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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
FLAG INVESTORS EMERGING GROWTH FUND, INC.
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LETTERHEAD OF FLAG INVESTORS FUNDS]
July 17, 1997
Dear Shareholders:
The enclosed proxy statement relates to a special meeting of the Shareholders of
the Flag Investors Emerging Growth Fund, Inc. (the "Fund").
On April 6, 1997, Alex. Brown Incorporated, the parent corporation of the Fund's
investment advisor, entered into a definitive agreement to merge into a
subsidiary of Bankers Trust New York Corporation. Due to the pending change in
control of Alex. Brown Incorporated, we are asking you to approve a new
investment advisory agreement. The same advisor will continue to provide this
service to your Fund. The new agreement is substantially the same as the
current agreement.
This proposal has been unanimously approved by your Fund's Board of Directors,
who recommend you vote for the proposal. Your vote is important and your
participation in the governance of the Fund does make a difference.
Sincerely,
/s/ Truman T. Semans
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Truman T. Semans
Chairman
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FLAG INVESTORS EMERGING GROWTH FUND, INC.
One South Street
Baltimore, Maryland 21202
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
AUGUST 14, 1997
TO THE SHAREHOLDERS OF FLAG INVESTORS EMERGING GROWTH FUND, INC.
You are cordially invited to a special meeting (the "Special Meeting") of
the shareholders of Flag Investors Emerging Growth Fund, Inc. (the "Fund") on
Thursday, August 14, 1997, at 11:30 a.m. Eastern Standard Time at the offices of
Investment Company Capital Corp., in The Conference Room on the 30th Floor of
The Alex. Brown Building, One South Street, Baltimore, Maryland 21202, for the
purpose of considering the proposal set forth below and for the transaction of
such other business as may be properly brought before the Special Meeting:
PROPOSAL: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp.
Only shareholders of the Fund at the close of business on June 25, 1997 are
entitled to notice of, and to vote at, this meeting or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD AS SOON AS
POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
Scott J. Liotta
Vice President and Secretary
Dated: July 17, 1997
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
One South Street
Baltimore, Maryland 21202
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PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
AUGUST 14, 1997
This Proxy Statement is furnished by the Board of Directors of Flag
Investors Emerging Growth Fund, Inc. (the "Fund") in connection with the
solicitation of proxies for use at the special meeting of shareholders of the
Fund to be held on Thursday, August 14, 1997, at 11:30 a.m. Eastern Standard
Time, or at any adjournment thereof (the "Special Meeting"), at the offices of
Investment Company Capital Corp., in The Conference Room on the 30th Floor of
The Alex. Brown Building, One South Street, Baltimore, Maryland 21202. It is
expected that the Notice of Special Meeting, the Proxy Statement and a Proxy
Card will be mailed to shareholders on or about July 17, 1997.
The primary purpose of the Special Meeting is to permit the Fund's
shareholders to consider a new Investment Advisory Agreement to take effect
following the consummation of the transactions contemplated by an Agreement and
Plan of Merger, dated as of April 6, 1997 (the "Merger"), between Bankers Trust
New York Corporation and Alex. Brown Incorporated. This action is necessary to
avoid the possibility that the Merger could result in assignment, and therefore,
termination of the Fund's current Investment Advisory Agreement. It is
contemplated that, after the Merger, Investment Company Capital Corp. ("ICC" or
the "Advisor") will remain the investment advisor to the Fund. The Fund's new
Investment Advisory Agreement is identical to the Fund's current Investment
Advisory Agreement, except for the dates of execution, effectiveness and initial
term; the deletion of provisions relating to state expense limits that have been
preempted by federal law; and a proviso to the effect that the obligation of ICC
to make its personnel available to serve as officers of the Fund is subject to
applicable banking regulations.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please date and sign the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before 11:30 a.m. Eastern Standard Time on Thursday, August
14, 1997. No postage is required if the Proxy is mailed in the United States. If
the accompanying Proxy is executed properly and returned, shares represented by
it will be voted at the Special Meeting in accordance with the instructions on
the Proxy. However, if no instructions are specified, shares will be voted FOR
the new Investment Advisory Agreement (the "Proposal"). All shareholders of the
Fund are entitled to vote on the Proposal. Shareholders may revoke their Proxies
at any time prior to the time they are voted by giving written notice to the
Secretary of the Fund, by delivering a subsequently dated Proxy or by attending
and voting at the Special Meeting.
