FLAG INVESTORS QUALITY GROWTH FUND INC, 485BPOS, 1995-07-13

FLAG INVESTORS QUALITY GROWTH FUND INC
485BPOS, 1995-07-13

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<PAGE>

As Filed With the Securities and Exchange Commission on July 13, 1995

Registration No. 33-28288
811-5804

- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 8 [X]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 10 [X]

FLAG INVESTORS QUALITY GROWTH FUND, INC.
- ------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

135 East Baltimore Street
Baltimore, MD 21202
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(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (410) 727-1700

Edward J. Veilleux
135 East Baltimore Street
Baltimore, MD 21202
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(Name and Address of Agent for Service)

Copy to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
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It is proposed that this filing will become effective
(check appropriate box)

X immediately upon filing pursuant to paragraph (b)
----

---- on (date) pursuant to paragraph (b)

---- 60 days after filing pursuant to paragraph (a)

---- on (date) pursuant to paragraph (a) of Rule 485.

* This Registration Statement is being filed pursuant to Rule 24f-2(a)(2)
under the Investment Company Act of 1940 solely for the purpose of
terminating Registrant's election to register an indefinite number of
shares pursuant to Rule 24f-2 under such act.
- -------------------------------------------------------------------------------
Registrant's Rule 24f-2 Notice for its fiscal year ended October 31, 1994
was filed with the Commission on December 8, 1994. Registrant's final Rule
24f-2 Notice for its final fiscal period from November 1, 1994 through May
17, 1995 will be filed prior to July 17, 1995. No shares of Registrant
have been sold after May 17, 1995.
- -------------------------------------------------------------------------------

<PAGE>

FLAG INVESTORS QUALITY GROWTH FUND, INC.

Cross Reference Sheet

July 13, 1995
<TABLE>
<CAPTION>

Registration
Statement
Items Required by Form N-1A Location
- ---------------------------- -------------
<S> <C> <C>

Part A - Information Required in a Prospectus
- ------

Item 1. Cover Page .............................................. Cover Page

Item 2. Synopsis ................................................ Fee Table

Item 3. Condensed Financial Information ......................... Financial Highlights

Item 4. General Description of Registrant ....................... Investment Program;
General Information

Item 5. Management of the Fund .................................. Management of the Fund;
Investment Advisor;
Distributor; Custodian,
Transfer Agent,
Accounting Services

Item 5A. Management's Discussion of Fund
Performance ............................................. *

Item 6. Capital Stock and Other Securities ...................... Cover Page; Dividends
and Taxes; General
Information

Item 7. Purchase of Securities Being Offered .................... How to Invest in the
Fund; Distributor

Item 8. Redemption or Repurchase ................................ How to Redeem Shares

Item 9. Pending Legal Proceedings **

Part B - Information Required in a Statement of Additional Information
- ------

Item 10. Cover Page .............................................. Cover Page

Item 11. Table of Contents ....................................... Table of Contents

Item 12. General Information and History ......................... General Information and
History
</TABLE>
- ----------
* Information required by Item 5A is contained in Registrant's 1994
Annual Report to Shareholders.

** Omitted since the answer is negative or the item is not applicable.

<PAGE>

<TABLE>
<CAPTION>
Registration
Statement
Items Required by Form N-1A Location
- ---------------------------- -------------
<S> <C> <C>

Item 13. Investment Objectives and Policies ...................... Investment Objectives
and Policies

Item 14. Management of the Fund .................................. Management of the Fund

Item 15. Control Persons and Principal Holders of
Securities .............................................. Control Persons and
Principal Holders of
Securities

Item 16. Investment Advisory and Other Services .................. Investment Advisory and
Other Services;
Custodian, Transfer
Agent, Accounting
Services; Independent
Auditors

Item 17. Brokerage Allocation .................................... Brokerage

Item 18. Capital Stock and Other Securities ...................... Capital Stock; Quarterly
Reports

Item 19. Purchase, Redemption and Pricing of Securities
Being Offered ........................................... Valuation of Shares and
Redemption

Item 20. Tax Status .............................................. Federal Tax Treatment of
Dividends and
Distributions

Item 21. Underwriters ............................................ Distribution of Fund
Shares

Item 22. Calculation of Performance Data ......................... Performance Information

Item 23. Financial Statements .................................... Financial Statements

Part C - Other Information

Part C contains the information required by the items
contained therein under the items set forth in the form.
</TABLE>

- -------
* Omitted since the answer is negative or the item is not applicable.

<PAGE>

LOGO

FLAG INVESTORS
QUALITY GROWTH FUND, INC. - Class A Shares
135 East Baltimore Street
Baltimore, Maryland 21202
(800) 767-FLAG

This mutual fund (the "Fund") is designed to seek long-term growth of
capital through investments in equity securities of high quality growth
companies.

Class A Shares of the Fund (formerly Flag Investors Shares) ("Class A
Shares") are available through Alex. Brown & Sons Incorporated ("Alex.
Brown") as well as Participating Dealers and Shareholder Servicing Agents.
(See "How to Invest in the Fund.")

This Prospectus sets forth basic information that investors should know
about the Fund prior to investing and should be retained for future
reference. A Statement of Additional Information dated February 28, 1995 has
been filed with the Securities and Exchange Commission (the "SEC") and is
hereby incorporated by reference. It is available upon request and without
charge by contacting the Fund at the above address or telephone number.

THE FUND'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THE SHARES INVOLVES RISK, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is February 28, 1995

<PAGE>

1. FEE TABLE

SHAREHOLDER TRANSACTION EXPENSES:
(as a percentage of offering price)

<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases .............. 4.50%*
Maximum Sales Charge Imposed on Reinvested Dividends ... None
Deferred Sales Charge .................................. None*

Annual Fund Operating Expenses (net of fee waivers):
(as a percentage of average net assets)

Management Fees (net of fee waivers) ................... .51%
12b-1 Fees ............................................. .25%
Other Expenses ......................................... .49%
----
Total Fund Operating Expenses (net of fee waivers) ..... 1.25%
</TABLE>

- ------
* Purchases of $1 million or more are not subject to an initial sales charge,
however, a contingent deferred sales charge of .50% will be imposed on such
purchases in the event of redemption within 24 months following such
purchase. (See "How to Invest in the Fund -- Offering Price.")

EXAMPLE:

<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:* $57 $84 $113 $199

</TABLE>

- ------
Absent fee waivers, expenses for the one, three, five and ten year periods
would be $59, $88, $120 and $216, respectively.

The Example should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.

The purpose of the foregoing table is to describe the various costs and
expenses that an investor in the Fund will bear directly and indirectly. A
person who purchases Shares through a financial institution may be charged
separate fees by the financial institution. (For more complete descriptions
of the various costs and expenses, see "How to Invest in the Fund -- Offering
Price", "Investment Advisor" and "Distributor.") The Fund's investment
advisor has voluntarily agreed to reduce its fee to the extent required so
that Total Fund Operating Expenses do not exceed 1.25% of the Fund's average
net assets. The Expenses and Example appearing in the table above are based
on the Fund's expenses for the fiscal year ended October 31, 1994, which,
net of fee waivers, were 1.25% of its average net assets. Absent fee waivers,
Management Fees would be .65% and Total Fund Operating Expenses would be
1.39% of the Fund's average net assets.

The rules of the SEC require that the maximum sales charge (in the Shares'
case, 4.50% of the offering price) be reflected in the above table. However,
certain investors may qualify for reduced sales charges (see "How to Invest
in the Fund -- Offering Price"). Due to the continuous nature of Rule 12b-1
fees, long-term shareholders of the Fund may pay more than the equivalent of
the maximum front-end sales charges permitted by the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. The foregoing table
has not been audited by Deloitte & Touche LLP, the Fund's independent
auditors.

<PAGE>

2. FINANCIAL HIGHLIGHTS

The Fund was organized as a corporation under the laws of the State of Maryland
on March 2, 1989 and commenced operations on August 1, 1989. The financial
highlights included in this table are a part of the Fund's financial statements
for the periods indicated and have been audited by Deloitte & Touche LLP,
independent auditors. The financial statements and related notes for the fiscal
year ended October 31, 1994 and the report thereon of Deloitte & Touche LLP are
included in the Statement of Additional Information. Additional performance
information is contained in the Fund's Annual Report for the fiscal year ended
October 31, 1994, which can be obtained at no charge by calling the Fund at
(800) 767-FLAG.

(For a Class A Share outstanding throughout each period)

<TABLE>
<CAPTION>
August 1, 1989
For the Year Ended October 31, (commencement of
-------------------------------------------------- operations) to
1994 1993 1992 1991 1990 October 31, 1989
---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance: .......
Net asset value at beginning of period . $12.78 $13.48 $12.11 $ 9.54 $ 9.98 $10.00
-------- -------- -------- -------- -------- ----------------
Income from Investment Operations: .....
Net investment income .................. 0.03 0.07 0.09 0.16 0.22 0.05
Net realized and unrealized gain/(loss)
on investments ........................ (0.14) (0.72) 1.39 2.60 (0.44) (0.07)
-------- -------- -------- -------- -------- ----------------
Total from Investment Operations ....... (0.11) (0.65) 1.48 2.76 (0.22) (0.02)
Less Distributions:
Dividends from net investment income ... (0.07) (0.05) (0.11) (0.19) (0.22) --
-------- -------- -------- -------- -------- ----------------
Net asset value at end of period ..... $12.60 $12.78 $13.48 $12.11 $ 9.54 $ 9.98
======== ======== ======== ======== ======== ================
Total Return* ........................ (0.86)% (4.82)% 12.28% 29.11% (2.30)% (0.20)%
Ratios to Average Net Assets:
Expenses ............................ 1.25%(2) 1.25% 1.23% 1.25%(2) 1.25%(2) 1.25%(1)(2)
Net investment income ............... 0.55%(3) 0.52% 0.71% 1.45%(3) 2.21%(3) 3.30%(1)(3)
Supplemental Data:
Net assets at end of period
(000) .............................. $35,589 $53,076 $72,849 $58,938 $37,015 $30,075
Portfolio turnover rate ............. 14% 20% 10% 13% 21% 17%
</TABLE>

- ------
* Total return represents aggregate total return for the periods indicated
and does not reflect any applicable sales charge.
(1) Annualized.
(2) Without the waiver of advisory fees, the ratio of expenses to average net
assets would have been 1.39%, 1.52%, 1.52% and 2.17% (annualized) for the
years ended October 31, 1994, 1991 and 1990 and for the period ended
October 31, 1989, respectively.
(3) Without the waiver of advisory fees, the ratio of net investment income
to average net assets would have been .41%, 1.17%, 1.94% and 2.39%
(annualized) for the years ended October 31, 1994, 1991 and 1990 and for
the period ended October 31, 1989, respectively.

3. INVESTMENT PROGRAM

INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS

The investment objective of the Fund is to seek long-term growth of capital
through investments in equity securities of high quality growth companies.
This investment objective is a fundamental policy of the Fund and cannot be
changed without shareholder approval. High quality growth companies are
considered to be those companies whose common stocks are ranked A or better
by Standard & Poor's Corporation ("S&P"). S&P rankings are based on a variety
of criteria, including product and industry position, corporate resources and
financial policy. S&P describes corporations ranked A or better as high
quality because they have established records of growth and stability of
earnings and dividends (see the Statement of Additional Information --
Appendix). The Fund may also invest in companies whose common stocks are
unranked but which, in the opinion of Investment Company Capital Corp.

<PAGE>

("ICC"), the Fund's advisor, under standards approved by the Fund's Board of
Directors, are determined to be of equivalent quality. ICC believes that a
program of diversified investments in equity securities of high quality growth
companies should provide total returns which, over time, are higher than those
experienced by equities generally. Under normal market conditions at least 65%
of the Fund's total assets will be so invested. There can be no assurance that
the Fund's investment objective will be realized.

Up to 35% of the Fund's total assets may be invested in securities other than
the high quality growth company securities described above. The Fund may
purchase, from time to time, equity securities of companies whose quality or
growth characteristics do not meet the standards described above but which
ICC believes have potential for achieving those standards or which have
valuation levels deemed by ICC to warrant an investment of the Fund's assets.
The Fund may also invest up to 20% of its net assets in securities
convertible into the common stock of companies in which the Fund may invest.
A convertible security is a fixed-income security which may be converted at a
stated price within a specified period of time into a specified number of
shares of common stock of the same or a different issuer. Convertible
securities are senior to common stock in a corporation's capital structure
but usually are subordinated to non-convertible securities. While providing a
fixed income stream (generally higher in yield than the income derivable from
a common stock but lower than that afforded by a non-convertible debt
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation of
the common stock into which it is convertible.

If a convertible security held by the Fund is called for redemption, the Fund
may be required to surrender the security for redemption (at a price
established in the charter provision or indenture pursuant to which it is
issued), to convert it into the underlying common stock or to sell it to a
third party. If any of these actions occurs, the Fund may not be able to earn
as high a rate of return on the underlying common stock or on other
securities purchased with redemption or sale proceeds. Accordingly, before
the Fund purchases a convertible security, it will review carefully the
applicable redemption provisions.

For temporary, defensive purposes the Fund may invest a substantial portion
of its assets in high quality short-term money market instruments, in bills,
notes or bonds issued by the U.S. Treasury Department or by other agencies of
the U.S. Government. The Fund may also invest in corporate debt securities
that are rated AA or better by S&P or Aa or better by Moody's Investors
Service, Inc., or that are unrated but determined by ICC to be of equivalent
credit quality under standards approved by the Board of Directors. The
average maturity of these investments will vary from time to time depending
on ICC's assessment of the relative yields available on securities of
different maturities and its expectations of future changes in interest
rates.

The Fund may write covered call options on common stock which it owns or has
the immediate right to acquire through conversion or exchange of other
securities. The Fund may also enter into closing transactions with respect to
such options. A call option is a contract pursuant to which the purchaser of
the option, in return for payment of a premium, has the right, but not the
obligation, to buy the security underlying the option at a specified exercise
price at any time during the term of the option. By writing a covered call
option, the Fund generates additional income from securities it owns, but may
limit potential capital appreciation from the securities, and may also give
up some control over when the securities subject to the call may be sold. The
payment received by the Fund for writing the call option (known as the option
premium) may provide partial protection from a decline in the value of the
underlying securities.

As an additional means of protecting against a decline in the market value of
its portfolio securities, the Fund may also purchase put options on its
portfolio securities and on broad-based stock indexes. A put option gives the
purchaser of the option the right to sell, and the writer (seller) the
obligation to buy the underlying security at the exercise price during the
option period. By purchasing a put option, the Fund will have the right to
sell the underlying security at a predetermined exercise price, thus limiting
the potential for loss to the Fund of the option premium paid. However, if
the market price of the underlying security is higher than the exercise price
of the put option, any profit the Fund realizes on the sale of the underlying
security would be reduced by the premium paid for the put option.

The Fund may enter into covered call and put option contracts on its
securities provided that the aggregate value of such options does not exceed
10% of the value of the Fund's net assets as of the time such options are
entered into by the Fund. Other than the foregoing limitation, there is no
restriction on the number of the Fund's portfolio securities that may be
covered by such options.

<PAGE>

The Fund may purchase securities that are offered on a when-issued or delayed
delivery basis, but only when the Fund intends to purchase the securities for
its portfolio and not for speculative purposes. To a limited extent the Fund
may lend portfolio securities in order to increase income.

The Fund may enter into repurchase agreements with domestic banks or
broker-dealers deemed creditworthy under guidelines approved by the
Directors. A repurchase agreement is a short-term investment in which the
purchaser (i.e., the Fund) acquires ownership of a debt security, and the
seller agrees to repurchase the obligation at a future time and set price,
usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. The value of the
underlying securities will be at least equal at all times to the total amount
of the repurchase agreement obligation, including the interest factor. The
underlying securities, which in the case of the Fund will be securities of
the U.S. Government only, may have maturities exceeding one year. If the
seller were to default on its obligation to repurchase the underlying
instrument, the Fund could experience loss due to delay in liquidating the
collateral and to adverse market action.

4. INVESTMENT RESTRICTIONS

The Fund's investment program is subject to a number of restrictions which
reflect both self-imposed standards and federal and state regulatory
limitations. The investment restrictions recited below are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the outstanding shares of the Fund. Accordingly, the Fund will
not:

1) Concentrate 25% or more of its total assets in securities of issuers in
any one industry (for this purpose the Fund does not include the U.S.
Government, or its agencies and instrumentalities, as an industry);

2) Invest in the securities of any single issuer if, as a result, the Fund
would hold more than 10% of the outstanding voting securities of such
issuer;

3) With respect to 75% of its total assets, invest more than 5% of its total
assets in the securities of any single issuer (for this purpose, the Fund
does not include the U.S. Government, or its agencies and
instrumentalities, as an issuer);

4) Borrow money except as a temporary measure for extraordinary or emergency
purposes and then only from banks and in an amount not exceeding 10% of
the value of the total assets of the Fund at the time of such borrowing,
provided that, while borrowings by the Fund equalling 5% or more of the
Fund's total assets are outstanding, the Fund will not purchase
securities; or

5) Invest more than 10% of its total assets in illiquid securities, including
repurchase agreements with maturities of greater than seven days.

The Fund is subject to further investment restrictions that are set forth in
the Statement of Additional Information.

5. HOW TO INVEST IN THE FUND

Class A Shares may be purchased from Alex. Brown & Sons Incorporated ("Alex.
Brown"), 135 East Baltimore Street, Baltimore, Maryland 21202, or through any
securities dealer which has entered into a dealer agreement with Alex. Brown
("Participating Dealers") or through any financial institution which has
entered into a Shareholder Servicing Agreement with the Fund ("Shareholder
Servicing Agents"). Class A Shares may also be purchased directly from the
Fund by completing the Application Form attached to this Prospectus and
returning it, together with payment of the purchase price, to the Fund at the
address shown on the Application Form.

The minimum initial investment is $2,000, except that the minimum initial
investment for shareholders of any other Flag Investors fund or class is $500
and the minimum initial investment for participants in the Fund's Automatic
Investing Plan is $250. Each subsequent investment must be at least $100,
except that the minimum subsequent investment under the Fund's Automatic
Investing Plan is $250 for quarterly investments and $100 for monthly
investments. (See "Purchases Through Automatic Investing Plan" below.) There
is no minimum investment requirement for qualified retirement plans (i.e.,
401(k) plans or pension and profit sharing plans). IRA accounts are, however,
subject to the $2,000 minimum initial investment requirement. There is no
minimum investment requirement for spousal IRA accounts. Orders for purchases
of Class A Shares are accepted on any day on which the New York Stock
Exchange is open for business ("Business Day"). The Fund reserves the right
to suspend the sale of Class A Shares at any other time at the discretion of
Alex. Brown and ICC. Purchase orders for Class A Shares will be executed at
the per share purchase price equal to the net asset value next determined
after receipt by Alex. Brown, a Participating Dealer or Shareholder Servicing
Agent of the purchase order plus any applicable sales charge (the "Offering

<PAGE>
Price") on the date such net asset value is determined (the "Purchase Date").
Purchases made directly from the Fund must be accompanied by payment of the
purchase price. Purchases made through Alex. Brown or a Participating Dealer or
Shareholder Servicing Agent must be in accordance with such entity's payment
procedures. Alex. Brown may, in its sole discretion, refuse to accept any
purchase order.

