243 $13,068 $19,751
Portfolio turnover rate 38% 23% 42% 24%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Annualized.
See Notes to Financial Statements.
19
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Financial Highlights -- BIAT Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
For the Period
May 9, 1997(1)
through
For the Years Ended October 31, October 31,
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997
<S><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 investment
income (0.21) (0.17)(2) (0.06)
Net realized and unrealized
gain/(loss) on investments 5.58 (2.83) 4.66
------- ------- -------
Total from Investment
Operations 5.37 (3.00) 4.60
------- ------- -------
Less Distributions:
Distributions from net realized
short-term gains -- (0.21) --
Distributions from net realized
long-term gains -- (0.84) --
------- ------- -------
Total Distributions -- (1.05) --
------- ------- -------
Net asset value at end of period $ 24.56 $ 19.19 $ 23.24
======= ======= =======
Total Return 27.98% (13.26)% 24.68%
Ratios to Average Daily Net Assets:
Expenses 1.15% 1.16% 1.19%(3)
Expenses in excess of investment
income (0.94)% (0.80)% (0.69)%(3)
Supplemental Data:
Net assets at end of period (000) $65,021 $46,628 $35,653
Portfolio turnover rate 38% 23% 42%
</TABLE>
- ------------
(1) Commencement of operations.
(2) Calculation based on average shares.
(3) Annualized.
See Notes to Financial Statements.
20
<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 began 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 (BIAT) Shares (formerly, Alex. Brown Capital Advisory & Trust Shares),
which began operations 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 year. 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, or the NASDAQ National
Market, 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
21
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Notes to Financial Statements (continued)
NOTE 1 -- concluded
Fund's access to the collateral may be delayed or limited if the
broker defaults and the value of the collateral declines or if the
broker enters into an insolvency proceeding.
C. Federal Income Taxes -- The Fund determines its distributions
according to income tax regulations, which may be different from
generally accepted accounting principles. As a result, the Fund
occasionally makes reclassifications within its capital accounts to
reflect income and gains that are available for distribution under
income tax regulations.
The Fund is organized as a regulated investment company. As
long as it maintains this status and distributes to its shareholders
substantially all of its taxable net investment income and net
realized capital gains, it will be exempt from most, if not all,
federal income and excise taxes . As a result, the Fund has made no
provisions for federal income 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
Deutsche Bank AG, 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 year
ended October 31, 1999, ICC's advisory fee was $1,169,346 of which $101,055 was
payable at the end of the year.
On June 4, 1999, Bankers Trust Corporation, the parent company of
Investment Company Capital Corp ("ICC"), the investment advisor to the Fund
was acquired by Deutsche Bank AG. As a result, ICC also became an indirect
wholly-owned subsidiary of Deutsche Bank AG.
22
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
NOTE 2 -- concluded
Certain officers and directors of the Fund are also officers or
directors of the Fund's investment advisors.
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 year ended October 31, 1999, ICC's fee was
$60,637, of which $5,181 was payable at the end of the year.
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 year ended October 31, 1999, ICC's fee was $81,307 of which $18,561 was
payable at the end of the year.
Bankers Trust Company is the Fund's custodian. For the year ended
October 31, 1999, Banker's Trust's fee was $47,252 of which $22,046 was payable
at the end of the year.
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 year ended
October 31, 1999, ICC Distributors fee was $213,998 of which $17,255 was payable
at the end of the year.
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, 1999 was $1,739, and the accrued liability was $6,637.
23
<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 BIAT and 1 million undesignated). Transactions in
shares of the Fund are listed below.
<TABLE>
<CAPTION>
Class A Shares
--------------------------------------------
For the For the
Year Ended Year Ended
Oct. 31, 1999 Oct. 31, 1998
-------------- --------------
<S><C>
Shares sold 1,515,812 1,026,573
Shares issued to shareholders on
reinvestment of dividends -- 148,041
Shares redeemed (2,051,847) (823,988)
-------------- ----------------
Net increase/(decrease) in shares outstanding (536,035) 350,626
============== ================
Proceeds from sale of shares $31,943,780 $21,111,802
Value of reinvested dividends -- 3,068,894
Cost of shares redeemed (43,621,960) (16,839,860)
-------------- ----------------
Net increase/(decrease) from capital share
transactions $(11,678,180) $ 7,340,836
============== ================
<CAPTION>
Class B Shares
--------------------------------------------
For the For the
Year Ended Year Ended
Oct. 31, 1999 Oct. 31, 1998
-------------- --------------
Shares sold 20,443 107,106
Shares issued to shareholders on
reinvestment of dividends -- 12,906
Shares redeemed (141,506) (94,232)
-------------- ----------------
Net increase/(decrease) in shares outstanding (121,063) 25,780
============== ================
Proceeds from sale of shares $ 408,881 $ 2,245,546
Value of reinvested dividends -- 263,666
Cost of shares redeemed (2,902,871) (1,909,628)
-------------- ----------------
Net increase/(decrease) from capital share
transactions $(2,493,990) $ 599,584
============== ================
</TABLE>
24
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
NOTE 3 -- concluded
<TABLE>
<CAPTION>
Institutional Shares
--------------------------------------------
For the For the
Year Ended Year Ended
Oct. 31, 1999 Oct. 31, 1998
-------------- --------------
<S><C>
Shares sold 569,819 20,073
Shares issued to shareholders on
reinvestment of dividends -- 27,198
Shares redeemed (586,592) (283,690)
-------------- ----------------
Net decrease in shares outstanding (16,773) (236,419)
============== ================
Proceeds from sale of shares $ 12,357,525 $ 509,820
Value of reinvested dividends -- 566,256
Cost of shares redeemed (12,773,882) (6,892,979)
-------------- ----------------
Net decrease from capital share
transactions $ (416,357) $(5,816,903)
============== ================
<CAPTION>
BIAT Shares
--------------------------------------------
For the For the Period
Year Ended May 9, 1997(1) to
Oct. 31, 1999 Oct. 31, 1998
-------------- --------------
Shares sold 840,979 1,257,491
Shares issued to shareholders on
reinvestment of dividends -- 76,695
Shares redeemed (623,346) (437,945)
-------------- ----------------
Net increase in shares outstanding 217,633 896,241
============== ================
Proceeds from sale of shares $17,585,187 $27,135,277
Value of reinvested dividends -- 1,595,250
Cost of shares redeemed (13,263,665) (8,466,705)
-------------- ----------------
Net increase from capital share
transactions $ 4,321,522 $20,263,822
============== ================
</TABLE>
- -------------
(1) Commencement of operations.