The close of business on June 25, 1997, has been fixed as the record date
(the "Record Date") for the determination of shareholders entitled to notice of,
and to vote at, the Special Meeting and at any adjournment thereof. On the
Record Date, the Fund had 4,788,975.424 shares outstanding, consisting of
2,958,453.739 Flag Investors Emerging Growth Fund Class A Shares, 132,433.245
Flag Investors Emerging Growth Fund Class B Shares, 557,299.196 Flag Investors
Emerging Growth Fund Institutional Shares, and 1,140,789.244 Alex. Brown Capital
Advisory and Trust Emerging Growth Shares. Each full share will be entitled to
one vote at the Special Meeting and each fraction of a share will be entitled to
the fraction of a vote equal to the proportion of a full share represented by
the fractional share.
The expenses of the Special Meeting will be borne by ICC and will include
reimbursement to brokerage firms and others for expenses in forwarding Proxy
solicitation materials to beneficial owners. The solicitation of Proxies will be
largely by mail, but may include telephonic, telegraphic or oral communication
by employees and officers of ICC.
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The Fund will furnish to shareholders, without charge, a copy of the Annual
Report for its fiscal year ended October 31, 1996, and a copy of the Semi-Annual
Report for the period ended April 30, 1997, upon request. The Annual and
Semi-Annual Reports of the Fund may be obtained by written request to the Fund,
One South Street, Baltimore, Maryland 21202 or by calling (800) 767-FLAG.
The Fund is registered as an open-end, diversified management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended.
The Fund is incorporated under the laws of the State of Maryland. Under
Maryland General Corporation Law, a corporation registered under the 1940 Act,
such as the Fund, is not required to hold an annual meeting in any year in which
the election of Directors is not required to be acted upon under the 1940 Act.
The Fund has availed itself of this provision and achieves cost savings by
eliminating printing costs, mailing charges and other expenses involved in
routine annual meetings.
Even with the elimination of routine annual meetings, the Board of
Directors may call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act, or as required or permitted by the
Articles of Incorporation and By-Laws of the Fund. As described above,
shareholder meetings will be held, in compliance with the 1940 Act, to elect
Directors under certain circumstances. Shareholder meetings may also be held by
the Fund for other purposes, including to approve investment policy changes, a
new investment advisory agreement or other matters requiring shareholder action
under the 1940 Act. In addition, Maryland General Corporation Law provides for
the calling of a special meeting by the written request of shareholders holding
at least 25% of the shares entitled to vote at the meeting.
PROPOSAL: To approve or disapprove a new Investment Advisory Agreement between
the Fund and Investment Company Capital Corp.
Investment Company Capital Corp. is the Fund's investment advisor. ICC is
an indirect subsidiary of Alex. Brown Incorporated. Alex. Brown Incorporated
(together with its affiliates, "Alex. Brown") has entered into an Agreement and
Plan of Merger with Bankers Trust New York Corporation (together with its
affiliates, "Bankers Trust") under which Alex. Brown Incorporated would merge
with and into a subsidiary of Bankers Trust New York Corporation. Under the
terms of the Merger, shares of Alex. Brown Incorporated to be exchanged had an
aggregate value of approximately $1.7 billion at the time the Merger was
announced. As of December 31, 1996, Bankers Trust New York Corporation was the
seventh largest bank holding company in the United States with total assets of
approximately $120 billion. Its subsidiary, Bankers Trust Company, is a
worldwide merchant bank dedicated to serving the needs of corporations,
governments, financial institutions and private clients through a global network
of over 120 offices in more than 40 countries. Investment management is a core
business of Bankers Trust, built from its roots as a trust bank founded in 1903.