The net asset value per share is determined once daily as of the close of the
New York Stock Exchange, which is ordinarily 4:00 p.m. (Eastern Time), on
each Business Day. Net asset value per share is calculated by valuing all
assets held by the Fund, deducting liabilities, and dividing the resulting
amount by the number of then outstanding shares. For this purpose portfolio
securities will be given their market value where feasible. If a portfolio
security is traded on a national exchange or on an automated dealer quotation
system, such as NASDAQ, on the valuation date, the last quoted sale price
will generally be used. Options are valued at the last reported sale price,
or if no sales are reported, at the average of the last reported bid and
asked prices. Securities or other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith
under procedures established from time to time and monitored by the Fund's
Board of Directors. Debt obligations with maturities of 60 days or less are
valued at amortized cost, which constitutes fair value as determined by the
Fund's Board of Directors.

OFFERING PRICE

Class A Shares may be purchased from Alex. Brown, Participating Dealers or
Shareholder Servicing Agents at the Offering Price which includes a sales
charge which is calculated as a percentage of the Offering Price and
decreases as the amount of purchase increases as shown below:

<TABLE>
<CAPTION>
Sales Sales Dealer
Charge as Charge as Retention as
Percentage Percentage Percentage
of of Net of
Offering Amount Offering
Amount of Purchase Price Invested Price
------------------------ -------------- -------------- ----------------
<S> <C> <C> <C>
Less than $50,000 4.50% 4.71% 4.00%
$50,000 - $99,999 3.50% 3.63% 3.00%
$100,000 - $249,999 2.50% 2.56% 2.00%
$250,000 - $499,999 2.00% 2.04% 1.50%
$500,000 - $999,999 1.50% 1.52% 1.25%
$1,000,000 and over None* None* None*
</TABLE>
- ------
* Purchases of $1 million or more may be subject to a contingent deferred
sales charge. (See below.) The distributor may make payments to dealers in
the amount of .50% of the Offering Price.

A shareholder who purchases additional Class A Shares may obtain reduced
sales charges as set forth in the table above through a right of
accumulation. In addition, an investor may obtain reduced sales charges as
set forth above through a right of accumulation of purchases of Class A
Shares and purchases of shares of other Flag Investors funds with the same
sales charge, and purchases of shares of Flag Investors Intermediate-Term
Income Fund, Inc. and Flag Investors Maryland Intermediate Tax Free Income
Fund, Inc. (the "Intermediate Funds"). The applicable sales charge will be
determined based on the total of (a) the shareholder's current purchase plus
(b) an amount equal to the then current net asset value or cost, whichever is
higher, of all Class A Shares and of all Flag Investors shares described
above and any Flag Investors Class D shares held by the shareholder. To
obtain the reduced sales charge through a right of accumulation, the
shareholder must provide Alex. Brown, either directly or through a
Participating Dealer or Shareholder Servicing Agent, as applicable, with
sufficient information to verify that the shareholder has such a right. The
Fund may amend or terminate this right of accumulation at any time as to
subsequent purchases.

The term "purchase" refers to an individual purchase by a single purchaser,
or to concurrent purchases, which will be aggregated, by a purchaser, the
purchaser's spouse and their children under the age of 21 years purchasing
Class A Shares for their own account.

An investor may also obtain the reduced sales charges shown above by
executing a written Letter of Intent which states the investor's intention to
invest not less than $50,000 within a 13-month period in Class A Shares. Each
purchase of Class A Shares under a Letter of Intent will be made at the
Offering Price applicable at the time of such purchase to the full amount
indicated on the Letter of Intent. A Letter of Intent is not a binding
obligation upon the investor to purchase the full amount indicated. The
minimum initial investment under a Letter of Intent is 5% of the full amount.
Class A Shares purchased with the first 5% of the full amount will be held in
escrow (while remaining registered in the name of the investor) to secure
payment of the higher sales charge applicable to the Class A Shares actually
purchased if the full amount indicated is not invested. Such escrowed shares
will be involuntarily redeemed to pay the additional sales charge, if
necessary. When the full amount indicated has been purchased, the escrowed

6
<PAGE>

Class A Shares will be released. An investor who wishes to enter into a Letter
of Intent in conjunction with an investment in Class A Shares may do so by
completing the appropriate section of the Application Form attached to this
Prospectus.

No sales charge will be payable at the time of purchase on investments of $1
million or more of Class A Shares. However, a contingent deferred sales
charge will be imposed on such investments in the event of a share redemption
within 24 months following the share purchase, at the rate of .50% on the
lesser of the value of the Class A Shares redeemed or the total cost of such
shares. No contingent deferred sales charge will be imposed on purchases of
$3 million or more of Class A Shares redeemed within 24 months of purchase if
the Participating Dealer and Alex. Brown have entered into an agreement under
which the Participating Dealer agrees to return any payments received on the
sale of such shares. In determining whether a contingent deferred sales
charge is payable, and, if so, the amount of the charge, it is assumed that
Class A Shares not subject to such charge are the first redeemed followed by
other Class A Shares held for the longest period of time.

The Fund may sell Class A Shares at net asset value (without sales charge) to
the following: (i) banks, bank trust departments, registered investment
advisory companies, financial planners and broker-dealers purchasing shares
on behalf of their fiduciary and advisory clients, provided such clients have
paid an account management fee for these services; (ii) qualified retirement
plans with assets of $1 million or more; (iii) participants in a Flag
Investors fund payroll savings plan program; (iv) investors who have redeemed
Class A Shares, or shares of any other mutual fund in the Flag Investors
family of funds with the same sales charges or who have redeemed shares of
the Intermediate Funds which they held for at least 24 months prior to
redemption, in an amount that is not more than the total redemption proceeds,
provided that the purchase is within 90 days after the redemption; and (v)
current or retired Directors of the Fund, and directors and employees (and
their immediate families) of Alex. Brown, Participating Dealers and their
respective affiliates.

Class A Shares may also be purchased through a Systematic Purchase Plan. An
investor who wishes to take advantage of such a plan should contact Alex.
Brown or a Participating Dealer or Shareholder Servicing Agent.

PURCHASES BY EXCHANGE

As permitted pursuant to any rule, regulation or order promulgated by the
SEC, shareholders of other Flag Investors funds that have similar sales
charges may exchange their Class A Shares of those funds for an equal dollar
amount of Class A Shares. Except as provided below, Class A Shares issued
pursuant to this offer will not be subject to the sales charges described
above or any other charge. Shareholders of Flag Investors Cash Reserve Prime
Class A Shares may exchange into Class A Shares upon payment of the
difference in sales charges, as applicable.

When a shareholder acquires Class A Shares through an exchange from another
fund in the Flag Investors family of funds, the Fund will combine the period
for which the original shares were held prior to the exchange with the
holding period of the shares acquired in the exchange for purposes of
determining what, if any, contingent deferred sales charge is applicable upon
a redemption of any such shares. Shareholders of the Intermediate Funds may
exchange into Class A Shares upon payment of the difference in sales charges,
as applicable, except that the exchange will be made at net asset value if
the shares of such funds have been held for more than 24 months.

The net asset value of shares purchased and redeemed in an exchange request
received on a Business Day will be determined on the same day, provided that
the exchange request is received prior to 4:00 p.m. (Eastern Time). Exchange
requests received after 4:00 p.m. (Eastern Time) will be effected on the next
Business Day.

Shareholders of any other mutual fund who have paid a sales charge may
exchange shares of such funds for an equal dollar amount of Class A Shares by
submitting to Alex. Brown or a Participating Dealer the proceeds of the
redemption of such shares, together with evidence of the payment of a sales
charge and the source of such proceeds. Shares issued pursuant to this offer
will not be subject to the sales charges described above or any other charge.

The exchange privilege with respect to other Flag Investors funds may also be
exercised by telephone. (See "Telephone Transactions" below.)

The exchange privilege may be exercised only in those states where the shares
of such other funds may legally be sold. Investors should receive and read
the applicable prospectus prior to tendering shares for exchange. The Fund
may modify or terminate this offer of exchange at any time on 60 days' prior
written notice to shareholders.

<PAGE>

PURCHASES THROUGH AUTOMATIC INVESTING PLAN

Shareholders may purchase Class A Shares regularly by means of an Automatic
Investing Plan with a pre-authorized check drawn on their checking accounts.
Under this plan, the shareholder may elect to have a specified amount
invested monthly or quarterly in Class A Shares. The amount specified by the
shareholder will be withdrawn from the shareholder's checking account using
the pre-authorized check. This amount will be invested in Class A Shares at
the applicable Offering Price determined on the date the amount is available
for investment. Participation in the Automatic Investing Plan may be
discontinued either by the Fund or the shareholder upon 30 days' prior
written notice to the other party. A shareholder who wishes to enroll in the
Automatic Investing Plan may do so by completing the appropriate section of
the Application Form attached to this Prospectus.

6. HOW TO REDEEM SHARES

Shareholders may redeem all or part of their investments on any Business Day
by transmitting a redemption order through Alex. Brown, a Participating
Dealer, a Shareholder Servicing Agent or by regular or express mail to the
Fund's transfer agent (the "Transfer Agent"). Shareholders may also redeem
Class A Shares by telephone (in any amount up to $50,000). (See "Telephone
Transactions" below.) A redemption order is effected at the net asset value
per share (reduced by any applicable contingent deferred sales charge) next
determined after receipt of the order (or, if stock certificates have been
issued for the Class A Shares to be redeemed, after the tender of the stock
certificates for redemption). Redemption orders received after 4:00 p.m.
(Eastern Time) will be effected at the net asset value next determined on the
following Business Day. Payment for redeemed Class A Shares will be made by
check and will be mailed within seven days after receipt of a duly authorized
telephone redemption request or of a redemption request fully completed and,
as applicable, accompanied by the documents described below:

1) A letter of instructions, specifying the shareholder's account number with
a Participating Dealer or Shareholder Servicing Agent, if applicable, and
the number of shares or dollar amount to be redeemed, signed by all owners
of the shares in the exact names in which their account is maintained;

2) For redemptions in excess of $50,000, a guarantee of the signature of each
registered owner by a member of the Federal Deposit Insurance Corporation,
a trust company, broker, dealer, credit union (if authorized under state
law), securities exchange or association, clearing agency, or savings
association;

3) If shares are held in certificate form, stock certificates either properly
endorsed or accompanied by a duly executed stock power for Shares to be
redeemed; and

4) Any additional documents required for redemption by corporations,
partnerships, trusts or fiduciaries.

Dividends payable up to the date of redemption of Class A Shares will be paid
on the next dividend payable date. If all of the shares in a shareholder's
account have been redeemed on a dividend payable date, the dividend will be
remitted by check to the shareholder. The Fund has the power, under its
Articles of Incorporation, to redeem shareholder accounts amounting to less
than $500 upon 60 days' notice.

SYSTEMATIC WITHDRAWAL PLAN

Shareholders who hold Class A Shares having a value of $10,000 or more may
arrange to have a portion of their Class A Shares redeemed monthly or
quarterly under the Fund's Systematic Withdrawal Plan. Such payments are
drawn from income dividends, and, to the extent necessary, from Share
redemptions (which would be a return of principal and, if reflecting a gain,
would be taxable). If redemptions continue, a shareholder's account may
eventually be exhausted. Because share purchases include a sales charge that
will not be recovered at the time of redemption, a shareholder should not
have a withdrawal plan in effect at the same time he is making recurring
purchases of Class A Shares. A shareholder who wishes to enroll in the
Systematic Withdrawal Plan may do so by completing the appropriate section of
the Application Form attached to this Prospectus.

7. TELEPHONE TRANSACTIONS

Shareholders may exercise the exchange privilege with respect to other Flag
Investors funds, or redeem Class A Shares in amounts up to $50,000, by
notifying the Transfer Agent by telephone at (800) 553-8080 on any Business

<PAGE>

Day between the hours of 8:30 a.m. and 5:30 p.m. (Eastern Time) or by regular or
express mail at its address listed under "Custodian, Transfer Agent, Accounting
Services." Telephone transaction privileges are automatic. Shareholders may
specifically request that no telephone redemptions or exchanges be accepted for
their accounts. This election may be made on the Application Form or at any time
thereafter by completing and returning appropriate documentation supplied by the
Transfer Agent.

A telephone exchange or redemption placed by 4:00 p.m. (Eastern Time) or the
close of the New York Stock Exchange, whichever is earlier, is effective that
day. Telephone orders placed after 4:00 p.m. (Eastern Time) will be effected
at the net asset value as determined on the next Business Day. The Fund and
the Transfer Agent will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures include
requiring the investor to provide certain personal identification information
at the time an account is opened and prior to effecting each transaction
requested by telephone. In addition, all telephone transaction requests will
be recorded and investors may be required to provide additional telecopied
instructions of such transaction requests. The Fund or the Transfer Agent may
be liable for any losses due to unauthorized or fraudulent telephone
instructions if either of them does not employ these procedures. Neither the
Fund nor the Transfer Agent will be responsible for any loss, liability, cost
or expense for following instructions received by telephone that either of
them reasonably believes to be genuine. During periods of extreme economic or
market changes, shareholders may experience difficulty in effecting telephone
transactions. In such event, requests should be made by regular or express
mail. Class A Shares held in certificate form may not be exchanged or
redeemed by telephone. (See "How to Invest in the Fund -- Purchases by
Exchange" and "How to Redeem Shares.")

8. DIVIDENDS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

The Fund's policy is to distribute to shareholders substantially all of its
taxable net investment income in the form of semi-annual dividends. The Fund
may distribute to shareholders any taxable net capital gains on an annual
basis or, alternatively, may elect to retain net capital gains and pay tax
thereon.

Unless the shareholder elects otherwise, all income and capital gains
distributions will be reinvested in additional Shares at net asset value.
Shareholders may elect to terminate automatic reinvestment by giving written
notice to the Transfer Agent (see "Custodian, Transfer Agent, Accounting
Services"), either directly or through their Participating Dealer or
Shareholder Servicing Agent, at least five days before the next date on which
dividends or distributions will be paid.

TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS

The following is only a general summary of certain federal tax considerations
affecting the Fund and the shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Fund or the shareholders,
and the discussion here is not intended as a substitute for careful tax
planning.

The following summary is based on current tax laws and regulations, which may
be changed by legislative, judicial, or administrative action. The Statement
of Additional Information sets forth further information concerning taxes.

The Fund has been and expects to continue to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended. As long as the Fund qualifies for this tax treatment, it will be
relieved of federal income tax on amounts distributed to shareholders, but
shareholders, unless otherwise exempt, will be taxed on the amounts so
distributed regardless of whether such distributions are paid in cash or
reinvested in additional Shares.

Distributions from the Fund out of net capital gains (the excess of net
long-term capital gains over net short-term capital losses), if any, will be
taxed to shareholders as long-term capital gains regardless of the length of
time the shareholder has held the Shares. All other income distributions are
taxed to shareholders as ordinary income. Corporate shareholders may be
entitled to the dividends received deduction on a portion of dividends
received from the Fund. Shareholders will be advised annually as to the tax
status of all distributions.

Ordinarily, shareholders will include all dividends declared by the Fund as
income in the year of payment. However, dividends declared payable to
shareholders of record in December of one year, but paid in January of the
following year, will be deemed for tax purposes to have been received by the
shareholders and paid by the Fund in the year in which the dividends were
declared.

<PAGE>

The Fund intends to make sufficient distributions of its ordinary income and
capital gain net income (the excess of short and long-term capital gains over
short and long-term capital losses) prior to the end of each calendar year to
avoid liability for federal excise tax. Shareholders are encouraged to
consult with their tax advisors concerning the application of federal, state
and local taxes to an investment in the Fund.

9. MANAGEMENT OF THE FUND

The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, distributor, custodian and transfer
agent. The day-to-day operations are delegated to the Fund's officers, to the
Fund's investment advisor, ICC, and the Fund's distributor, Alex. Brown.
Three Directors and all of the officers of the Fund are officers or employees
of ICC or Alex. Brown. The other Directors of the Fund have no affiliation
with ICC or Alex. Brown.

The Fund's Directors and officers are as follows:

*W. James Price Chairman and Director
*Richard T. Hale Director
*Robert S. Killebrew, Jr. Director and President
James J. Cunnane Director
N. Bruce Hannay Director
John F. Kroeger Director
Louis E. Levy Director
Eugene J. McDonald Director
Harry Woolf Director
Edward J. Veilleux Vice President
Gary V. Fearnow Vice President
Brian C. Nelson Vice President and
Secretary
Sandra J. Doeller Vice President
Diana M. Ellis Treasurer
Laurie D. DePrine Assistant Secretary

- ------
*Messrs. Price, Hale and Killebrew are Directors who are "interested persons"
of the Fund within the meaning of Section 2(a)(19) under the Investment
Company Act of 1940, as amended (the "Investment Company Act").

10. INVESTMENT ADVISOR

Investment Company Capital Corp., the Fund's investment advisor, is a
wholly-owned subsidiary of Alex. Brown, the Fund's distributor. ICC is also
the investment advisor to, and Alex. Brown acts as distributor for, other
mutual funds in the Flag Investors family of funds and Alex. Brown Cash
Reserve Fund, Inc., which funds had approximately $3.8 billion of net assets
as of December 31, 1994.

Pursuant to the terms of the Investment Advisory Agreement, ICC supervises
and manages all of the Fund's operations. ICC is responsible for decisions to
buy and sell securities for the Fund, for broker-dealer selection, and for
negotiation of commission rates under standards established and periodically
reviewed by the Board of Directors.

As compensation for its services for the fiscal year ended October 31, 1994,
ICC received from the Fund a fee (net of fee waivers) equal to .51% of the
Fund's average daily net assets. ICC has voluntarily agreed to reduce its
fees, if necessary, so that the Fund's annual operating expenses do not
exceed 1.25% of the Fund's average daily net assets. (See "Fee Table.") The
address of ICC is 135 East Baltimore Street, Baltimore, Maryland 21202.

ICC also serves as the Fund's transfer and dividend disbursing agent and
provides accounting services to the Fund. (See "Custodian, Transfer Agent,
Accounting Services.")

PORTFOLIO MANAGER

Robert S. Killebrew, Jr., President and a Director of the Fund, has managed
the Fund's portfolio since inception.

Mr. Killebrew has been in the investment business for more than 25 years. He
is a Managing Director and, for 11 years was the Chairman of the Investment
Committee, of Alex. Brown and is a former member of the Executive Committee
and the Board of Directors of Alex. Brown. Mr. Killebrew manages
approximately $190 million for individual and institutional clients. Mr.
Killebrew received a B.A. from Yale University and an MBA from the Wharton
School of the University of Pennsylvania. He is a Chartered Financial Analyst
and a former president of the Baltimore Financial Analysts' Society.