25
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Notes to Financial Statements (concluded)
NOTE 4 -- Investment Transactions
Excluding short-term obligations, purchases of investment securities
aggregated $49,621,897 and sales of investment securities aggregated $56,194,644
for the year ended October 31, 1999.
On October 31, 1999, aggregate net unrealized appreciation over tax
cost for portfolio securities was $44,386,082 of which $66,924,901 related to
appreciated securities and $22,538,819 related to depreciated securities.
NOTE 5 -- Net Assets
On October 31, 1999, net assets consisted of:
Paid-in capital
Class A Shares $ 36,472,766
Class B Shares 3,302,226
Institutional Shares 3,308,917
BIAT Shares 54,622,936
Accumulated net realized gain from security transactions 2,970,590
Unrealized appreciation of investments 45,826,204
Accumulated net investment loss (6,233)
------------
$146,497,406
============
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.
26
<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, 1999, 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
accounting principles generally accepted in the United States. 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 auditing
standards generally accepted in the United States 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
December 7, 1999
27
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Shareholder Meeting (unaudited)
A Special Meeting of Shareholders of the Flag Investors Emerging Growth
Fund, Inc. (the "Special Meeting") was held on October 7, 1999, at which time
shareholders voted to approve a new investment advisory agreement (the "Advisory
Agreement") with ICC. Shareholders also approved a new sub-advisory agreement
with Brown Investment Advisory &Trust (the "Sub-Advisory Agreement").
Shareholders also elected the Board of Directors. Shareholders also voted not to
eliminate, modify or reclassify certain fundamental restrictions of the Fund.
28
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
The results of the shareholder voting at the Special Meeting are as
follows:
<TABLE>
<CAPTION>
Withheld/ Broker
Proposal For Against Abstain Non-Votes
- -------------------------------------------------------------------------------------------------------
<S><C>
Elect Truman T. Semans 5,305,307 15,678
Elect Richard R. Burt 5,307,299 13,686
Elect Richard T. Hale 5,305,307 15,678
Elect Joseph R. Hardiman 5,307,299 13,686
Elect Louis E. Levy 5,307,299 13,686
Elect Eugene J. McDonald 5,307,299 13,686
Elect Rebecca W. Rimel 5,306,813 14,172
Elect Robert H. Wadsworth 5,307,299 13,686
Investment Advisory Agreement
with ICC 5,283,659 12,220 25,106
Sub-Advisory Agreement with
ICC and Brown Investment
Advisory&Trust 5,284,738 12,277 23,970
Eliminate policy regarding
short sales 3,435,372 58,787 29,930 1,796,896
Eliminate policy regarding
purchasing securities on margin 3,424,237 69,921 29,930 1,796,897
Eliminate policy regarding oil,
gas and mineral interests 3,437,761 55,189 31,139 1,796,896
Modify policy regarding
commodities 3,436,656 57,503 29,930 1,796,896
Modify the Fund's fundamental
investment policy concerning
borrowing 3,436,870 57,289 29,930 1,796,896
</TABLE>
29
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND
Directors and Officers
TRUMAN T. SEMANS
Chairman
RICHARD R. BURT REBECCA W. RIMEL
Director Director
RICHARD T. HALE ROBERT H. WADSWORTH
Director Director
JOSEPH R. HARDIMAN CARL W. VOGT, ESQ.
Director President
LOUIS E. LEVY AMY M. OLMERT
Director Secretary
EUGENE J. MCDONALD CHARLES A. RIZZO
Director Treasurer
DANIEL O. HIRSCH
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.
30
<PAGE>
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<PAGE>
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<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>
(Logo Here)
Flag Investors
Investing With A Difference
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
www.flaginvestors.com
Distributed by:
ICC Distributors, Inc.
EGANN (12/99)