Bankers Trust Company is one of the nation's largest and most experienced
investment managers with approximately $227 billion in assets under management
globally.
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has promulgated
rules and regulations pursuant to its authority under the BHCA (and taking into
consideration certain provisions of the National Banking Act of 1933 generally
referred to as the Glass-Steagall Act) that govern the relationship between bank
holding company affiliates and mutual funds, such as the Fund, under which
certain regulatory approvals will be necessary. However, after the Merger, it is
expected that ICC will continue to serve as the Advisor.
The Advisor does not anticipate any reduction in the quality of services
now provided the Fund and does not expect that the Merger will result in any
material changes in the business of the Advisor or in the manner in which the
Advisor renders services to the Fund. Nor does the Advisor anticipate that the
Merger or any ancillary transactions will have any adverse effect on its ability
to fulfill its obligations under the new Investment Advisory Agreement or to
operate its business in a manner consistent with past business practice.
The Investment Advisory Agreements
In anticipation of the Merger, the Directors of the Fund, including the
Directors who are not (i) parties to the new Investment Advisory Agreement
between the Fund and ICC (the "New Advisory Agreement") or (ii)
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interested persons of any such party (the "Disinterested Directors"),
unanimously approved the New Advisory Agreement. The form of the New Advisory
Agreement is identical to the Current Advisory Agreement, except for the dates
of execution, effectiveness and initial term; the deletion of provisions
relating to state expense limits that have been preempted by federal law; and a
proviso to the effect that the obligation of ICC to make its personnel available
to serve as officers of the Fund is subject to applicable banking regulations.
The holders of a majority of the outstanding voting securities (within the
meaning of the 1940 Act) of the Fund are being asked to approve the New Advisory
Agreement. See "The New Advisory Agreement" below.
The Current Advisory Agreement
The current Investment Advisory Agreement between ICC and the Fund, dated
December 30, 1987 (the "Current Advisory Agreement"), was last approved by the
shareholders of the Fund on June 20, 1989. The Current Advisory Agreement was
most recently approved by the Board of Directors, including a majority of the
Disinterested Directors, on October 1, 1996.
The Current Advisory Agreement provides that ICC, in return for its fee,
will (a) formulate and implement continuing programs for the purchase and sale
of securities and regularly report thereon to the Fund's Board of Directors; (b)
in accordance with the Fund's investment objectives, policies and investment
restrictions reflected in the Fund's prospectus, determine what issuers and
securities shall be represented in the Fund's portfolio and in what proportion
and regularly report them to the Fund's Board of Directors; (c) provide the
Board of Directors of the Fund on a regular basis with financial reports with
respect to the Fund's portfolio investments and analyses of the Fund's
operations and the operations of comparable investment companies; (d) obtain and
evaluate pertinent information about significant developments and economic,
statistical and financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the portfolio of the Fund, and whether
concerning the individual issuers whose securities are included in the Fund's
portfolio or the activities in which they engage, or with respect to securities
which the Advisor considers desirable for inclusion in the Fund's portfolio; (e)
take, on behalf of the Fund, all actions which appear to the Fund necessary to
carry into effect such purchase and sale programs and supervisory functions as
aforesaid, including the placing of orders for the purchase and sale of
portfolio securities; (f) supervise and manage all aspects of the Fund's
operations; (g) provide the Fund with such executive, administrative and
clerical services as are deemed advisable by the Fund's Board of Directors; (h)
arrange, but not pay for, the periodic updating of prospectuses and supplements
thereto, proxy materials, tax returns, reports to the Fund's shareholders and
reports to and filings with the SEC and state Blue Sky authorities; (i) provide
the Fund with, or obtain, adequate office space and all necessary equipment and
services, including telephone service, heat, utilities, stationery, supplies and
similar items for any offices as are deemed advisable by the Fund's Board of
Directors; (j) be responsible for the maintenance of such accounts, books and
records as may be required by law or may, in the judgment of the Board of
Directors, be appropriate for the orderly transaction of the Fund's business,
provided that, if the Fund enters into a contract with any third party for the
maintenance of any such accounts, books and records, the Advisor shall be
responsible for supervision of and coordination with such third party on behalf
of the Fund but shall not be responsible for the costs related to such contract
or for the performance of such contract by such third party; and (k) supervise,
on behalf of the Fund, the operations of the Fund's transfer and dividend
disbursing agent. Subject to the approval of the Board and the Fund's
shareholders, ICC may delegate certain of its duties enumerated above to a
sub-advisor.