11. DISTRIBUTOR

Alex. Brown acts as distributor of the Class A Shares. Alex. Brown is an
investment banking firm which offers a broad range of investment services to

<PAGE>

individual, institutional, corporate and municipal clients. It is a wholly-owned
subsidiary of Alex. Brown Incorporated which has engaged directly and through
subsidiaries and affiliates in the investment business since 1800. Alex. Brown
is a member of the New York Stock Exchange and other leading securities
exchanges. Headquartered in Baltimore, Maryland, Alex. Brown has offices
throughout the United States and, through subsidiaries, maintains offices in
London, England, Geneva, Switzerland and Tokyo, Japan.

The Fund has adopted a Distribution Agreement and related Plan of
Distribution (the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act. As compensation for providing distribution services for the fiscal year
ended October 31, 1994, Alex. Brown received a fee equal to .25% of the Class
A Shares' average daily net assets. Alex. Brown expects to allocate on a
proportional basis most of its annual fee to its investment representatives
or up to all of its fee to Participating Dealers as compensation for their
ongoing shareholder services, including processing redemption and sale
requests and responding to shareholder inquiries.

Payments under the Plan are made as described above regardless of Alex.
Brown's actual cost of providing distribution services. If the cost of
providing distribution services to the Fund in connection with the sale of
the Class A Shares is less than .25% of the Fund's average daily net assets
for any period, the unexpended portion of the distribution fee may be
retained by Alex. Brown. Alex. Brown will from time to time and from its own
resources pay or allow additional discounts or promotional incentives in the
form of cash or other compensation (including merchandise or travel), to
Participating Dealers.

The address of Alex. Brown is 135 East Baltimore Street, Baltimore, Maryland
21202.

12. CUSTODIAN, TRANSFER AGENT, ACCOUNTING SERVICES

PNC Bank, National Association ("PNC Bank"), a national banking association
with offices at Airport Business Park, 200 Stevens Drive, Lester,
Pennsylvania 19113, acts as custodian of the Fund's assets. Investment
Company Capital Corp., 135 East Baltimore Street, Baltimore, Maryland 21202
(telephone: (800) 553-8080) is the Fund's transfer and dividend disbursing
agent and provides accounting services to the Fund. As compensation for
providing accounting services for the period from January 1, 1994 through
October 31, 1994, ICC received from the Fund an annualized fee equal to .09%
of the Fund's average daily net assets. (See the Statement of Additional
Information.) Prior to January 1, 1994, Alex. Brown provided accounting
services to the Fund and for the period from November 1, 1993 through
December 31, 1993, received an annualized fee equal to .09% of the Fund's
average daily net assets. ICC also serves as the Fund's investment advisor.

13. PERFORMANCE INFORMATION

From time to time, the Fund may advertise its performance, including
comparisons with other mutual funds with similar investment objectives and to
stock or other relevant indices. All such advertisements will show the
average annual total return, net of the Fund's maximum sales charge, over
one, five and ten year periods or, if such periods have not yet elapsed,
shorter periods corresponding to the life of the Fund. Such total return
quotations will be computed by finding average annual compounded rates of
return over such periods that would equate an assumed initial investment of
$1,000 to the ending redeemable value, net of the maximum sales charge and
other fees, according to the required standardized calculation. The
standardized calculation is required by the SEC to provide consistency and
comparability in investment company advertising and is not equivalent to a
yield calculation. If the Fund compares its performance to other funds or to
relevant indices, the Fund's performance will be stated in the same terms in
which such comparative data and indices are stated, which is normally total

<PAGE>

return rather than yield. For these purposes, the performance of the Fund, as
well as the performance of such investment companies or indices, may not reflect
sales charges, which, if reflected, would reduce performance results.

The performance of the Fund may be compared to data prepared by Lipper
Analytical Services, Inc., CDA Investment Technologies, Inc. and Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
performance of the Fund may also be compared to the Shearson Lehman
Government Corporate Bond Index, the Consumer Price Index, the return on 90
day U.S. Treasury bills, long-term U.S. Treasury bonds, bank certificates of
deposit, the Standard & Poor's 500 Stock Index and the Dow Jones Industrial
Average. The Fund may also use total return performance data as reported in
the following national financial and industry publications that monitor the
performance of mutual funds: Money Magazine, Forbes, Business Week, Barron's,
Investor's Daily, IBC/Donoghue's Money Fund Report and The Wall Street
Journal.

Performance will fluctuate, and any statement of performance should not be
considered as representative of the future performance of the Fund.
Shareholders should remember that performance is generally a function of the
type and quality of instruments held by the Fund, operating expenses and
market conditions. Any fees charged by banks with respect to customer
accounts through which Class A Shares may be purchased, although not included
in calculations of performance, will reduce performance results.

14. GENERAL INFORMATION

DESCRIPTION OF SHARES

The Fund is a Maryland corporation, authorized to issue thirty million shares
of capital stock, with a par value of $.001 per share. Shares have equal
rights with respect to voting. Voting rights are not cumulative, so the
holders of more than 50% of the outstanding Shares voting together for
election of Directors may elect all the members of the Board of Directors of
the Fund. In the event of liquidation or dissolution of the Fund, each share
would be entitled to its portion of the Fund's assets after all debts and
expenses have been paid.

The Board of Directors may classify any authorized but unissued shares into
classes and may establish certain distinctions between classes relating to
additional voting rights, payments of dividends, rights upon liquidation or
distribution of the assets of the Fund and any other restrictions permitted
by law and the Fund's charter.

ANNUAL MEETINGS

The Fund does not expect to hold annual meetings of shareholders, but special
meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the
Fund will assist with shareholder communications in connection with the
meeting.

REPORTS

The Fund furnishes shareholders with quarterly reports containing information
about the Fund and its operations, including a list of investments held in
the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors, Deloitte & Touche
LLP.

SHAREHOLDER INQUIRIES

Shareholders with inquiries concerning their shares should contact the
Transfer Agent at (800) 553-8080, Alex. Brown at (800) 767-FLAG, or a
Participating Dealer or Shareholder Servicing Agent, as appropriate.

<PAGE>

FLAG INVESTORS QUALITY GROWTH FUND, INC.
NEW ACCOUNT APPLICATION
===============================================================================
Make check payable to "Flag Investors Quality
Growth Fund, Inc." and mail with this application to:
Flag Investors Funds
P.O. Box 419426
Kansas City, MO 64141-6426
Attn: Flag Investors Quality Growth Fund, Inc.

For assistance in completing this application please call: 1-800-553-8080,
8:30 a.m. to 5:30 p.m., Eastern Time, Monday-Friday

To open an IRA account, call 1-800-767-3524 to request an IRA application

I enclose a check for $__________ payable to "Flag Investors Quality Growth
Fund, Inc." for the purchase of Class A Shares of the Fund. The minimum
initial purchase is $2,000, except that the minimum initial purchase for
shareholders of any other Flag Investors Fund or Class is $500 and the
minimum initial purchase for participants in the Fund's Automatic Investing
Plan is $250. Each subsequent purchase requires a $100 minimum, except that
the minimum subsequent purchase under the Fund's Automatic Investing Plan is
$250 for quarterly purchases and $100 for monthly purchases. The Fund
reserves the right not to accept checks for more than $50,000 that are not
certified or bank checks.
===============================================================================
YOUR ACCOUNT REGISTRATION (PLEASE PRINT)

Existing Account No., if any:
----------------

INDIVIDUAL OR JOINT TENANT

- -----------------------------------------------------------------------------
First Name Initial Last Name

- -----------------------------------------------------------------------------
Social Security Number

- -----------------------------------------------------------------------------
Joint Tenant Initial Last Name

CORPORATIONS, TRUSTS, PARTNERSHIPS, ETC.

- -----------------------------------------------------------------------------
Name of Corporation, Trust or Partnership

- -------------------------------- -------------------------------------
Tax ID Number Date of Trust

- -----------------------------------------------------------------------------
Name of Trustees (If to be included in the Registration)

- -----------------------------------------------------------------------------
For the Benefit of

GIFTS TO MINORS

- -----------------------------------------------------------------------------
Custodian's Name (only one allowed by law)

- -----------------------------------------------------------------------------
Minor's Name (only one)

- -----------------------------------------------------------------------------
Social Security Number of Minor

under the__________________Uniform Gifts to Minors Act
State of Residence

YOUR MAILING ADDRESS

- -----------------------------------------------------------------------------
Street

- -----------------------------------------------------------------------------
City State Zip

( )
- -----------------------------------------------------------------------------
Daytime Phone
<PAGE>
LETTER OF INTENT (OPTIONAL)

/ / I agree to the Letter of Intent and Escrow Agreement set forth in the
accompanying prospectus. Although I am not obligated to do so, I intend to
invest over a 13-month period in Class A Shares of Flag Investors Quality
Growth Fund, Inc. in an aggregate amount at least equal to:
/ / $50,000 / / $100,000 / / $250,000 / / $500,000 / / $1,000,000
===============================================================================
RIGHT OF ACCUMULATION (OPTIONAL)

/ / I already own Class A or Class D shares of the Fund(s) set forth below to
be applied for a reduced sales charge. List the Account numbers of other
Funds that you or your immediate family (spouse and children under 21)
already own that qualify for reduced sales charges.
Fund Name Account No. Owner's Name Relationship
--------- ----------- ------------ ------------

- -----------------------------------------------------------------------------

- -----------------------------------------------------------------------------
===============================================================================
DISTRIBUTION OPTIONS

Please check appropriate boxes. If none of the options are elected, all
distributions will be reinvested in additional shares of the Fund at no sales
charge.
Income Dividends Capital Gains
/ / Reinvested in additional shares / / Reinvested in additional shares
/ / Paid in Cash / / Paid in Cash
===============================================================================
AUTOMATIC INVESTING PLAN (OPTIONAL)

/ / I authorize you as Agent for the Automatic Investing Plan to
automatically invest $________ for me, on a monthly or quarterly basis, on or
about the 20th of each month or if quarterly, the 20th of January, April,
July and October, and to draw a bank draft in payment of the investment
against my checking account. (Bank drafts may be drawn on commercial banks
only.)
Minimum Initial Investment: $250
Subsequent Investments (check one):
/ / Monthly ($100 minimum) Please attach a voided check.
/ / Quarterly ($250 minimum)

- --------------------------------- ---------------------------------------
Bank Name Depositor's Signature Date

- --------------------------------- ---------------------------------------
Existing Flag Investors Fund Depositor's Signature Date
Account No., if any (if joint acct., both must sign)
===============================================================================
SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL)

/ / Beginning the month of_____________, 19___ please send me checks on a
monthly or quarterly basis, as indicated below, in the amount of $___________,
from shares that I own, payable to the account registration address as shown
above. (Participation requires minimum account value of $10,000.)
Frequency (check one):
/ / Monthly
/ / Quarterly (January, April, July and October)
===============================================================================
TELEPHONE TRANSACTIONS

I understand that I will automatically have telephone redemption privileges
(for amounts up to $50,000) and telephone exchange privileges (with respect
to other Flag Investors Funds) unless I mark one or more of the boxes below:
No, I/we do not want
/ / Telephone redemption privileges
/ / Telephone exchange privileges
Redemptions effected by telephone will be mailed to the address of record. If
you would prefer redemptions mailed to a pre-designated bank account, please
provide the following information:
Bank:

- -------------------------------- --------------------------------------
Address: Bank Account No:

- -------------------------------- --------------------------------------
Bank Account Name:
<PAGE>

SIGNATURE AND TAXPAYER CERTIFICATION

I have received a copy of the Fund's prospectus dated February 28, 1995.
Unless the box below is checked, I certify under penalties of perjury, (1)
that the number shown on this form is my correct taxpayer identification
number and (2) that I am not subject to backup withholding as a result of a
failure to report all interest or dividends, or the Internal Revenue Service
has notified me that I am no longer subject to backup withholding. / / Check
here if you are subject to backup withholding.

If a non-resident alien, please indicate country of residence:_________________

I acknowledge that the telephone redemption and exchange privileges are
automatic and will be effected as described in the Fund's current prospectus
(see "Telephone Transactions"). I also acknowledge that I may bear the risk
of loss in the event of fraudulent use of such privileges. If I do not want
telephone redemption or exchange privileges, I have so indicated on this
Application.

- -------------------------------- ----------------------------------------
Signature Date Signature (if joint acct., Date
both must sign)
===============================================================================
For Dealer Use Only

Dealer's Name: Dealer Code:

- ----------------------------------- ----------------------------------

Dealer's Address: Branch Code:

- ----------------------------------- ----------------------------------

- -----------------------------------

Representative: Rep. No.

- ----------------------------------- ----------------------------------
<PAGE>

LOGO
FLAG INVESTORS
QUALITY GROWTH
FUND, INC.
(Class A Shares)
LOGO
No person has been authorized to FLAG INVESTORS
give any information or to make QUALITY GROWTH
representations not contained in FUND, INC.
this Prospectus in connection with (Class A Shares)
any offering made by this Prospectus
and, if given or made, such information
must not be relied upon as having A mutual fund seeking long-term
been authorized by the Fund or its growth of capital through
distributor. This Prospectus does not investment in a professionally
constitute an offering by the Fund or managed portfolio of equity
by its distributor in any jurisdiction securities of high quality growth
in which such offering may not lawfully companies.
be made.

TABLE OF CONTENTS

FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Page
--------
<S> <C>
1. Fee Table .................... 2
2. Financial Highlights ......... 3
3. Investment Program ........... 3
4. Investment Restrictions ...... 5
5. How to Invest in the Fund .... 5
6. How to Redeem Shares ......... 8
7. Telephone Transactions ....... 8
8. Dividends and Taxes .......... 9
9. Management of the Fund ....... 10
10. Investment Advisor ........... 10
11. Distributor .................. 10
12. Custodian, Transfer Agent,
Accounting Services .......... 11
13. Performance Information ...... 11
14. General Information .......... 12
</TABLE>
PROSPECTUS

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

--------------------------

FLAG INVESTORS QUALITY GROWTH FUND, INC.
(Class A Shares)

135 E. Baltimore Street
Baltimore, Maryland 21202

--------------------------

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT
SHOULD BE READ IN CONJUNCTION WITH A PROSPECTUS WHICH MAY BE
OBTAINED FROM YOUR PARTICIPATING DEALER OR SHAREHOLDER SERVICING
AGENT OR BY WRITING OR CALLING ALEX. BROWN & SONS INCORPORATED,
135 EAST BALTIMORE STREET, BALTIMORE, MARYLAND 21202, (800)
767-FLAG.

Statement of Additional Information Dated: February 28, 1995
Relating to the Prospectus Dated: February 28, 1995

<PAGE>

TABLE OF CONTENTS

Page
----
<S> <C>
1. General Information and History............................................... 1

2. Investment Objective and Policies............................................. 1

3. Valuation of Shares and Redemption............................................ 7

4. Federal Tax Treatment of Dividends and
Distributions............................................................... 8

5. Management of the Fund........................................................ 11

6. Investment Advisory and Other Services........................................ 15

7. Distribution of Fund Shares................................................... 16

8. Brokerage..................................................................... 18

9. Capital Stock................................................................. 20

10. Quarterly Reports............................................................. 20

11. Custodian and Transfer Agent ................................................. 20

12. Independent Auditors.......................................................... 21

13. Performance Information....................................................... 21

14. Control Persons and Principal Holders of
Securities.................................................................. 23

15. Financial Statements.......................................................... 23

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APPENDIX - Standard & Poor's Corporation Common Stock Rankings.

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1. GENERAL INFORMATION AND HISTORY

Flag Investors Quality Growth Fund, Inc. (the "Fund") is an
open-end management investment company. Under the rules and regulations of the
Securities and Exchange Commission (the "SEC"), all mutual funds are required to
furnish prospective investors with certain information concerning the activities
of the company being considered for investment. Important information concerning
the Fund is included in the Fund's Prospectus which may be obtained without
charge from Alex. Brown & Sons Incorporated ("Alex. Brown"), 135 East Baltimore
Street, Baltimore, Maryland 21202 (telephone: (800) 767-FLAG) or from
Participating Dealers that offer shares of the Fund ("Shares") to prospective
investors. Prospectuses may also be obtained from Shareholder Servicing Agents.
Some of the information required to be in this Statement of Additional
Information is also included in the Fund's current Prospectus. To avoid
unnecessary repetition, references are made to related sections of the
Prospectus. In addition, the Prospectus and this Statement of Additional
Information omit certain information about the Fund and its business that is
contained in the Registration Statement respecting the Fund and its Shares filed
with the SEC. Copies of the Registration Statement as filed, including such
omitted items, may be obtained from the SEC by paying the charges prescribed
under its rules and regulations.

The Fund was incorporated under the laws of the State of Maryland
on March 2, 1989. The Fund filed a registration statement with the SEC
registering itself as an open-end diversified management investment company
under the Investment Company Act of 1940, as amended (the "Investment Company
Act") and its Shares under the Securities Act of 1933, and commenced operations
on August 1, 1989. The Fund has one oustanding class of shares: Flag Investors
Quality Growth Fund Class A Shares (the "Shares").

Under a license agreement dated August 1, 1989 between the Fund
and Alex. Brown Incorporated, Alex. Brown Incorporated licenses to the Fund the
"Flag Investors" name and logo but retains the rights to the name and logo,
including the right to permit other investment companies to use them.

2. INVESTMENT OBJECTIVE AND POLICIES

The Fund has the investment objective of seeking long-term
capital growth through investments in equity securities of high quality growth
companies. The Fund seeks to achieve this objective by investing in a portfolio
consisting primarily of common stocks of high quality growth companies and in
securities convertible into the common stock of such companies. As described in
the Prospectus, the Fund will invest in companies whose common stocks are ranked
A or better by Standard & Poor's Corporation ("S&P"). (See "Appendix.") The Fund
may also invest in other types of securities, as described in the Prospectus.
There can be no assurance that the Fund's investment objective will be achieved.

As described in the Prospectus, the Fund may invest up to 20% of
its net assets in securities convertible into the common stock of high quality
growth companies. In general, the market value of a convertible security is at
least the higher of its "investment value" (i.e., its value as a fixed-income
security) or its "conversion value" (i.e., the value of the underlying shares of
common stock if the security is converted). As a fixed-income security, a

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convertible security tends to increase in market value when interest rates
decline and tends to decrease in value when interest rates rise. However, the
price of a convertible security also is influenced by the market value of the
security's underlying common stock. Thus, the price of a convertible security
tends to increase as the market value of the underlying stock increases, whereas
it tends to decrease as the market value of the underlying stock declines.
Investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.

In addition, the Fund may write covered call options, purchase
put options on its portfolio securities and stock indexes, enter into repurchase
agreements, make purchases of when-issued securities and loan portfolio
securities as described below.

Covered Call Options

As a means of protecting the Fund's assets against market
declines, the Fund may, to a limited extent, write covered call option contracts
on certain of its securities and purchase call options for the purpose of
terminating its outstanding obligations with respect to securities upon which
call option contracts have been written.

When the Fund writes a call option on securities which it owns,
it gives the purchaser of the option the right to buy the securities at the
price specified in the option (the "Exercise Price") at any time prior to the
expiration of the option. In call options written by the Fund, the Exercise
Price, plus the option premium paid by the purchaser, will almost always be
greater than the market price of the underlying security at the time a call
option is written. If any option is exercised, the Fund will realize the
long-term or short-term gain or loss from the sale of the underlying security
and the proceeds of the sale will be increased by the net premium originally
received. By writing a covered option, the Fund may forego, in exchange for the
net premium, the opportunity to profit from an increase in value of the
underlying security above the Exercise Price. Thus, options will be written when
Investment Company Capital Corp. ("ICC"), the Fund's investment advisor,
believes the security should be held for the long term but expects no
appreciation or only moderate appreciation within the option period. The Fund
also may write covered options on securities that have a current value above the
original purchase price but which, if then sold, would not normally qualify for
a long-term capital gains treatment. Such activities will normally take place
during periods when market volatility is expected to be high.

Only call options which are traded on a national securities
exchange will be written. Currently, call options may be traded on the Chicago
Board Options Exchange and the American, Pacific, Philadelphia and New York
Stock Exchanges. Call options are issued by The Options Clearing Corporation,
which also serves as the clearing house for transactions with respect to
options. The price of a call option is paid to the writer without refund on
expiration or exercise, and no portion of the price is retained by The Options
Clearing Corporation or the exchanges listed above. Writers and purchasers of
options pay the transaction costs, which may include commissions charged or
incurred in connection with such option transactions.

Call options may be purchased by the Fund, but only to terminate
an obligation as a writer of a call option. This is accomplished by making a
closing purchase transaction, that is, the purchase of a call option on the

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same security with the same Exercise Price and expiration date as specified in
the call option which had been written previously. A closing purchase
transaction with respect to calls traded on a national securities exchange has
the effect of extinguishing the obligation of a writer. Although the cost to the
Fund of such a transaction may be greater than the net premium received by the
Fund upon writing the original option, the Directors believe that it is
appropriate for the Fund to have the ability to make closing purchase
transactions in order to prevent its portfolio securities from being purchased
pursuant to the exercise of a call. ICC may also permit the call option to be
exercised. A profit or loss from a closing purchase transaction or exercise of a
call option will be realized depending on whether the amount paid to purchase a
call to close a position, or the price at which the option is exercised, is less
or more than the amount received from writing the call.

Put Options on Portfolio Securities and Stock Indexes

As an additional means of protecting against a decline in market
value of securities held in its portfolio, the Fund may purchase put options on
its portfolio securities and on broad-based stock indexes. The Fund will
purchase only options traded on national securities exchanges.

A put option gives the purchaser of the option the right to sell,
and the writer (seller) the obligation to buy, the underlying security at the
exercise price during the option period. A put option enables the Fund to sell
the underlying security at a predetermined exercise price, thereby limiting the
potential for loss to the Fund below the exercise price to the option premium
paid. If the market price of the underlying security is higher than the exercise
price of the put option, any profit the Fund realizes on the sale of the
underlying security would be reduced by the premium paid for the put option.

When the Fund buys a put option on a stock index, it acquires a
right (in exchange for a premium paid) to receive upon exercise of the option an
amount of cash if the closing level of the stock index upon which the option is
based is less than the exercise price of the option. The amount of cash the Fund
would receive upon the exercise of any put option would equal the difference
between the index closing price and the option exercise price times a specified
multiplier.

The Fund will purchase put options only on "broad-based" indexes.
Therefore, the Fund may purchase put options on the S&P 100 Index and the S&P
500 Index (options which are traded on the Chicago Board Options Exchange), the
Major Market Index and the AMEX Market Value Index (traded on the American Stock
Exchange), the NYSE Composite Index and the NYSE Double Index (traded on the New
York Stock Exchange) and the Value Line Composite Index and the National OTC
Index (traded on the Philadelphia Stock Exchange). Put options on stock indexes
are issued by The Options Clearing Corporation which also serves as a clearing
house for transactions respecting such options. As in the case with options on
stock, the premium paid for a put option on a stock index is paid to the writer
without refund on expiration or exercise, and no portion of the premium or
exercise settlement amount is retained by The Options Clearing Corporation or
any exchange on which the option is traded. Writers and purchasers pay the
transaction costs, which include commissions charged or incurred in connection
with such transactions.

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The Fund will purchase put options on its portfolio securities
and stock indexes as a hedge against declines in the market value of the
securities in its portfolio. If the put option is not sold while it has
remaining value and if the level of the stock index on which it is written is
not less than the exercise price at the expiration of the put option, the Fund
will let the option expire and lose its entire investment in the put option.
Generally, the Fund will not make a profit from the purchase of a put option on
a stock index unless the level of the index on which the option is based has
declined below the exercise price of the option less the premium and transaction
costs paid to acquire the option. In such an event the profit which the Fund
realizes from the exercise of the put option may be offset partly or completely
by a decline in the value of the Fund's equity portfolio.

Certain Risks and Other Factors Respecting Options

Positions in options on stocks and options on stock indexes may
be closed before expiration only by a closing transaction, which may be made
only on an exchange which provides a liquid secondary market for such options.
Although the Fund will write options only when ICC believes a liquid secondary
market will exist on an exchange for options of the same series, there can be no
assurance that a liquid secondary market will exist for any particular stock
option or stock index option.

Possible reasons for the absence of a liquid secondary market on
an exchange for an option include the following: (a) insufficient trading
interest in certain options; (b) restrictions on transactions imposed by an
exchange; (c) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities; (d)
inadequacy of the facilities of an exchange or The Options Clearing Corporation
to handle trading volume; or (e) a decision by one or more exchanges to
discontinue the trading of options or to impose restrictions on types of orders.

Although The Options Clearing Corporation has stated that it
believes (based on forecasts provided by the exchanges on which options are
traded) that its facilities are adequate to handle the reasonably anticipated
volume of options transactions, and although each exchange has advised The
Options Clearing Corporation that it believes that its facilities will also be
adequate to handle reasonably anticipated volume, there can be no assurance that
higher than anticipated trading activity or order flow or other unforeseen
events might not at times render certain of these facilities inadequate and
thereby result in the institution of special trading procedures or restrictions.

The efficacy of the Fund's attempts to purchase put options on
stock indexes as a hedge against declines in the market value of its stock
portfolio depends (among other things) on the degree to which movements of the
stock indexes correlate with price movements of the securities in the Fund's
stock portfolio. Because the Fund must purchase put options on broad-based
indexes the components of which will not necessarily duplicate that of the
Fund's portfolio (to preserve the "qualifying dividends" character of dividends
received on its portfolio stocks), and because any index component stocks likely
will not be held by the Fund in the same relative proportions as they are
weighted in the indexes on which the Fund will buy put options, the correlation
of relative price movements will not be perfect. This imperfect correlation
creates the risk that the price of the securities being hedged against will not
move as much (or in the same directions or at the same times) as that of the
index on which the put option was purchased. As a result, the Fund's equity

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portfolio may decline in value more rapidly than the level of the indexes on
which the Fund has purchased put options, reducing the efficacy of the hedge.

The Fund may write options contracts on its securities up to an
amount not in excess of 10% of the value of its net assets at the time such
options are written. The Fund will not sell the securities against which call
options have been written until after the option period has expired, the option
has been exercised or a closing purchase has been executed.

Repurchase Agreements

The Fund may enter into repurchase agreements with domestic banks
or broker-dealers deemed to be creditworthy by ICC, under guidelines approved by
the Board of Directors. A repurchase agreement is a short-term investment in
which the purchaser (i.e., the Fund) acquires ownership of a debt security and
the seller agrees to repurchase the obligation at a future time and set price,
usually not more than seven days from the date of purchase, thereby determining
the yield during the purchaser's holding period. The value of underlying
securities will be at least equal at all times to the total amount of the
repurchase obligation, including the interest factor. The Fund makes payment for
such securities only upon physical delivery or evidence of book entry transfer
to the account of a custodian or bank acting as agent. The underlying
securities, which in the case of the Fund are securities of the U.S. Government
only, may have maturity dates exceeding one year. The Fund does not bear the
risk of a decline in value of the underlying securities unless the seller
defaults under its repurchase obligation. In the event of a bankruptcy or other
default of a seller of a repurchase agreement, the Fund could experience both
delays in liquidating the underlying securities and loss including (a) possible
decline in the value of the underlying security while the Fund seeks to enforce
its rights thereto, (b) possible subnormal levels of income and lack of access
to income during this period and (c) expenses of enforcing its rights.

When-Issued and Delayed Delivery Securities

From time to time, in the ordinary course of business, the Fund
may make purchases of securities, at the current market value of the securities,
on a forward commitment basis. "When-issued" securities are securities which
have not been issued at the time they are purchased and thus delivery of and
payment for these securities may be delayed for several weeks or more, as
compared to the timing of a normal settlement. Delayed delivery securities are
outstanding securities the settlement for which is delayed beyond a normal
settlement date. When such transactions are negotiated, the price is fixed at
the time of the commitment, but delivery and payment will take place after the
date of the commitment. A segregated account of the Fund, consisting of cash,
cash equivalents or U.S. Government securities or other high quality liquid debt
securities equal at all times to the amount of the when-issued commitments will
be established and maintained by the Fund at the Fund's custodian. Additional
cash or liquid debt securities will be added to the account when necessary.
While the Fund will purchase securities on a forward commitment basis only with
the intention of acquiring the securities, the Fund may sell the securities
before the settlement date, if it is deemed advisable. The securities so
purchased or sold are subject to market fluctuation and no interest accrues to
the purchaser during this period. At the time the Fund makes the commitment to
purchase or sell securities on a forward commitment basis, it will record the
transaction and thereafter reflect the value of such securities purchased or the
proceeds to be received in determining its net asset value. Because subsequent

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changes in the market price will affect the value of the security to be
delivered, the purchase of "when-issued" or delayed delivery securities creates
the potential for profit or loss to the Fund without any investment by the Fund.
At the time of delivery of the securities, their value may be more or less than
the purchase or sale price.

Lending of Portfolio Securities

The Fund may lend portfolio securities to Board-approved brokers
or dealers in corporate or government securities, banks or to other recognized
institutional borrowers of securities, provided that the borrower maintains cash
or equivalent collateral or a letter of credit in the Fund's favor of not less
than 100% of the market value of the securities loaned by marking to market
daily. While the portfolio securities are on loan, the Fund receives from the
borrower an amount equal to any dividend or interest paid on such securities.
The Fund may invest the cash collateral to generate additional income or it may
by agreement with the borrower receive interest income from the borrower. Either
the Fund or the borrower may terminate the loan at any time. The Fund may pay
reasonable administrative and custodial fees in connection with a loan and may
agree to pay a portion of interest generated on the Fund's investment of the
cash or equivalent collateral to the borrower or placing broker. The Fund has no
current intention of lending more than 5% of its portfolio securities during the
coming year.

Investment Restrictions

The Fund's investment program is subject to a number of
investment restrictions which reflect self-imposed standards as well as federal
and state regulatory limitations. The investment restrictions recited below are
in addition to those described in the Fund's Prospectus, and are matters of
fundamental policy and may not be changed without the affirmative vote of a
majority of the Fund's outstanding shares. Accordingly, the Fund will not:

1. Invest in real estate or mortgages on real estate;

2. Purchase or sell commodities or commodities contracts;

3. Borrow in order to increase income; however, the Fund may
borrow on a temporary basis amounts up to 10% of its assets to facilitate
redemption requests which might otherwise require untimely disposition of
portfolio securities or for other temporary purposes and provided that the Fund
will not purchase securities when borrowings exceed 5% of its total assets;

4. Act as an underwriter of securities within the meaning of
the U.S. federal securities laws except insofar as it might be deemed to be an
underwriter upon disposition of certain portfolio securities acquired within the
limitation on purchases of restricted securities;

5. Issue senior securities;

6. Make loans, except that the Fund may purchase or hold debt
instruments in accordance with its investment objectives and policies;

7. Effect short sales of securities;

8. Purchase securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance of transactions);

9. Purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs; or

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10. Invest more than 10% of the value of its net assets in
illiquid securities (as defined under federal or state securities laws),
including repurchase agreements with remaining maturities in excess of seven
days.

The following are investment restrictions that may be changed by
a vote of the majority of the Board of Directors. The Fund will not:

1. Purchase any securities of unseasoned issuers which have
been in operation directly or through predecessors for less than three years;

2. Invest in shares of any other investment company
registered under the Investment Company Act, other than in connection with a
merger, consolidation, reorganization or acquisition of assets;

3. Purchase or retain the securities of any issuer if to the
knowledge of the Fund any officer or Director of the Fund or its investment
advisor owns beneficially more than .5% of the outstanding securities of such
issuer and together they own beneficially more than 5% of the securities of such
issuer;

4. Invest in companies for the purpose of exercising
management or control;

5. Invest in puts or calls, or any combination thereof,
except that the Fund may write covered call options, purchase put options on its
portfolio securities and on stock indexes, and may enter into related closing
transactions in accordance with its investment objectives and policies;

6. Purchase warrants, if by reason of such purchase more
than 5% of the Fund's net assets (taken at market value) will be invested in
warrants, valued at the lower of cost or market. Included within this amount,
but not to exceed 2% of the value of the Fund's net assets, may be warrants
that are not listed on the New York or American Stock Exchange. For the purpose
of the foregoing calculations, warrants acquired by the Fund in units or
attached to securities will be deemed to be without value and therefore not
included within the preceding limitations; or

7. Invest in real estate limited partnerships.

The percentage limitations contained in these restrictions apply
at the time of purchase of securities.

3. VALUATION OF SHARES AND REDEMPTION

Valuation of Shares

The net asset value per Share is determined once daily as of 4:00
p.m. (Eastern Time) each day on which the New York Stock Exchange is open for
business (a "Business Day"). The New York Stock Exchange is open for business on
all weekdays except for the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.

Net asset value per Share is calculated by valuing all assets
held by the Fund, deducting liabilities, and dividing the resulting amount by
the number of then outstanding Shares. For this purpose, portfolio securities
will be given their market value where feasible. If a portfolio security is
traded on a national exchange or on an automated dealer quotation system, such
as NASDAQ, on the valuation date, the last quoted sale price will generally be

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used. Options are valued at the last reported sale price, or if no sales are
reported, at the average of the last reported bid and asked prices. Securities
or other assets for which market quotations are not readily available are valued
at their fair value as determined in good faith under procedures established
from time to time and monitored by the Fund's Board of Directors. Debt
obligations with maturities of 60 days or less are valued at amortized cost
which constitutes fair value as determined by the Fund's Board of Directors.

Redemption

The Fund may suspend the right of redemption or postpone the date
of payment during any period when (a) trading on the New York Stock Exchange is
restricted by applicable rules and regulations of the SEC; (b) the New York
Stock Exchange is closed for other than customary weekend and holiday closings;
(c) the SEC has by order permitted such suspension; or (d) an emergency exists
as determined by the SEC so that valuation of the net assets of the Fund is not
reasonably practicable.

Under normal circumstances, the Fund will redeem Shares by check
as described in the Prospectus. However, if the Board of Directors determines
that it would be in the best interests of the remaining shareholders to make
payment of the redemption price in whole or in part by a distribution in kind of
readily marketable securities from the portfolio of the Fund in lieu of cash, in
conformity with applicable rules of the SEC, the Fund will make such
distributions in kind. If Shares are redeemed in kind, the redeeming shareholder
will incur brokerage costs in later converting the assets into cash. The method
of valuing portfolio securities is described under "Valuation of Shares" and
such valuation will be made as of the same time the redemption price is
determined. The Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act pursuant to which the Fund is obligated to redeem Shares
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Fund during any 90-day period for any one shareholder.

4. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS

The following discussion of federal income tax consequences is
based on the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, as well as administrative changes or
court decisions, may significantly change the conclusions expressed herein, and
may have a retroactive effect with respect to the transactions contemplated
herein.

The following is only a summary of certain additional federal tax
considerations generally affecting the Fund and its shareholders that are not
described in the Fund's Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussion here and in the Fund's Prospectus is not intended as a substitute for
careful tax planning.

Qualification as a Regulated Investment Company

The Fund expects to be taxed as a regulated investment company
("RIC") under Subchapter M of the Code. However, to qualify as a RIC for any
taxable year, the Fund must (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock, securities or foreign currencies,
and other income (including, but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in stocks,
securities or currencies (the "Income Requirement"), and (2) derive less than
30% of its gross income (exclusive of certain gains from designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from gains on the sale or other disposition of any of the following

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investments if such investments are held for less than three months (the
"Short-Short Gain Test"): (a) stock or securities (as defined in Section
2(a)(36) of the Investment Company Act); (b) options, futures or forward
contracts (other than options, futures, or forward contracts on foreign
currencies), and (c) foreign currencies (or options, futures, or forward
contracts on foreign currencies) but only if such currencies (or options,
futures, or forward contracts) are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect to stocks or securities).

In addition, at the close of each quarter of the Fund's taxable
year, at least 50% of the value of its total assets must consist of cash and
cash items, U.S. government securities, securities of other RICs and securities
of other issuers (as to which the Fund has not invested more than 5% of the
value of its total assets in securities of such issuer and as to which the Fund
does not hold more than 10% of the outstanding voting securities of such
issuer), and no more than 25% of the value of its total assets may be invested
in the securities (other than U.S. government securities and securities of other
RICs), of any one issuer or of two or more issuers which the Fund controls and
which are engaged in the same or similar trades or businesses or related trades
or businesses (the "Asset Diversification Test"). The Fund will not lose its
status as a RIC if it fails to meet the Asset Diversification Test solely as a
result of fluctuations in the value of portfolio assets not attributable to a
purchase.

Under Subchapter M, the Fund is exempt from federal income tax on
its net investment income and capital gains which it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (net investment income and the excess of net short term
capital gains over net long term capital losses) for the year (the "Distribution
Requirement") and complies with the other requirements of the Code described
above. Distributions of investment company taxable income made during the
taxable year or, under certain specified circumstances, within twelve months
after the close of the taxable year, will satisfy the Distribution Requirement.
The Distribution Requirement for any year may be waived if a regulated
investment company establishes to the satisfaction of the Internal Revenue
Service that it is unable to satisfy the Distribution Requirement by reason of
distributions previously made for the purpose of avoiding liability for federal
excise tax (discussed below).

Although the Fund intends to distribute substantially all of its
net investment income and capital gains for any taxable (i.e., fiscal) year, the
Fund will be subject to federal income taxation to the extent any such income or
gains are not distributed.

If for any taxable year, the Fund does not qualify as a RIC, all
of its taxable income will be subject to tax at regular corporate rates without
any deduction for distributions to shareholders, and such distributions will
generally be taxable to shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions will
generally be eligible for the 70% dividends received deduction for corporate
shareholders.