The Current Advisory Agreement provides for compensation to ICC calculated
daily and paid at the end of each calendar month at the annual rate of .85% of
the Fund's average daily net assets, provided that, if necessary, the Advisor's
annual compensation will be reduced so that the Fund's total expenses for that
year do not exceed 1.50% of the Fund's average daily net assets.
The Current Advisory Agreement provides that ICC will furnish, at its
expense and without cost to the Fund, the services of one or more officers of
the Fund to the extent that such officers may be required by the Fund for the
proper conduct of its affairs; travel expenses of employees and officers of the
Advisor; office space, equipment, research services and supplies; expenses of
maintaining accounts, books, and records, except to the extent such services are
provided by a third party pursuant to a contract with the Fund. The Fund assumes
and shall pay or cause to be paid all other expenses of the Fund, including,
without limitation: the fees of the Advisor, any sub-advisor and Alex. Brown;
the charges and expenses of any registrar, any custodian appointed by the Fund
for the safe-keeping of its cash, portfolio securities and other property, and
any stock transfer, dividend or accounting agent or agents appointed by the Fund
and any accounting services provider appointed by the Fund;
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brokers' commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and corporate fees payable by the Fund
to federal, state or other governmental agencies; the costs and expenses of
engraving or printing of stock certificates representing shares of the Fund; all
costs and expenses in connection with maintenance of registration of the Fund
and its shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the expenses
of printing, including typesetting, and distributing prospectuses and statements
of additional information of the Fund and supplements thereto to the Fund's
shareholders (other than those expenses assumed by the Advisor); all expenses of
shareholders' and Directors' meetings and of preparing, printing and mailing of
proxy statements and reports to shareholders; fees and travel expenses of
Directors or Director members of any advisory board or committee other than such
Directors or members who are "interested persons" within the meaning of Section
2(a)(19) of the 1940 Act; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's shares;
charges and expenses of legal counsel, including counsel to the Directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund and
of independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
The services of ICC are not to be deemed exclusive, and ICC is free to
render investment advisory and other services to others, including other
investment companies, and to engage in other activities, so long as its services
under the agreement are not impaired thereby. ICC's officers or directors may
serve as officers or Directors of the Fund, the Fund's officers or Directors may
serve as officers or directors of ICC, to the extent permitted by law, and
officers and directors of ICC are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers, trustees or directors of any other firm, trust or
corporation, including other investment companies.
Following the expiration of its initial two-year term, the Current Advisory
Agreement continues in force and effect from year to year, provided that such
continuance is approved at least annually by the Fund's Board of Directors or by
the vote of a majority of the outstanding voting securities of the Fund, and by
the affirmative vote of a majority of the Directors who are not parties to the
agreement or "interested persons" of a party to the agreement (other than as
Directors of the Fund) by votes cast in person at a meeting specifically called
for such purpose.
The Current Advisory Agreement may be terminated, without the payment of
any penalty, by the Fund upon a vote of the Fund's Board of Directors, by a vote
of a majority of the Fund's outstanding voting securities or by ICC, upon 60
days' written notice to the other party. The agreement automatically terminates
in the event of its assignment.
The Current Advisory Agreement obligates ICC, in the performance of its
duties under the agreement, to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under the agreement, but ICC shall not be
liable for any act or omission which does not constitute willful misfeasance,
bad faith or gross negligence on the part of ICC or its officers, directors or
employees, or reckless disregard by ICC of its duties under the agreement. The
Current Advisory Agreement also provides that any claims by ICC against the Fund
may be satisfied only from the assets of the Fund, and no shareholders,
Directors or officers of the Fund may be held personally liable or responsible
for any obligations arising out of such Agreement.
The New Advisory Agreement
The Board of Directors approved the proposed New Advisory Agreement between
the Fund and ICC on June 17, 1997, the form of which is attached as Exhibit A.
The form of the proposed New Advisory Agreement is identical to the Current
Advisory Agreement, except for the dates of execution, effectiveness and initial
term; the deletion of provisions relating to state expense limits that have been
preempted by federal law; and a proviso to the effect that the obligation of ICC
to make its personnel available to serve as officers of the Fund is subject to
applicable banking regulations.
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The investment advisory fee as a percentage of net assets payable by the
Fund will be the same under the New Advisory Agreement as under the Current
Advisory Agreement. If the investment advisory fee under the New Advisory
Agreement had been in effect for the Fund's most recently completed fiscal year,
the advisory fee to which ICC would have been entitled would have been identical
to that to which it was entitled under the Current Advisory Agreement.
The Board held a meeting on June 17, 1997, at which the Board, including
the Disinterested Directors, unanimously approved the New Advisory Agreement for
the Fund and recommended the New Advisory Agreement for approval by the
shareholders of the Fund. The New Advisory Agreement would take effect upon the
later to occur of (i) the obtaining of shareholder approval or (ii) the closing
of the Merger. The New Advisory Agreement will continue in effect for an initial
two-year term and thereafter for successive annual periods as long as such
continuance is approved in accordance with the 1940 Act.
In evaluating the New Advisory Agreement, the Board based its determination
primarily on its conclusion that there would be a high degree of continuity of
services to the Fund and took into account that the Fund's Current Advisory
Agreement and the New Advisory Agreement, including their terms relating to the
services to be provided thereunder by ICC and the fees and expenses payable by
the Fund, are substantially identical.
The Board was assured on behalf of Alex. Brown and Bankers Trust that they
intend to comply with the requirements of Section 15(f) of the 1940 Act. Section
15(f) provides a non-exclusive safe harbor for an investment advisor to an
investment company or any of its affiliated persons to receive any amount or
benefit in connection with a change in control of the investment advisor that
results in an assignment so long as two conditions are met. First, for a period
of three years after the change of control, at least 75% of the board members of
the investment company must not be interested persons of the acquired advisor or
the acquiror (Alex. Brown and Bankers Trust, respectively, in this case). The
Fund would be in compliance with this provision of Section 15(f). Second, an
"unfair burden" must not be imposed upon the investment company as a result of
such transaction or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" is defined in Section 15(f) to
include any arrangement during the two-year period after the Merger whereby the
investment advisor, or any interested person of any such advisor, receives or is
entitled to receive any compensation, directly or indirectly, from the
investment company or its shareholders (other than fees for bona fide investment
advisory or other services) or from any person in connection with the purchase
or sale of securities or other property to, from or on behalf of the investment
company (other than bona fide ordinary compensation as principal underwriter for
such investment company). Alex. Brown and Bankers Trust are not aware of any
express or implied term, condition, arrangement or understanding that would
impose an "unfair burden" on the Fund as a result of the Merger. Alex. Brown and
Bankers Trust have agreed that they, and their affiliates, will take no action
that would have the effect of imposing an "unfair burden" on the Fund as a
result of the Merger.
The Board also considered the terms of the Merger and the possible effects
of the Merger upon the Advisor's organization and upon the ability of the
Advisor to provide advisory services to the Fund. The Board considered the
skills and capabilities of the Advisor in this regard and the representations of
Alex. Brown and Bankers Trust that no material change was planned in the current
management or facilities of the Advisor.