Fund Distributions

The Fund anticipates that it will distribute substantially all of
its investment company taxable income for each taxable year. Distributions of
investment company taxable income will be taxable to shareholders as ordinary
income, regardless of whether such distributions are paid in cash or are
invested in additional Shares.

The Fund may either retain or distribute to shareholders its
excess of net long-term capital gains over net short-term capital losses ("net
capital gains"). If such net capital gains are distributed as capital gains,
they are taxable to shareholders as long-term capital gains, regardless of

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the length of time the shareholder has held Shares. Conversely, if the Fund
elects to retain its net capital gains, it will be taxed thereon (except to the
extent of any available capital loss carryovers) at the applicable corporate tax
rate. In this event, it is expected that the Fund also will elect to have
shareholders treated as having received a distribution of such gains, with the
result that they will be required to report such gains on their returns as
long-term capital gains, will receive a tax credit for their allocable share of
federal income tax paid by the Fund on the gains, and will increase the tax
basis for their Shares by an amount equal to 65 percent of the deemed
distribution.

In the case of corporate shareholders, Fund distributions (other
than capital gains distributions) generally qualify for the 70% dividends
received deduction to the extent of the gross amount of "qualifying dividends"
received by the Fund for the year. Generally, and subject to certain
limitations, a dividend will be treated as a "qualifying dividend" if it has
been received from a domestic corporation. For purposes of the alternative
minimum tax and the environmental tax, however, corporate shareholders will
generally be required to take the full amount of any dividend received from the
Fund into account in determining their "alternative minimum taxable income."

The Fund will provide a statement annually to shareholders as to
the federal tax status of distributions paid (or deemed to be paid) by the Fund
during the year, including the amount of dividends eligible for the corporate
dividends received deduction.

Investors should be careful to consider the tax implications of
purchasing Shares just prior to the ex-dividend date of any ordinary income
dividend or capital gains distribution. Those purchasing just prior to an
ordinary income dividend or capital gains distribution will be taxable on the
entire amount of the dividend or distribution received, even though the net
asset value per Share on the date of such purchase reflected the amount of such
dividend or distribution.

Generally, gains or losses on the sale, exchange or redemption of
a Share will be capital gains or losses which will be long-term if the Share is
held for more than one year and will otherwise be short-term. However, if a
shareholder realizes a loss on the sale, exchange or redemption of a Share held
for six months or less and has previously received a capital gains distribution
with respect to the Share (or any undistributed net capital gains of the Fund
with respect to such Share are included in determining the shareholder's
long-term capital gains), the shareholder must treat the loss as a long-term
capital loss to the extent of the amount of the prior capital gains distribution
(or any undistributed net capital gains of the Fund which have been included in
determining such investor's long-term capital gains). In addition, any loss
realized on a sale or other disposition of Shares will be disallowed to the
extent an investor repurchases (or enters into a contract or option to
repurchase) Shares within a period of 61 days (beginning 30 days before and
ending 30 days after the disposition of the Shares). Investors should
particularly note that this loss disallowance rule will apply to Shares received
through the reinvestment of dividends during the 61-day period.

The Fund will be required in certain cases to withhold and remit
to the United States Treasury 31% of distributions payable to any shareholder
who (1) has provided either an incorrect tax identification number or no number
at all, (2) who is subject to backup withholding by the Internal Revenue Service
for failure to properly report payments of interest or dividends, or (3) who has
failed to certify to the Fund that the shareholder is not subject to backup
withholding.

Federal Excise Tax; Miscellaneous Considerations

The Code imposes a nondeductible 4% federal excise tax on
regulated investment companies that do not distribute in each calendar year an
amount equal to 98% of their ordinary income for the calendar year plus 98% of
their capital gain net income for the one-year period ending on October 31 of
such calendar year. The excise tax is imposed on the undistributed part of this

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<PAGE>

required distribution. In addition, the balance of such income must be
distributed during the next calendar year to avoid liability for the excise tax
in that year. For the foregoing purposes, an investment company is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. For this purpose, in determining its
capital gain net income for the one-year period ending on October 31 of such
calendar year, the Fund must reduce its capital gain net income by the amount of
any net ordinary loss for the calendar year (but not below the net capital gain
for the one-year period ending on October 31). Because the Fund intends to
distribute all of its income currently (or to retain, at most its net capital
gains and pay tax thereon), the Fund does not anticipate incurring any liability
for this excise tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments in order to make
sufficient distributions to avoid excise tax liability and, in addition, that
the liquidation of such investments in such circumstances may affect the ability
of the Fund to satisfy the Short-Short Gain Test.

Rules of state and local taxation of dividend and capital gains
distributions from regulated investment companies often differ from the rules
for federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of federal, state and local tax rules
affecting an investment in the Fund.

5. MANAGEMENT OF THE FUND

Directors and Officers

The Directors and executive officers of the Fund and their
principal occupations during the last five years are set forth below. Unless
otherwise indicated, the address of each Director and executive officer is 135
East Baltimore Street, Baltimore, Maryland 21202.

*W. JAMES PRICE, Chairman and Director
6885 North Ocean Boulevard, Apartment #306, Ocean Ridge, Florida
33435-3343. Director, Boca Research, Inc. (computer peripherals). Formerly,
Managing Director, Alex. Brown & Sons Incorporated; Director, CSX
Corporation (transportation and natural resources company), and
PHH Corporation (business services).

*RICHARD T. HALE, Director
Managing Director, Alex. Brown & Sons Incorporated; Chartered Financial
Analyst.

*ROBERT S. KILLEBREW, JR., Director and President
Managing Director, Alex. Brown & Sons Incorporated, 1974-Present; Senior
Portfolio Manager, Brown Asset Management; Certified Financial Analyst.

JAMES J. CUNNANE, Director
CBC Capital, 264 Carlyle Lake Drive, St. Louis, Missouri 63141. Managing
Director, CBC Capital (merchant banking), 1993-Present; Formerly, Senior
Vice-President and Chief Financial Officer, General Dynamics Corporation
(defense)(1989-1993) and Director, The Arch Fund (mutual fund).

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<PAGE>

N. BRUCE HANNAY, Director
201 Condon Lane, Port Ludlow, Washington 98365. Director, Plenum Publishing
Corp.; Formerly, Director, Rohm & Haas Company (diversified chemicals) and
General Signal Corp. (control equipment and systems) and Consultant, SRI
International (nonprofit consulting organization).

JOHN F. KROEGER, Director
P.O. Box 464, 24875 Swan Road - Martingham, St. Michaels, Maryland 21663.
Director/Trustee, AIM Funds; Formerly Consultant, Wendell & Stockel
Associates, Inc. (consulting firm) and General Manager, Shell Oil Company.

LOUIS E. LEVY, Director
26 Farmstead Road, Short Hills, New Jersey 07078. Director, Kimberly-Clark
Corporation (personal consumer products) and Household International
(finance and banking); Chairman of the Quality Control Inquiry Committee,
American Institute of Certified Public Accountants; Formerly, Trustee,
Merrill Lynch Funds for Institutions, 1991-1993; Adjunct Professor,
Columbia University-Graduate School of Business, 1991-1992; Partner, KPMG
Peat Marwick, retired 1990.

EUGENE J. MCDONALD, Director
Duke Management Company, Erwin Square, Suite 1000, 2200 West Main Street,
Durham, North Carolina 27705. President, Duke Management Company
(investments); Executive Vice President, Duke University (education,
research and health care).

HARRY WOOLF, Director
Institute for Advanced Study, South Olden Lane, Princeton, New Jersey
08540. Professor-at-Large Emeritus, Institute for Advanced Study; Director,
Merrill Lynch Cluster C Funds (registered investment companies), ATL and
Spacelabs Medical Corp. (medical equipment) and Family Health International
(nonprofit research and education); Trustee, Reed College (education);
Formerly, Trustee, Rockefeller Foundation.

EDWARD J. VEILLEUX, Vice President
Principal, Alex. Brown & Sons Incorporated; President, Investment Company
Capital Corp. (registered investment advisor); Vice President, Armata
Financial Corp. (registered broker-dealer).

GARY V. FEARNOW, Vice President
Managing Director, Alex. Brown & Sons Incorporated; Manager, Special
Products Department, Alex. Brown & Sons Incorporated.

BRIAN C. NELSON, Vice President and Secretary
Vice President, Alex. Brown & Sons Incorporated, Investment Company Capital
Corp. (registered investment advisor) and Armata Financial Corp.
(registered broker-dealer).

SANDRA J. DOELLER, Vice President
Vice President, Alex. Brown & Sons Incorporated; Equity Trader, Asset
Management Department, Alex. Brown & Sons Incorporated, 1983-Present.

DIANA M. ELLIS, Treasurer
Manager, Portfolio Accounting Department, Investment Company Capital Corp.
(registered investment advisor); Mutual Fund Accounting Department, Alex.
Brown & Sons Incorporated, 1991-Present; Formerly, Accounting Manager,
Downtown Press Inc. (printer), 1987-1991.

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<PAGE>

LAURIE D. DePRINE, Assistant Secretary
Asset Management Department, Alex. Brown & Sons Incorporated, 1991-Present;
Prior thereto, Student, 1989-1991.

- ----------------
* A Director who is an "interested person", as defined in the Investment
Company Act.

Directors and officers of the Fund are also directors and
officers of some or all of the other investment companies managed, administered,
advised or distributed by Alex. Brown or its affiliates. There are currently
thirteen funds in the Flag Investors/ISI Funds and Alex. Brown Cash Reserve
Fund, Inc. fund complex (the "Fund Complex"). Mr. Price serves as a Director of
eight funds in the Fund Complex. Mr. Hale serves as President and Director of
one fund, Vice President of one fund and Director of eleven funds in the Fund
Complex. Mr. Killebrew serves as Director and President of one fund and Director
of another fund in the Fund Complex. Messrs. Cunnane, Hannay, Kroeger, Levy,
McDonald and Woolf serve as Directors. Mr. Veilleux serves as Vice President,
Mr. Nelson serves as Vice President and Secretary, Ms. Ellis serves as Treasurer
and Ms. DePrine serves as Assistant Secretary of each fund in the Fund Complex.
Mr. Fearnow serves as Vice President of eleven funds in the Fund Complex.

Some of the Directors of the Fund are customers of, and have had
normal brokerage transactions with, Alex. Brown in the ordinary course of
business. All such transactions were made on substantially the same terms as
those prevailing at the time for comparable transactions with unrelated persons.
Additional transactions may be expected to take place in the future.

Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers and Directors of the Fund who are officers or
directors of Alex. Brown may be considered to have received remuneration
indirectly. As compensation for his services as director, each Director who is
not an "interested person" of the Fund (as defined in the Investment Company
Act) (a "Non-Interested Director") receives an aggregate annual fee (plus
reimbursement for reasonable out-of-pocket expenses incurred in connection with
his attendance at board and committee meetings) from all Flag Investors/ISI
Funds and Alex. Brown Cash Reserve Fund, Inc. for which he serves. Payment of
such fees and expenses is allocated among all such funds described above in
direct proportion to their relative net assets. For the fiscal year ended
October 31, 1994, Non-Interested Directors' fees attributable to the assets of
the Fund totalled $1,087.

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COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------

Total Compensation
From the Fund
Aggregate Compensation and Fund Complex
From the Fund in the Paid to Directors
Fiscal Year Ended in the Fiscal Year
Name of Person, Position October 31, 1994 Ended October 31, 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>

*W. James Price, Chairman $0 $0

*Richard T. Hale, Director $0 $0

*Robert S. Killebrew, Jr., Director and President $0 $0

**James J. Cunnane, Director $0** Not Applicable**

N. Bruce Hannay, Director $309 $39,000 for service on
11 Boards(1) in Fund Complex

John F. Kroeger, Director $340 $42,900 for service on
11 Boards(1) in Fund Complex

***Louis E. Levy, Director $95*** $9,750 for service on
11 Boards(1) in Fund Complex***

Eugene J. McDonald, Director $309 $39,000 for service on
11 Boards(1) in Fund Complex

Harry Woolf, Director $309 $39,000 for service on
11 Boards(1) in Fund Complex
</TABLE>

- --------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
** Elected to the Board on December 14, 1994.
*** Elected to the Board on June 17, 1994.
(1) Two additional funds in the Fund Complex commenced operations after
October 31, 1994.

The Fund Complex has adopted a Retirement Plan (the "Retirement
Plan") for Directors who are not employees of the Fund, the Fund's Advisor or
their respective affiliates (the "Participants"). After completion of five years
of service, each Participant will be entitled to receive an annual retirement
benefit equal to a percentage of the fee earned by him in his last year of
service. Upon retirement, each Participant will receive annually 10% of such fee
for each year that he served after completion of the first five years, up to a
maximum annual benefit of 50% of the fee earned by him in his last year of
service. The fee will be paid quarterly, for life, by each Fund for which he
serves. The Retirement Plan is unfunded and unvested. Messrs. Hannay, Kroeger
and Woolf have qualified but have not received benefits, and no such benefits
are being accrued for them since they have not yet retired. The Fund has one
Participant, a Director who retired effective December 31, 1994, who has
qualified for the Retirement Plan and who will be paid a quarterly fee of $4,875
by the Fund Complex for the rest of his life. Such fee is allocated to each fund
in the Fund Complex based upon the relative net assets of such fund to the Fund
Complex.

Beginning in December, 1994, any Director who receives fees from
the Fund is permitted to defer a minimum of 50%, or up to all, of his annual
compensation pursuant to a Deferred Compensation Plan.

Code of Ethics

The Board of Directors of the Fund has adopted a Code of Ethics
pursuant to Rule 17j-1 under the Investment Company Act (the "Code"). The Code
significantly restricts the personal investing activities of all employees of
ICC and the directors and officers of Alex. Brown. As described below, the Code
imposes additional, more onerous, restrictions on the Fund's investment
personnel, including the portfolio managers and employees who execute or help
execute a portfolio manager's decisions or who obtain contemporaneous
information regarding the purchase or sale of a security by the Fund.

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<PAGE>

The Code requires that all employees of ICC, any director or
officer of Alex. Brown, and all Non-Interested Directors, preclear any personal
securities investments (with limited exceptions, such as non-volitional
purchases or purchases which are part of an automatic dividend reinvestment
plan). The preclearance requirement and associated procedures are designed to
identify any substantive prohibition or limitation applicable to the proposed
investment. The substantive restrictions applicable to investment personnel
include a ban on acquiring any securities in an initial public offering, a
prohibition from profiting on short-term trading in securities and preclearance
of the acquisition of securities in private placements. Furthermore, the Code
provides for trading "blackout periods" that prohibit trading by investment
personnel and certain other employees within periods of trading by the Fund in
the same security.

6. INVESTMENT ADVISORY AND OTHER SERVICES

Pursuant to an Investment Advisory Agreement between the Fund and
ICC, ICC provides investment advisory services to the Fund, as described in
greater detail below. ICC is a wholly-owned subsidiary of Alex. Brown, the
Fund's distributor. ICC is also the investment advisor to Alex. Brown Cash
Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc., Flag Investors
International Fund, Inc., Flag Investors Emerging Growth Fund, Inc., Flag
Investors Intermediate-Term Income Fund, Inc., Flag Investors Value Builder
Fund, Inc., Flag Investors Maryland Intermediate Tax Free Income Fund, Inc.,
Flag Investors Real Estate Securities Fund, Inc. and Flag Investors Equity
Partners Fund, Inc., which are also distributed by Alex. Brown.

Under the Investment Advisory Agreement, ICC obtains and
evaluates economic, statistical and financial information to formulate and
implement investment policies for the Fund. Any investment program undertaken by
ICC will at all times be subject to policies and control of the Fund's Board of
Directors. ICC will provide the Fund with office space for managing its affairs,
with the services of required executive personnel and with certain clerical and
bookkeeping services and facilities. These services are provided by ICC without
reimbursement by the Fund for any costs. ICC shall not be liable to the Fund or
its shareholders for any act or omission by ICC or any losses sustained by the
Fund or its shareholders except in the case of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duty. As compensation for its
services, ICC receives an annual fee from the Fund, payable monthly, at the
annual rate of .65% of the first $100 million of the Fund's average daily net
assets, .55% of the Fund's average daily net assets in excess of $100 million
but not exceeding $200 million, .50% of the Fund's average daily net assets in
excess of $200 million but not exceeding $300 million and .45% of the Fund's
average daily net assets in excess of $300 million. The services of ICC to the
Fund are not exclusive and ICC is free to render similar services to others.

ICC has agreed to reduce its aggregate fees on a monthly basis
for any fiscal year to the extent required so that the amount of the ordinary
expenses of the Fund (excluding brokerage commissions, interest, taxes and
extraordinary expenses such as legal claims, liabilities, litigation costs and
indemnification related thereto) paid or incurred by the Fund for such fiscal
year does not exceed the expense limitations applicable to the Fund imposed by
the securities laws or regulations of the states in which the Shares are
registered or qualified for sale, as such limitations may be raised or lowered
from time to time. Currently, the most restrictive of such expense limitations
requires ICC to reduce its fees to the extent required so that ordinary expenses
of the Fund (excluding brokerage commissions, interest, taxes, and extraordinary
expenses such as legal claims, liabilities, litigation costs and indemnification
related thereto) do not exceed 2.5% of the first $30 million of the Fund's
average daily net assets, 2.0% of the next $70 million of the Fund's average
daily net assets and 1.5% of the Fund's average daily net assets in excess of
$100 million. In addition, if required to do so by any applicable state
securities laws or regulations, ICC will reimburse the Fund to the extent
required to prevent the expense limitations of any state law or regulation from
being exceeded.

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<PAGE>

The Investment Advisory Agreement has an initial term of two
years and will continue in effect from year to year thereafter if such
continuance is specifically approved at least annually by the Fund's Board of
Directors, including a majority of the Non-Interested Directors who have no
direct or indirect financial interest in such agreements, by votes cast in
person at a meeting called for such purpose, and by a vote of a majority of the
outstanding Shares (as defined under "Capital Stock"). The Investment Advisory
Agreement was most recently approved by the Board of Directors in the foregoing
manner on September 22, 1994. The Fund or ICC may terminate the Investment
Advisory Agreement on sixty days' written notice without penalty. The Investment
Advisory Agreement will terminate automatically in the event of assignment (as
defined in the Investment Company Act). For the fiscal years ended October 31,
1994, October 31, 1993 and October 31, 1992, ICC received fees from the Fund of
$272,124, $425,564 and $440,995 and waived fees of $58,430, $0 and $0,
respectively.

ICC also serves as the Fund's transfer and dividend disbursing
agent. See "Custodian and Transfer Agent."

7. DISTRIBUTION OF FUND SHARES

The Distribution Agreement provides that Alex. Brown has the
exclusive right to distribute Shares either directly or through other
broker-dealers and further provides that Alex. Brown will: (a) solicit and
receive orders for the purchase of Shares; (b) accept or reject such orders on
behalf of the Fund in accordance with the Fund's currently effective prospectus
and transmit such orders as are accepted to the Fund's transfer agent as
promptly as possible; (c) receive requests for redemptions and transmit such
redemption requests to the Fund's transfer agent as promptly as possible; and
(d) respond to inquiries from shareholders concerning the status of their
accounts and the operations of the Fund. Alex. Brown has not undertaken to sell
any specific number of Shares. The Distribution Agreement further provides that,
in connection with the distribution of Shares, Alex. Brown will be responsible
for all of the promotional expenses. The services provided by Alex. Brown to the
Fund are not exclusive, and Alex. Brown is free to provide similar services to
others. Alex. Brown shall not be liable to the Fund or its shareholders for any
act or omission by Alex. Brown or any losses sustained by the Fund or its
shareholders except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.

Alex. Brown and certain broker-dealers ("Participating Dealers")
have entered into Sub-Distribution Agreements under which such broker-dealers
have agreed to process investor purchase and redemption orders and respond to
inquiries from shareholders concerning the status of their accounts and the
operations of the Fund.

As compensation for providing distribution services for the
Shares as described above, Alex. Brown receives an annual fee, paid monthly
equal to .25% of the Fund's average daily net assets of the Shares. Alex. Brown
expects to allocate most of its annual fee to its investment representatives and
up to all of its fee to broker-dealers who enter into Sub-Distribution
Agreements with Alex. Brown. For the fiscal years ended October 31, 1994,
October 31, 1993 and October 31, 1992, Alex. Brown received from the Fund
aggregate fees in the amount of $104,663, $163,679 and $169,642, respectively.
For the same periods Alex. Brown paid from the fees it received approximately
$91,190, $87,382 and $100,586, respectively, as compensation to its investment
representatives and $1,995, $1,017 and $783, respectively, as compensation to
Participating Dealers and financial institutions.

Pursuant to Rule 12b-1 under the Investment Company Act, which
provides that investment companies may pay distribution expenses, directly or
indirectly, only pursuant to a plan adopted by the investment company's board
of directors and approved by its shareholders, the Fund has adopted a Plan of

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<PAGE>

Distribution for the Fund's Shares (the "Plan"). Under the Plan, the Fund pays a
fee to Alex. Brown for distribution and other shareholder servicing assistance
as set forth in the Distribution Agreement, and Alex. Brown is authorized to
make payments out of its fee to its investment representatives and to
participating broker-dealers. The Distribution Agreement including the Plan and
a form of Sub-Distribution Agreement, was approved by the Fund's Board of
Directors, including a majority of the Non-Interested Directors on March 7,
1989, and most recently on September 22, 1994, and by the sole shareholder of
the Fund on March 7, 1989. The Plan was approved by a majority of the
outstanding Shares on August 1, 1990. The Distribution Agreement and the Plan
encompassed therein will remain in effect from year to year as specifically
approved at least annually by the Fund's Board of Directors and by the
affirmative vote of a majority of the Non-Interested Directors by votes cast in
person at a meeting called for such purpose.

In approving the Plan, the Directors concluded, in the exercise
of reasonable business judgment, that there was a reasonable likelihood that the
Plan would benefit the Fund and its shareholders. The Plan will be renewed only
if the Directors make a similar determination in each subsequent year. The Plan
may not be amended to increase materially the fee to be paid pursuant to the
Distribution Agreement without the approval of the shareholders of the Fund. The
Plan may be terminated at any time and the Distribution Agreement may be
terminated at any time upon 60 days' notice, in either case without penalty, by
the vote of a majority of the Fund's Non-Interested Directors or by a vote of a
majority of the Fund's outstanding Shares (as defined under "Capital Stock").
Any Sub-Distribution Agreement may be terminated in the same manner at any time.
The Distribution Agreement and any Sub-Distribution Agreement shall
automatically terminate in the event of assignment.

During the continuance of the Plans, the Fund's Board of
Directors will be provided for their review, at least quarterly, a written
report concerning the payments made under the Plan to Alex. Brown pursuant to
the Distribution Agreement, to Participating Dealers pursuant to any
Sub-Distribution Agreements and to Shareholder Servicing Agents pursuant to
Shareholder Servicing Agreements. Such reports shall be made by the persons
authorized to make such payments. In addition, during the continuance of the
Plan, the selection and nomination of the Fund's Non-Interested Directors shall
be committed to the discretion of the Non-Interested Directors then in office.

In addition, the Fund may enter into Shareholder Servicing
Agreements with certain financial institutions, such as banks, to act as
Shareholder Servicing Agents, pursuant to which Alex. Brown will allocate a
portion of its distribution fee as compensation for such financial institutions'
ongoing shareholder services. Although banking laws and regulations prohibit
banks from distributing shares of open-end investment companies such as the
Fund, according to interpretations by various bank regulatory authorities,
financial institutions are not prohibited from acting in other capacities for
investment companies, such as the shareholder servicing capacities described
above. Should future legislative, judicial or administrative action prohibit or
restrict the activities of the Shareholder Servicing Agents in connection with
the Shareholder Servicing Agreements, the Fund may be required to alter
materially or discontinue its arrangements with the Shareholder Servicing
Agents. Such financial institutions may impose separate fees in connection with
these services and investors should review the Prospectus and this Statement of
Additional Information in conjunction with any such institution's fee schedule.
In addition, state securities laws on this issue may differ from the
interpretations of federal law expressed herein, and banks and financial
institutions may be required to register as dealers pursuant to state law.

Under the Plan, amounts allocated to Participating Dealers and
Shareholder Servicing Agents may not exceed amounts payable to Alex. Brown under
such Plan. Payments under the Plan are made as described above regardless of
Alex. Brown's actual cost of providing distribution services and may be used to

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<PAGE>

pay Alex. Brown's overhead expenses. If the cost of providing distribution
services to the Fund is less than .25% of the Fund's average daily net assets
for any period, the unexpended portion of the distribution fee may be retained
by Alex. Brown. The Plan does not provide for any charges to the Fund for excess
amounts expended by Alex. Brown and, if the Plan is terminated in accordance
with its terms, the obligation of the Fund to make payments to Alex. Brown
pursuant to the Plan will cease and the Fund will not be required to make any
payments past the date the Distribution Agreement terminates.

The Fund paid all costs associated with its organization and
registration under the Securities Act of 1933 and the Investment Company Act.
Except as described elsewhere, the Fund pays or causes to be paid all continuing
expenses of the Fund, including, without limitation: investment advisory and
distribution fees; the charges and expenses of any registrar, any custodian or
depository appointed by the Fund for the safekeeping of cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees payable by
the Fund to federal, state or other governmental agencies; the costs and
expenses of engraving or printing of certificates representing Shares; all costs
and expenses in connection with the registration and maintenance of registration
of the Fund and its Shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and disbursements of counsel);
the costs and expenses of printing, including typesetting and distributing
prospectuses and statements of additional information of the Fund and
supplements thereto to the Fund's shareholders; all expenses of shareholders'
and Directors' meetings and of preparing, printing and mailing proxy statements
and reports to shareholders; fees and travel expenses of Directors and Director
members of any advisory board or committee; all expenses incident to the payment
of any dividend, distribution, withdrawal or redemption, whether in Shares or in
cash; charges and expenses of any outside service used for pricing of the
Shares; fees and expenses of legal counsel, including counsel to the
Non-Interested Directors, and of independent auditors, in connection with any
matter relating to the Fund; a portion of membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance premiums
on property or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any indemnification
related thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly assumed by Alex. Brown or ICC.

The address of Alex. Brown is 135 East Baltimore Street,
Baltimore, Maryland 21202.

8. BROKERAGE

ICC is responsible for decisions to buy and sell securities for
the Fund, for the broker-dealer selection and for negotiation of commission
rates. Purchases and sales of securities on a securities exchange are effected
through broker-dealers who charge a commission for their services. ICC may
direct purchase and sale orders to any broker-dealer, including, to the extent
and in the manner permitted by applicable law, Alex. Brown.

In over-the-counter transactions, orders are placed directly with
a principal market maker and such purchases normally include a mark up over the
bid to the broker-dealer based on the spread between the bid and asked price for
the security. Purchases from underwriters of portfolio securities include a
commission or concession paid by the issuer to the underwriter. On occasion,
certain money market instruments may be purchased directly from an issuer
without payment of a commission or concession. The Fund will not deal with Alex.
Brown in any transaction in which Alex. Brown acts as a principal; that is, an
order will not be placed with Alex. Brown if execution of the trade involves

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<PAGE>

Alex. Brown serving as a principal with respect to any part of the Fund's order,
nor will the Fund buy or sell over-the-counter securities with Alex. Brown
acting as market maker.

If Alex. Brown is participating in an underwriting or selling
group, the Fund may not buy portfolio securities from the group except in
accordance with rules of the SEC. The Fund believes that the limitation will not
affect its ability to carry out its present investment objective.

ICC's primary consideration in effecting securities transactions
is to obtain best price and execution of orders on an overall basis. As
described below, however, ICC may, in its discretion, effect transactions with
broker-dealers that furnish statistical, research or other information or
services which are deemed by ICC to be beneficial to the Fund's investment
program. Certain research services furnished by broker-dealers may be useful to
ICC with clients other than the Fund. Similarly, any research services received
by ICC through placement of portfolio transactions of other clients may be of
value to ICC in fulfilling its obligations to the Fund. No specific value can be
determined for research and statistical services furnished without cost to ICC
by a broker-dealer. ICC is of the opinion that because the material must be
analyzed and reviewed by its staff, its receipt does not tend to reduce
expenses, but may be beneficial in supplementing ICC's research and analysis.
Therefore, it may tend to benefit the Fund by improving ICC's investment advice.
ICC's policy is to pay a broker-dealer higher commissions for particular
transactions than might be charged if a different broker-dealer had been chosen
when, in ICC's opinion, this policy furthers the overall objective of obtaining
best price and execution. Subject to periodic review by the Fund's Board of
Directors, ICC is also authorized to pay broker-dealers other than Alex. Brown
higher commissions on brokerage transactions for the Fund in order to secure
research and investment services described above. The allocation of orders among
broker-dealers and the commission rates paid by the Fund will be reviewed
periodically by the Board.

Subject to the above considerations, the Board of Directors has
authorized the Fund to effect portfolio transactions, on an agency basis,
through Alex. Brown. At the time of such authorization certain policies and
procedures incorporating the standards of Rule 17e-1 under the Investment
Company Act which requires that the commissions paid Alex. Brown must be
"reasonable and fair compared to the commission, fee or other remuneration
received or to be received by other brokers in connection with comparable
transactions involving similar securities during a comparable period of time."
Rule 17e-1 also contains requirements for the review of such transactions by the
Board of Directors and requires ICC to furnish reports and to maintain records
in connection with such reviews. The Distribution Agreement between Alex. Brown
and the Fund does not provide for any reduction in the distribution fee to be
received by Alex. Brown from the Fund as a result of profits from brokerage
commissions on transactions of the Fund effected through Alex. Brown.

For the fiscal years ended October 31, 1994, October 31, 1993 and
October 31, 1992, ICC directed $28,794,449, $28,620,683 and $20,060,267,
respectively of transactions to broker-dealers and paid $51,278, $58,188 and
$31,089, respectively to broker-dealers in related commissions because of
research services provided to the Fund. During such periods the Fund did not pay
brokerage commissions to Alex. Brown.

ICC manages other investment accounts. It is possible that, at
times, identical securities will be acceptable for the Fund and one or more of
such other accounts; however, the position of each account in the securities of
the same issuer may vary and the length of time that each account may choose to
hold its investment in such securities may likewise vary. The timing and amount
of purchase by each account will also be determined by its cash position. If the
purchase or sale of securities consistent with the investment policies of the
Fund or one or more of these accounts is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by ICC. ICC may combine such transactions, in accordance with

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<PAGE>

applicable laws and regulations, in order to obtain the best net price and most
favorable execution. Such simultaneous transactions, however, could adversely
affect the ability of the Fund to obtain or dispose of the full amount of a
security which it seeks to purchase or sell.

9. CAPITAL STOCK

The Fund is authorized to issue 30 million Shares of common
stock, par value $.001 per share. The Board of Directors may increase or
decrease the number of authorized Shares without shareholder approval.

The Fund's Articles of Incorporation provide for the
establishment of separate series and separate classes of shares by the Directors
at any time without shareholder approval. The Fund currently has one Series and
the Board has designated two classes of shares: Flag Investors Quality Growth
Fund Class A Shares and Flag Investors Quality Growth Fund Class B Shares. The
Class B Shares are not currently being offered. Shares of the Fund, regardless
of series or class would have equal rights with respect to voting, except that
with respect to any matter affecting the rights of the holders of a particular
series or class, the holders of each series or class would vote separately. In
general, each such series would be managed separately and shareholders of each
series would have an undivided interest in the net assets of that series. For
tax purposes, each series would be treated as separate entities. Generally, each
class of shares issued by a particular series would be identical to every other
class and expenses of the Fund (other than 12b-1 and any applicable service
fees) would be prorated between all classes of a series based upon the relative
net assets of each class. Any matters affecting any class exclusively would be
voted on by the holders of such class.

Shareholders of the Fund do not have cumulative voting rights,
and therefore the holders of more than 50% of the outstanding Shares voting
together for election of Directors may elect all the members of the Board of
Directors of the Fund. In such event, the remaining holders cannot elect any
members of the Board of Directors of the Fund. There are no preemptive,
conversion or exchange rights applicable to any of the Shares. The issued and
outstanding Shares are fully paid and non-assessable. In the event of
liquidation or dissolution of the Fund, each Share is entitled to its portion of
the Fund's assets (or the assets allocated to a separate series of shares if
there is more than one series) after all debts and expenses have been paid.

As used in this Statement of Additional Information the term
"majority of the outstanding shares" means the vote of the lesser of (i) 67% or
more of the shares present at a meeting, if the holders of more than 50% of the
outstanding shares are present or represented by proxy, or (ii) more than 50% of
the outstanding shares.

10. QUARTERLY REPORTS

The Fund furnishes shareholders with quarterly reports containing
information about the Fund and its operations, including a list of investments
held in the Fund's portfolio and financial statements. The annual financial
statements are audited by the Fund's independent auditors.

11. CUSTODIAN, TRANSFER AGENT AND ACCOUNTING SERVICES

PNC Bank, National Association ("PNC Bank"), Airport Business
Park, 200 Stevens Drive, Lester, Pennsylvania 19113, a subsidiary of PNC Bank
Corp. has been retained to act as custodian of the Fund's investments.
Investment Company Capital Corp., 135 East Baltimore Street, Baltimore,

-20-

<PAGE>

Maryland 21202 (telephone: (800) 553-8080), has been retained to act as the
Fund's transfer and dividend disbursing agent, effective March 1, 1994. PNC Bank
receives such compensation from the Fund for its services as custodian as may be
agreed to from time to time by PNC Bank and the Fund. As compensation for
providing these services, the Fund pays ICC up to $10.50 per account, plus
reimbursement for out-of-pocket expenses. For the period from March 1, 1994
through October 31, 1994, such fees totalled $16,557.

ICC also provides certain accounting services to the Fund under a
Master Services Agreement effective January 1, 1994 between the Fund and ICC.
These services were previously provided by Alex. Brown. As compensation for
these services, ICC receives an annual fee, calculated daily and paid monthly as
shown below. These fees are the same as those paid to Alex. Brown under the
prior accounting services agreement.

Average Net Assets Incremental Annual Accounting Services Fee
------------------ ------------------------------------------

$ 0 - $ 10,000,000 $13,000(fixed fee)
$ 10,000,000 - $ 20,000,000 .100%
$ 20,000,000 - $ 30,000,000 .080%
$ 30,000,000 - $ 40,000,000 .060%
$ 40,000,000 - $ 50,000,000 .050%
$ 50,000,000 - $ 60,000,000 .040%
$ 60,000,000 - $ 70,000,000 .030%
$ 70,000,000 - $ 100,000,000 .020%
$100,000,000 - $ 500,000,000 .015%
$500,000,000 - $1,000,000,000 .005%
over $1,000,000,000 .001%

In addition, the Fund will reimburse ICC for the following
out-of-pocket expenses incurred in connection with ICC's provision of accounting
services under the Master Services Agreement: express delivery services,
independent pricing and storage. ICC also serves as the Fund's investment
advisor. As compensation for providing accounting services for the period from
January 1, 1994 through October 31, 1994, ICC received fees of $30,606.

As compensation for providing accounting services for the period
from November 1, 1993 through December 31, 1993, Alex. Brown received fees of
$7,144.

12. INDEPENDENT AUDITORS

The annual financial statements of the Fund are audited by
Deloitte & Touche LLP. Deloitte & Touche LLP has offices at 117 Campus Drive,
Princeton, New Jersey 08540.

13. PERFORMANCE INFORMATION

For purposes of quoting and comparing the performance of the Fund
to that of other open-end diversified management investment companies and to
stock or other relevant indices in advertisements or in certain reports to
shareholders, performance will be stated in terms of total return rather than in
terms of yield. The total return quotations, under the rules of the SEC, must be
calculated according to the following formula:

n
P(1 + T) = ERV

-21-

<PAGE>

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)

ERV = ending redeemable value at the end of the 1, 5, or 10 year periods
(or fractional portion thereof) of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods.

Under the foregoing formula, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and will
cover one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's registration statement. In calculating the ending
redeemable value, the maximum sales load is deducted from the initial $1,000
payment and all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the prospectus on the reinvestment
dates during the period. "T" in the formula above is calculated by finding the
average annual compounded rate of return over the period that would equate an
assumed initial payment of $1,000 to the ending redeemable value. Any sales
loads that might in the future be made applicable at the time to reinvestments
would be included as would any recurring account charges that might be imposed
by the Fund.

The Fund may also from time to time include in such advertising
total return figures that are not calculated according to the formula set forth
above to compare more accurately the Fund's performance with other measures of
investment return. For example, in comparing the Fund's total return with data
published by Lipper Analytical Services, Inc., CDA Investment Technologies, Inc.
or Morningstar Inc., or with the performance of the Shearson Lehman Government
Corporate Bond Index, the Consumer Price Index, the return on 90 day U.S.
Treasury bills, the Standard and Poor's 500 Stock Index or the Dow Jones
Industrial Average, the Fund calculates its aggregate and average annual total
return for the specified periods of time by assuming the investment of $10,000
in Shares and assuming the reinvestment of each dividend or other distribution
at net asset value on the reinvestment date.

For this alternative computation, the Fund assumes that the
$10,000 invested in Shares is net of all sales charges (as distinguished from
the computation required by the SEC where the $1,000 payment is reduced by sales
charges before being invested in Shares). The Fund will, however, disclose the
maximum sales charges and will also disclose that the performance data do not
reflect sales charges and that inclusion of sales charges would reduce the
performance quoted. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules, and all advertisements containing performance data will include a legend
disclosing that such performance data represent past performance and that the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.

Calculated according to SEC rules, for the one year period ended
September 30, 1994, the ending redeemable value of a hypothetical $1,000 payment
was $962 resulting in a total return for the Shares equal to (3.81%). For the
five year period ended September 30, 1994, the ending redeemable value of a
hypothetical $1,000 payment was $1,249 resulting in a total return for the
Shares equal to 4.55%. For the period from July 31, 1989 (effectiveness of the
Fund's registration statement) through the Fund's calendar quarter ended
September 30, 1994, the ending redeemable value of a hypothetical $1,000 payment
was $1,258, resulting in an average annual total return for the Shares equal to
4.54%.

-22-

<PAGE>

Calculated according to the alternative computation, which
assumes no sales charges and reinvestment of all distributions, for the one year
period ended October 31, 1994, the ending redeemable value of a hypothetical
$10,000 investment in the Shares was $9,914, resulting in a total return equal
to (0.86%). For the five year period ended October 31, 1994, the ending
redeemable value of a hypothetical $10,000 investment in Shares was $13,365,
resulting in a total return equal to 5.97%. For the period from July 31, 1989
(effectiveness of the Fund's registration statement) through the end of the
Fund's most recent fiscal year on October 31, 1994, the ending redeemable value
of a hypothetical $10,000 investment in the Shares was $13,339, resulting in an
average annual total return equal to 5.64%.

The Fund's annual portfolio turnover rate (the lesser of the
value of the purchases or sales for the year divided by the average monthly
market value of the portfolio during the year, excluding U.S. Government
securities and securities with maturities of one year or less) may vary from
year to year, as well as within a year, depending on market conditions. For the
fiscal years ended October 31, 1994, October 31, 1993 and October 31, 1992, the
Fund's portfolio turnover rate was 14%, 20% and 10%, respectively. The Fund does
not anticipate that its portfolio turnover rate will exceed 100% in the fiscal
year ending October 31, 1995.

14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES

As of February 14, 1995, to Fund management's knowledge, the
following persons owned of record or beneficially 5% or more of the Fund's
outstanding Shares:

Name & Address % Ownership
-------------- -----------
T. Rowe Price 12.01%
Trustee for Alex. Brown & Sons Incorporated
Plan 100460
P.O. Box 17215
Baltimore, MD 21203-7215

Alex. Brown & Sons Incorporated 5.43%
P.O. Box 1346
Baltimore, MD 21203-1346

As of February 14, 1995, the Directors and officers as a group
owned less than 1% of the total outstanding Shares.

15. FINANCIAL STATEMENTS

See next page.

-23-

<PAGE>
FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Statement of Net Assets October 31,1994

PERCENT
NO. OF S&P VALUE OF NET
SHARES SECURITY RATING(1) (NOTE A) ASSETS
<C> <S> <C> <C> <C>
COMMON STOCK - 90.2%

BASIC INDUSTRY - 1.3%
13,000 Elf Aquitaine ADS................. NR** $ 476,125 1.3%

BUSINESS SERVICES - 10.3%
13,500 Dun & Bradstreet Corp............. A 791,437 2.2
15,000 International Flavors &
Fragrances. .................... A+ 658,125 1.8
4,000 McGraw-Hill Inc.................. NR** 299,000 0.9
50,000 RPM,Inc.......................... A+ 937,500 2.6
40,000 Sysco Corp....................... A+ 995,000 2.8
3,681,062 10.3
CAPITAL GOODS - 5.2%
14,000 Emerson Electric Co.............. A+ 850,500 2.4
5,000 Illinois Tool Works Inc.......... A+ 224,375 0.6
14,000 W.W.Grainger Inc................. A+ 770,000 2.2
1,844,875 5.2

CONSUMER PRODUCTS - 20.5%
13,000 Cooper Tire & Rubber............. A 320,125 0.9
17,500 CPC International Inc............ A+ 936,250 2.6
10,000 Danaher Corporation.............. B 491,250 1.4
15,000 Gillette Co...................... A 1,115,625 3.1
30,000 McCormick & Co................... A- 592,500 1.7
50,000 Newell Co........................ A+ 1,050,000 3.0
40,000 PepsiCo Inc...................... A+ 1,400,000 3.9
22,500 Procter & Gamble Co.............. A- 1,406,250 3.9
7,312,000 20.5
CONSUMER SERVICES - 10.8%
22,550 Brinker International,Inc.*...... B+ 521,469 1.5
12,000 Clear Channel Communications Inc. B- 604,500 1.7
6,000 Harcourt General*................ A- 222,000 0.6
13,000 Knight-Ridder,Inc................ A- 669,500 1.9
40,000 McDonald's Corp.................. A+ 1,150,000 3.2
7,500 Time Warner,Inc.................. B- 266,250 0.8
10,000 Walt Disney Co................... A 393,750 1.1
3,827,469 10.8
ENERGY - 0.9%
3,500 Mobil Corp....................... B+ 301,000 0.9

FINANCIAL - 11.0%
16,000 American International Group Inc. A+ 1,498,000 4.2
</TABLE>

<PAGE>
FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Statement of Net Assets October 31,1994
(CONTINUED)
<TABLE>
<CAPTION>

PERCENT
NO. OF S&P VALUE OF NET
SHARES SECURITY RATING(1) (NOTE A) ASSETS
<C> <S> <C> <C> <C>

FINANCIAL (CONTINUED)
7,500 CCB Financial.................... A $ 301,875 0.8%
15,000 Mark Twain Bancshares............ A 401,250 1.1
20,640 Marshall & Ilsley Corp........... A 424,410 1.2
12,000 Signet Banking Corp.............. B 408,000 1.2
3,033,535 8.5

FINANCIAL SERVICES - 0.8%
13,000 Centura Banks Inc................ A 286,000 0.8

HEALTH CARE - FACILITIES & SUPPLIES - 9.0%
20,000 Abbott Laboratories.............. A+ 620,000 1.7
7,500 Johnson & Johnson................ A+ 409,687 1.2
30,000 Medtronic Inc.................... A+ 1,563,750 4.4
20,000 Nellcor Inc.*.................... B 620,000 1.7
3,213,437 9.0
REAL ESTATE - 2.0%
8,000 Duke Realty Investments,Inc...... NR** 197,000 0.6
10,000 Health Care Property Investments
Inc............................. NR** 293,750 0.8
12,000 Merry Land and Investment Co.,
Inc............................. NR** 213,000 0.6
703,750 2.0

RETAILING - 14.0%
40,000 Albertson's,Inc.................. A+ 1,200,000 3.4
5,000 Dillard Department Stores,
Class A......................... A+ 132,500 0.4
9,500 Gap,Inc.......................... A 320,625 0.9
26,666 Home Depot Inc................... A- 1,213,303 3.4
22,500 May Department Stores Co......... A+ 846,563 2.4
10,000 Pep Boys......................... A+ 357,500 1.0
38,000 Wal-Mart Stores.................. A+ 893,000 2.5
4,963,491 14.0
TECHNOLOGY - 4.0%
6,000 AMP Inc.......................... A- 453,750 1.3
7,000 E Systems........................ A 290,500 0.8
2,000 Hewlett-Packard.................. A 195,750 0.5
27,500 Pall Corp........................ A 498,437 1.4
1,438,437 4.0
TRANSPORTATION - 1.0%
6,000 Conrail,Inc...................... B- 326,250 1.0

UTILITIES - 1.9%
7,500 Telefonos de Mexico SA ADS....... NR** 413,438 1.2
5,000 American Telephone and Telegraph
Co.............................. A- 275,000 0.7
688,438 1.9
</TABLE>
25
<PAGE>
FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Statement of Net Assets October 31,1994
(CONCLUDED)
<TABLE>
<CAPTION>

PERCENT
PAR VALUE OF NET
(000) SECURITY (NOTE A) ASSETS
<S> <C> <C> <C>
TOTAL COMMON STOCKS
(Cost $23,772,207)............... $32,095,869 90.2%

REPURCHASE AGREEMENT - 11.8%
$4,196 GOLDMAN SACHS & CO. 4.72%
Dated 10/31/94,to be repurchased
on 11/1/94,
collateralized by
U.S.Treasury Strips with
a market value of $4,280,460
(Cost $4,196,000)............... 4,196,000 11.8

TOTAL INVESTMENT IN SECURITIES
(Cost $27,968,207)***............ 36,291,869 102.0

LIABILITIES IN EXCESS OF OTHER
ASSETS, NET...................... (703,245) (2.0)

NET ASSETS........................ $35,588,624 100.0%

NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE
($35,588,624(divided by) 2,823,780
shares outstanding).............. $12.60

MAXIMUM OFFERING PRICE PER SHARE
($12.60 (divided by) .955)....... $13.19
</TABLE>
* NON-INCOME PRODUCING SECURITY.
** NOT RATED.
***ALSO AGGREGATE COST FOR FEDERAL TAX PURPOSES.
(1) THE STANDARD & POOR'S RATING INDICATED IS BELIEVED TO BE THE MOST RECENT
RATING AVAILABLE AS OF OCTOBER 31, 1994. RATINGS OF ISSUES HAVE NOT BEEN
AUDITED BY DELOITTE & TOUCHE LLP

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Statement of Operations For the Year Ended October 31, 1994
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME (NOTE A):
Dividends.......................................... $ 698,824
Interest........................................... 52,644
Total income...................................... 751,468

EXPENSES:
Investment advisory fee (Note B)................... 272,124
Distribution fee (Note B).......................... 104,663
Accounting fee (Note B)............................ 37,750
Transfer agent fees (Note B)....................... 30,878
Legal.............................................. 30,154
Registration fees.................................. 21,256
Custodian fees..................................... 21,249
Audit.............................................. 21,002
Printing and postage............................... 20,000
Organizational expenses (Note A)................... 10,469
Miscellaneous...................................... 7,750
Insurance.......................................... 3,174
Directors' fees.................................... 1,087
Total expenses.................................... 581,556
Less: Fees waived (Note B)......................... (58,430)
Net expenses...................................... 523,126
Net investment income.............................. 228,342

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain from security transactions....... 2,756,297
Net unrealized depreciation of investments......... (3,311,515)
Net loss on investments............................ (555,218)

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS... $ (326,876)
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

27
<PAGE>
FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Statement of Changes in Net Assets
<TABLE>
<CAPTION>

FOR THE YEAR ENDED OCTOBER 31,
1994 1993
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 228,342 $ 339,599
Net realized gain from security transactions............ 2,756,297 2,028,455
Net unrealized depreciation of investments.............. (3,311,515) (6,234,352)
Net decrease in net assets resulting from
operations............................................ (326,876) (3,866,298)

DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income................................... (252,144) (246,076)

CAPITAL SHARE TRANSACTIONS (NOTE C):
Proceeds from sale of 186,518 and 561,316 shares,
respectively........................................... 2,353,889 7,430,754
Value of 17,687 and 17,147 shares issued in
reinvestment of dividends,respectively................ 223,393 216,249
Cost of 1,533,631 and 1,828,755 shares
repurchased, respectively............................. (19,485,894) (23,306,875)
Total decrease in net assets derived from
capital transactions................................... (16,908,612) (15,659,872)
Total decrease in net assets............................ (17,487,632) (19,772,246)

NET ASSETS:
Beginning of year....................................... 53,076,256 72,848,502
End of year............................................. $35,588,624 $53,076,256

</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

<PAGE>

FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>

YEAR ENDED OCTOBER 31
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value at beginning of year... $ 12.78 $13.48 $12.11 $9.54 $9.98

INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.03 0.07 0.09 0.16 0.22
Net realized and unrealized gain/(loss)
on investments....................... (0.14) (0.72) 1.39 2.60 (0.44)
Total from Investment Operations....... (0.11) (0.65) 1.48 2.76 (0.22)

LESS DISTRIBUTIONS:
Dividends from net investment
income............................... (0.07) (0.05) (0.11) (0.19) (0.22)
Net asset value at end of year....... $ 12.60 $12.78 $13.48 $12.11 $9.54

TOTAL RETURN:.......................... (0.86)% (4.82)% 12.28% 29.11% (2.30)%

RATIOS TO AVERAGE NET ASSETS:
Expenses............................. 1.25%(1) 1.25% 1.23% 1.25%(1) 1.25%(1)
Net investment income................ 0.55%(2) 0.52% 0.71% 1.45%(2) 2.21%(2)

SUPPLEMENTAL DATA:
Net assets at end of year (000):..... $35,589 $53,076 $72,849 $58,938 $37,015
Portfolio turnover rate.............. 14% 20% 10% 13% 21%
</TABLE>
(1)WITHOUT THE WAIVER OF ADVISORY FEES (NOTE B), THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WOULD HAVE BEEN 1.39%, 1.52%, AND 1.52% FOR THE YEARS
ENDED OCTOBER 31, 1994, 1991, AND 1990, RESPECTIVELY.
(2)WITHOUT THE WAIVER OF ADVISORY FEES (NOTE B), THE RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN .41%, 1.17%, AND 1.94% FOR THE
YEARS ENDED OCTOBER 31, 1994, 1991, AND 1990, RESPECTIVELY..

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

29
<PAGE>

FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Notes to Financial Statements

A. SIGNIFICANT ACCOUNTING POLICIES - Flag Investors Quality Growth
Fund,Inc.(the "Fund") was organized as a Maryland Corporation on March 2, 1989
and commenced operations August 1,1989. The Fund is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company seeking long-term growth of capital through investments in a
professionally managed portfolio of equity securities of high quality growth
companies. Significant accounting policies are as follows:

SECURITY VALIDATION - Portfolio securities are valued on the basis of their
last sale price. In the event that there are no sales or the security is not
listed, it is valued at its latest bid quotation. Short-term obligations with
maturities of 60 days or less are valued at amortized cost.

REPURCHASE AGREEMENTS - The Fund may agree to purchase money market
instruments subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller, under a repurchase agreement, will be required
on a daily basis to maintain the value of the securities subject to the
agreement at not less than the repurchase price. The agreement is conditioned
upon the collateral being deposited under the Federal Reserve book entry system.

FEDERAL INCOME TAX - No provision is made for federal income taxes as it
is the Fund's intention to qualify as a regulated investment company and to
make requisite distributions to the shareholders which will be sufficient to
relieve it from all or substantially all federal income and excise taxes. The
Fund's policy is to annually distribute to shareholders substantially all of
its taxable net investment income and net realized capital gains, if any.

Effective November 1, 1993, the Fund adopted Statement of Position 93-2;
Determination, Disclosure and Financial Statement Presentation of Income,
Capital Gain and Return of Capital Distributions by Investment Companies.
Adoption of this standard results in the reclassification to paid-in-capital of
permanent differences between tax and financial reporting of net investment
income and realized gain/(loss). As of November 1, 1993, the cumulative effect
of such differences was not material.

OTHER - Security transactions are accounted for on the trade date and the
cost of investments sold or redeemed is determined by use of the specific
identification method for both financial reporting and income tax purposes.
Interest income is recorded on an accrual basis and includes, when applicable,
the pro rata amortization of premiums and accretion of discounts. Dividend
income is recorded on the ex-dividend date.

Costs incurred by the Fund in connection with its organization,
registration, and the initial public offering of shares were deferred and
amortized on the straight-line method over a five-year period beginning on the
date on which the Fund commenced its investment activities.

B. INVESTMENT ADVISORY FEES, TRANSACTIONS WITH AFFILIATES AND OTHER FEES -
Investment Company Capital Corp. ("ICC"), formerly Flag Investors Management
Corp., a subsidiary of Alex. Brown & Sons Incorporated ("Alex. Brown"), serves
as the Fund's investment advisor. As compensation for its advisory services, ICC
receives from the Fund an annual fee, calculated daily and paid monthly, at
the annual rate of .65% of the first $100 million of the Fund's average daily
net assets;.55% of the next $100 million of the Fund's average daily net assets;
.50% of the next $100 million of the Fund's average daily net assets; and .45%
of the Fund's average daily net assets exceeding $300 million.

<PAGE>

FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Notes to Financial Statements (CONTINUED)

ICC has agreed to reduce its aggregate fees so that ordinary expenses of the
Fund for any fiscal year do not exceed 1.25% of average daily net assets. For
the year ended October 31, 1994, ICC voluntarily waived $58,430.

As compensation for its accounting services, ICC receives from the Fund an
annual fee, calculated daily and paid monthly,from the Fund's average daily
net assets. Prior to December 31, 1993, Alex. Brown provided these services. ICC
and Alex. Brown received $37,750 for accounting services for the year ended
October 31, 1994.

Effective March 1,1994, ICC provides transfer agent services to the Fund. As
compensation for its transfer agent services, ICC receives from the Fund a per
account fee, calculated and paid monthly. ICC received $16,557 for transfer
agent services for the period ended October 31, 1994. Prior to March 1, 1994,
PFPC, Inc. provided these services.

As compensation for providing distribution services, Alex. Brown receives
from the Fund an annual fee, calculated daily and paid monthly, at an annual
rate equal to .25% of the Fund's average daily net assets. For the year ended
October 31, 1994, distribution fees aggregated $104,663.

C. CAPITAL SHARE TRANSACTIONS - The Fund is authorized to issue up to 30
million shares of $.001 par value capital stock.

D. INVESTMENT TRANSACTIONS - Purchases and sales of investment securities,
other than short-term obligations, aggregated $5,715,900 and $22,026,550,
respectively, for the year ended October 31,1994.

At October 31,1994,aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $8,472,220
and aggregate gross unrealized depreciation for all securities in which there is
an excess of tax cost over value was $148,558.

E. NET ASSETS - At October 31, 1994, net assets consisted of:
<TABLE>
<CAPTION>

<S> <C>
Paid-in-capital........... $24,692,871
Undistributed net
investment income....... 78,283
Undistributed net realized
gains from security
transactions............ 2,493,808
Unrealized appreciation of
investments............. 8,323,662
$35,588,624
</TABLE>

31
<PAGE>

FLAG INVESTORS
QUALITY GROWTH FUND, INC.

Independent Auditor's Report

The Board of Directors and Shareholders,
Flag Investors Quality Growth Fund,Inc.

We have audited the accompanying statement of net assets of Flag Investors
Quality Growth Fund, Inc. as of October 31, 1994, the related statements of
operations for the year then ended and changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1994 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights
present fairly, in all material respects, the financial position of Flag
Investors Quality Growth Fund, Inc. as of October 31, 1994, the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP

Princeton, New Jersey
December 16,1994

<PAGE>

APPENDIX

Standard & Poor's
Earnings and Dividend Rankings for Common Stocks

The investment process involves assessment of various factors -- such as product
and industry position, corporate resources and financial policy -- with results
that make some common stocks more highly esteemed than others. In this
assessment, Standard & Poor's believes that earnings and dividend performance is
the end result of the interplay of these factors and that, over the long run,
the record of this performance has a considerable bearing on relative quality.
The rankings, however, do not pretend to reflect all of the factors, tangible or
intangible, that bear on stock quality.

Relative quality of bonds or other debt, that is, degrees of protection for
principal and interest, called creditworthiness, cannot be applied to common
stocks, and therefore rankings are not to be confused with bond quality ratings
which are arrived at by a necessarily different approach.

Growth and stability of earnings and dividends are deemed key elements in
establishing Standard & Poor's earnings and dividend rankings for common stocks,
which are designed to capsulize the nature of this record in a single symbol. It
should be noted, however, that the process also takes into consideration certain
adjustments and modifications deemed desirable in establishing such rankings.

The point of departure in arriving at these rankings is a computerized scoring
system based on per-share earnings and dividend records of the most recent ten
years -- a period deemed long enough to measure significant time segments of
secular growth, to capture indications of basic change in trend as they develop,
and to encompass the full peak-to-peak range of the business cycle. Basic scores
are computed for earnings and dividends, then adjusted as indicated by a set of
predetermined modifiers for growth, stability within long-term trend, and
cyclicality. Adjusted scores for earnings and dividends are then combined to
yield a final score.

Further, the ranking system makes allowance for the fact that, in general,
corporate size imparts certain recognized advantages from an investment
standpoint. Conversely, minimum size limits (in terms of corporate sales volume)
are set for the various rankings, but the system provides for making exceptions
where the score reflects an outstanding earnings-dividend record.

The final score for each stock is measured against a scoring matrix determined
by analysis of the scores of a large and representative sample of stocks. The
range of scores in the array of this sample has been aligned with the following
ladder of rankings:

A+ Highest B+ Average C Lowest
A High B Below Average D in Reorganization
A- Above Average B- Lower

NR signifies no ranking because of insufficient data or because
the stock is not amenable to the ranking process.

The positions as determined above may be modified in some
instances by special considerations, such as natural disasters, massive strikes,
and non-recurring accounting adjustments.

A ranking is not a forecast of future market price performance,
but is basically an appraisal of past performance of earnings and dividends, and
relative current standing. These

A-1

<PAGE>

rankings must not be used as market recommendations; a high-score stock may at
times be so overpriced as to justify its sale, while a low-score stock may be
attractively priced for purchase. Rankings based upon earnings and dividend
records are no substitute for complete analysis. They cannot take into account
potential effects of management changes, internal company policies not yet fully
reflected in the earnings and dividend record, public relations standing, recent
competitive shifts, and a host of other factors that may be relevant to
investment status and decision.

A-2

<PAGE>

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits.

List all financial statements and exhibits filed as part of the Registration
Statement.

(a) Financial statements:

(1) Included in Part A of the Registration Statement:

- Financial Highlights for the fiscal years ended October
31, 1994, October 31, 1993, October 31, 1992, October
31, 1991 and October 31, 1990; and for the period from
August 1, 1989 (commencement of operations) to October
31, 1989

(2) Included in Part B of the Registration Statement:

- Statement of Net Assets as of October 31, 1994

- Statement of Operations for the year ended October 31,
1994

- Statement of Changes in Net Assets for the years ended
October 31, 1994 and October 31, 1993

- Financial Highlights for the years ended October 31,
1994, October 31, 1993, October 31, 1992, October 31,
1991 and October 31, 1990

- Notes to Financial Statements

- Independent Auditors' Report

(3) All required financial statements are included in Parts A
and B of the Registration Statement. All other financial
statements and schedules are inapplicable.

(b) Exhibits:

(1) (a)(1) Articles of Incorporation.

(b)(6) Form of Registrant's Articles Supplementary.

(2)(2) By-Laws.

(3) Not Applicable.

(4)(1) Specimen Security with respect to Flag Investors Quality
Growth Fund Shares.

(5)(2) Investment Advisory Agreement between Registrant and
Investment Company Capital Corp.

C-1

<PAGE>

(6) (a)(2) Distribution Agreement between Registrant and
Alex. Brown & Sons Incorporated with respect to
Flag Investors Quality Growth Fund Shares.

(b)(2) Sub-Distribution Agreement between Alex. Brown &
Sons Incorporated and Participating Dealers with
respect to Flag Investors Quality Growth Fund
Shares.

(c)(2) Shareholder Servicing Agreement between Registrant
and Shareholder Servicing Agents with respect to
Flag Investors Quality Growth Fund Shares.

(7) Not Applicable.

(8)(2) Custodian Agreement between Registrant and Provident
National Bank.

(9)(3) Form of Master Services Agreement between Registrant and
Investment Company Capital Corp.

(10)(4) Opinion of Counsel.

(11) Consent of Deloitte & Touche LLP.

(12) Not Applicable.

(13)(1) Form of Subscription Agreement re: initial $100,000
capital.

(14) Not Applicable.

(15)(2) Distribution Plan with respect to Flag Investors Quality
Growth Fund Shares.

(16)(5) Schedule of Computation of Performance Quotations
(unaudited).

(24) (a)(3) Powers of Attorney.

(b)(6) Powers of Attorney for Louis E. Levy and James J.
Cunnane.
(27) Financial Data Schedule.

- -----------
(1) Incorporated by reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288), filed with
the Securities and Exchange Commission on June 21, 1989.

(2) Incorporated by reference to Registrant's Registration Statement on Form
N-1A (Registration No. 33-28288), filed with the Securities and Exchange
Commission on April 26, 1989.

(3) Incorporated by reference to Post-Effective Amendment No. 6 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288), filed with
the Securities and Exchange Commission on February 23, 1994.

C-2

<PAGE>

(4) Incorporated by reference to Pre-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288), filed with
the Securities and Exchange Commission on July 31, 1989.

(5) Incorporated by reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288), filed with
the Securities and Exchange Commission on February 15, 1990.

(6) Incorporated by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288), filed with
the Securities and Exchange Commission on February 27, 1995.

Item 25. Persons Controlled by or under Common Control with Registrant.

Furnish a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant and as to each such person
indicate (1) if a company, the state or other sovereign power under the laws of
which it is organized, and (2) the percentage of voting securities owned or
other basis of control by the person, if any, immediately controlling it.

None.

Item 26. Number of Holders of Securities.

State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders of each
class of securities of the Registrant.

The following information is given as of July 1, 1995:

Title of Class Number of Record Holders
-------------- ------------------------
Common Stock 0

Item 27. Indemnification.

State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the Registrant
is insured or indemnified in any manner against any liability which may be
incurred in such capacity, other than insurance provided by any director,
officer, affiliated person or underwriter for their own protection.

Section 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, as amended, included as Exhibit 1 to this Registration Statement
and incorporated herein by reference, provide as follows:

Section 1. To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation
Law, no director or officer of the Corporation shall have any liability to
the Corporation or its stockholders for damages. This limitation on
liability applies to events occurring at the time a person serves as a

C-3

<PAGE>

director or officer of the Corporation whether or not such person is a
director or officer at the time of any proceeding in which liability is
asserted.

Section 2. The Corporation shall indemnify and advance expenses to its
currently acting and its former directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses to
its officers to the same extent as its directors and to such further extent
as is consistent with law. The Board of Directors of the Corporation may
make further provision for indemnification of directors, officers,
employees and agents in the By-Laws of the Corporation or by resolution or
agreement to the fullest extent permitted by the Maryland General
Corporation Law.

Section 3. No provision of this Article VIII shall be effective to protect
or purport to protect any director or officer of the Corporation against
any liability to the Corporation or its security holders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office.

Section 4. References to the Maryland General Corporation Law in this
Article VIII are to such law as from time to time amended. No further
amendment to the Charter of the Corporation shall decrease, but may expand,
any right of any person under this Article VIII based on any event,
omission or proceeding prior to such amendment.

Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1940 Act and
is, therefore, unenforceable. In the event of a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person in connection with
the securities being registered) the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1940 Act and will be governed by
the final adjudication of such issue. In the absence of a determination by a
court of competent jurisdiction, the determinations that indemnification against
such liabilities is proper, and advances can be made, are made by a majority of
a quorum of the disinterested, non-party directors of the Fund, or an
independent legal counsel in a written opinion, based on review of readily
available facts.

Item 28. Business and Other Connections of Investment Advisor.

Describe any other business, profession, vocation or employment of a
substantial nature in which the investment advisor of the Registrant, and each
director, officer or partner of any such investment advisor, is or has been, at
any time during the past two fiscal years, engaged for his own account or in the
capacity of director, officer, employee, partner or trustee.

During the last two fiscal years, no director or officer of Investment
Company Capital Corp., the Registrant's investment advisor, has engaged in any
other business profession, vocation or employment of a substantial nature other
than that of the business of investment management and, through affiliates,
investment banking.

C-4

<PAGE>

Item 29. Principal Underwriters.

(a) Alex. Brown & Sons Incorporated acts as distributor for Alex. Brown
Cash Reserve Fund, Inc., Flag Investors Telephone Income Fund, Inc.,
Flag Investors International Fund, Inc., Flag Investors Emerging
Growth Fund, Inc., the Flag Investors Total Return U.S. Treasury Fund
Shares of Total Return U.S. Treasury Fund, Inc., the Flag Investors
Managed Municipal Fund Shares of Managed Municipal Fund, Inc., Flag
Investors Intermediate-Term Income Fund, Inc., Flag Investors Value
Builder Fund, Inc., Flag Investors Maryland Intermediate Tax Free
Income Fund, Inc., Flag Investors Real Estate Securities Fund, Inc.
and Flag Investors Equity Partners Fund, Inc., all registered open-end
management investment companies.

(b)

Position and
Names and Principal Position with Offices Offices with
Business Address* and Principal Underwriter Registrant
------------------- ------------------------- -------------
<S> <C> <C>

Alvin B. Krongard Chief Executive Officer, Director None

Mayo A. Shattuck III President, Director None

Benjamin Howell Griswold, IV Chairman, Director None

Beverly L. Wright Chief Financial Officer and None
Treasurer

Robert F. Price Secretary and General Counsel None

</TABLE>

- ------------
* 135 East Baltimore Street
Baltimore, Maryland 21202

Item 30. Location of Accounts and Records.

With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act [15 U.S.C. 80a-30(a)] and the Rules
[17 CFR 270.31a-1 to 31a-3] promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book or
other document.

Alex. Brown & Sons Incorporated (Registrant's distributor) and Investment
Company Capital Corp. (Registrant's investment advisor, transfer agent and
dividend disbursing agent), 135 E. Baltimore Street, Baltimore, Maryland 21202,
will maintain physical possession of each such account, book or other document
of the Registrant, except for those accounts, books and documents pursuant to
Rule 31a- 1(b)(1) maintained by the Registrant's custodian, PNC Bank, 17th &
Chestnut Streets, Philadelphia, Pennsylvania 19103.

C-5

<PAGE>

Item 31. Management Services.

Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or Part B of this Form (because the
contract was not believed to be of interest to a purchaser of securities of the
Registrant) under which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom, for the last three
fiscal years.

See Exhibit 8.

Item 32. Undertakings.

Furnish the following undertakings in substantially the following form in
all initial Registration Statements filed under the 1933 Act:

(a) Not Applicable.

(b) Not Applicable.

(c) A copy of the Registrant's latest Annual Report to Shareholders is
available upon request, without charge by contacting Registrant at
(800) 767-3524.

C-6

<PAGE>

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 8 to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned thereto duly authorized in the City of Baltimore,
in the State of Maryland, on the 13th day of July, 1995.

FLAG INVESTORS QUALITY GROWTH
FUND, INC.

By: * /s/ Robert S. Killebrew, Jr.
---------------------------------
Robert S. Killebrew, Jr.
President and Director

Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons in
the capacities on the date(s) indicated:

* /s/ W. James Price Director July 13, 1995
- ------------------------------ -------------
W. James Price Date

* /s/ Richard T. Hale Director July 13, 1995
- ------------------------------ -------------
Richard T. Hale Date

* /s/ Robert S. Killebrew, Jr. President and July 13, 1995
- ------------------------------ Director -------------
Robert S. Killebrew, Jr. Date

* /s/ James J. Cunnane Director July 13, 1995
- ------------------------------ -------------
James J. Cunnane Date

* /s/ N. Bruce Hannay Director July 13, 1995
- ------------------------------ -------------
N. Bruce Hannay Date

* /s/ John F. Kroeger Director July 13, 1995
- ------------------------------ -------------
John F. Kroeger Date

* /s/ Louis E. Levy Director July 13, 1995
- ------------------------------ -------------
Louis E. Levy Date

* /s/ Eugene J. McDonald Director July 13, 1995
- ------------------------------ -------------
Eugene J. McDonald Date

* /s/ Harry Woolf Director July 13, 1995
- ------------------------------ -------------
Harry Woolf Date

/s/ Diana M. Ellis Chief Financial July 13, 1995
- ------------------------------ and Accounting -------------
Diana M. Ellis Officer Date

*By: /s/ Brian C. Nelson
------------------------
Brian C. Nelson
Attorney-In-Fact

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description Page No.
- ------- ----------- --------
<S> <C> <C>
(1) (a) Registrant's Articles of Incorporation are hereby incorporated by
reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288),
filed with the Securities and Exchange Commission on June 21, 1989.

(b) Registrant's Form of Articles Supplementary is hereby incorporated
by reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288),
filed with the Securities and Exchange Commission on February 27,
1995.

(2) Registrant's By-Laws are hereby incorporated by reference to
Registrant's Registration Statement on Form N-1A (Registration
No. 33-28288), filed with the Securities and Exchange Commission on
April 26, 1989.

(3) None.

(4) Registrant's Specimen Security with respect to Flag Investors Quality
Growth Fund Shares is hereby incorporated by reference to Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-28288), filed with the Securities and Exchange
Commission on June 21, 1989.

(5) Investment Advisory Agreement between Registrant and Investment Company
Capital Corp. is hereby incorporated by reference to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288),
filed with the Securities and Exchange Commission on April 26, 1989.

(6) (a) Registrant's Distribution Agreement between Registrant and Alex.
Brown & Sons Incorporated with respect to Flag Investors Quality
Growth Fund Shares is hereby incorporated by reference to
Registrant's Registration Statement on Form N-1A (Registration
No. 33-28288), filed with the Securities and Exchange Commission
on April 26, 1989.

(b) Registrant's Sub-Distribution Agreement between Alex. Brown & Sons
Incorporated and Participating Broker-Dealers is hereby
incorporated by reference to Registrant's Registration Statement
on Form N-1A (Registration No. 33-28288), filed with the Securities
and Exchange Commission on April 26, 1989.

(c) Registrant's Shareholder Servicing Agreement between Registrant and
Shareholder Servicing Agents is hereby incorporated by reference to
Registrant's Registration Statement on Form N-1A (Registration
No. 33-28288), filed with the Securities and Exchange Commission
on April 26, 1989.

(7) None.

</TABLE>

<PAGE>

Exhibit
Number Description Page No.
- ------- ----------- --------
<S> <C> <C>

(8) (a) Custodian Agreement between Registrant and Provident National Bank
is hereby incorporated by reference to Registrant's Registration
Statement on Form N-1A (Registration No. 33-28288), filed with the
Securities and Exchange Commission on April 26, 1989.

(9) Form of Master Services Agreement between Registrant and Investment
Company Capital Corp. is hereby incorporated by reference to
Post-Effective Amendment No. 6 to Registrant's Registration Statement
on Form N-1A (Registration No. 33-28288), filed with the Securities
and Exchange Commission on February 23, 1994.

(10) Opinion of Counsel is hereby incorporated by reference to Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-1A
(Registration No. 33-28288), filed with the Securities and Exchange
Commission on July 31, 1989.

Ex-99.B(11) Consent of Deloitte & Touche LLP, filed herewith.

(12) None.

(13) Subscription Agreements between Registrant and Investors are hereby
incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration
No. 33-28288), filed with the Securities and Exchange Commission on
June 21, 1989.

(14) None.

(15) Registrant's Distribution Plan with respect to Flag Investors Quality
Growth Fund Shares is hereby incorporated by reference to Registrant's
Registration Statement on Form N-1A (Registration No. 33-28288),
filed with the Securities and Exchange Commission on April 26, 1989.

(16) Schedule of Computation of Performance Quotations (unaudited) is hereby
incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A (Registration
No. 33-28288), filed with the Securities and Exchange Commission on
February 15, 1990.

(24) (a) Powers of Attorney are hereby incorporated by reference to
Post-Effective Amendment No. 6 to Registrant's Registration
Statement on Form N-1A (Registration No. 33-28288), filed with the
Securities and Exchange Commission on February 23, 1994.

(b) Powers of Attorney for Louis E. Levy and James J. Cunnane, are
hereby incorporated by reference to Post-Effective Amendment No. 7
to Registrant's Registration Statement on Form N-1A (Registration
No. 33-28288), filed with the Securities and Exchange Commission on
February 27, 1995.

EX-27 Financial Data Schedule, filed herewith.
</TABLE>

<PAGE>
Exhibit 11

CONSENT OF INDEPENDENT AUDITORS

Flag Investors Quality Growth Fund, Inc.

We consent to the use in Post-Effective Amendment No. 8 to Registration
Statement No. 33-28288 of our report dated December 16, 1994, appearing in
the Statement of Additional Information, which is a part of such Registration
Statement, and to the references to us under the captions "Financial
Highlights" and "General Information-Reports" appearing in the Prospectus,
which also is a part of such Registration Statement, and under the caption
"Independent Auditors" appearing in the Statement of Additional Information.

/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Princeton, New Jersey
July 11, 1995

<ARTICLE> 6
<CIK> 0000849886
<NAME> FLAG INVESTORS QUALITY GROWTH FUND, INC.

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-END> OCT-31-1994
<INVESTMENTS-AT-COST> 27,968,207
<INVESTMENTS-AT-VALUE> 36,291,869
<RECEIVABLES> 991,267
<ASSETS-OTHER> 7,120
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 37,290,256
<PAYABLE-FOR-SECURITIES> 1,462,382
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 239,250
<TOTAL-LIABILITIES> 1,701,632
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,692,871
<SHARES-COMMON-STOCK> 2,823,780
<SHARES-COMMON-PRIOR> 4,153,206
<ACCUMULATED-NII-CURRENT> 78,283
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,493,808
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,323,662
<NET-ASSETS> 35,588,624
<DIVIDEND-INCOME> 698,824
<INTEREST-INCOME> 52,644
<OTHER-INCOME> 0
<EXPENSES-NET> 523,126
<NET-INVESTMENT-INCOME> 228,342
<REALIZED-GAINS-CURRENT> 2,756,297
<APPREC-INCREASE-CURRENT> (3,311,515)
<NET-CHANGE-FROM-OPS> (326,876)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 252,144
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 186,518
<NUMBER-OF-SHARES-REDEEMED> 1,533,631
<SHARES-REINVESTED> 17,687
<NET-CHANGE-IN-ASSETS> (17,487,632)
<ACCUMULATED-NII-PRIOR> 102,085
<ACCUMULATED-GAINS-PRIOR> (262,489)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 272,124
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 581,556
<AVERAGE-NET-ASSETS> 41,865,278
<PER-SHARE-NAV-BEGIN> 12.78
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.14)
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.60
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>