The Board was also informed of the resources of Bankers Trust that could be
made available to the Advisor and the Fund. Although the Board focused primarily
on the continuity of services to the Fund, the Directors did consider Bankers
Trust's experience as advisor and service provider to a family of mutual funds.
They also received preliminary information about Bankers Trust's ability to
provide other services, including custody.
The Board also considered the effect on the Fund of ICC becoming an
affiliated person of Bankers Trust. In particular, the Board considered the
potential impact of banking laws and steps that might be necessary to secure
Federal Reserve Board approval of the Merger. In this regard, the Board also
considered the likelihood that the Fund will have to engage an independent
principal underwriter after the Merger but that Alex. Brown & Sons Incorporated
will continue to be able to provide services to its clients in connection with
shareholder accounts with the Fund. The Board also considered the fact that the
continued ability of Alex. Brown personnel to serve as Directors or officers of
the Fund was subject to Federal Reserve Board approval. Following the Merger,
the 1940 Act will prohibit or impose certain conditions on the ability of the
Fund to engage in certain
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transactions with Bankers Trust. For example, absent exemptive relief, the Fund
will be prohibited from entering into securities transactions in which Alex.
Brown or Bankers Trust acts as a principal. Currently the Fund is prohibited
from entering into transactions in which Alex. Brown acts as principal. The Fund
will also have to satisfy certain conditions in order to engage in securities
transactions in which Alex. Brown or Bankers Trust is acting as an underwriter.
The Fund is already required to satisfy such conditions when engaging in
transactions in which Alex. Brown is acting as an underwriter. In this
connection, management of the Advisor represented to the Board that it does not
believe these prohibitions or conditions will have a material effect on the
management or performance of the Fund.
The Board also considered that the costs of the Special Meeting would be
borne by ICC.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the
Disinterested Directors, unanimously approved the New Advisory Agreement with
respect to the Fund and voted to recommend its approval to the shareholders of
the Fund.
In the event that shareholders of the Fund do not approve the New Advisory
Agreement, the Current Advisory Agreement will remain in effect and the Board
will take such action as it deems in the best interest of the Fund and its
shareholders, which may include proposing that shareholders approve an agreement
in lieu of the New Advisory Agreement. If the Merger is not consummated, ICC
will continue to serve as investment advisor of the Fund pursuant to the terms
of the Current Advisory Agreement.
Investment Company Capital Corp.
ICC is a registered investment advisor that had under management as of May
31, 1997, approximately $5.5 billion, including assets of the Fund and the
assets of ICC's other clients. ICC is an indirect subsidiary of Alex. Brown
Incorporated. The principal address of each is One South Street, Baltimore,
Maryland 21202.
The following information is provided for each Director and the Principal
Executive Officer of ICC.
Directors and Principal Executive Officer of
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Investment Company Capital Corp.
--------------------------------
<TABLE>
<CAPTION>
Name and Position
with the Advisor Address Principal Occupation
- -------------------------- --------------------------- ----------------------------
<S> <C> <C>
Charles W. Cole, Jr. One South Street Managing Director, Alex.
Chairman Baltimore, Maryland 21202 Brown & Sons Incorporated
Richard T. Hale One South Street Managing Director, Alex.
Director and President Baltimore, Maryland 21202 Brown & Sons Incorporated
David L. Hopkins One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated
Alvin B. Krongard One South Street Chairman, Chief Executive
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated
Margaret-Mary V. Preston One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated
Robert F. Price One South Street Managing Director and
Director Baltimore, Maryland 21202 General Counsel, Alex.
Brown & Sons Incorporated
Mayo A. Shattuck III One South Street President, Chief Operating
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated
Truman T. Semans One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated
Beverly L. Wright One South Street Managing Director and Chief
Director Baltimore, Maryland 21202 Financial Officer, Alex.
Brown & Sons Incorporated
</TABLE>
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For the fiscal year ended October 31, 1996, the Fund paid ICC aggregate
fees of $381,086 for advisory services, $36,629 for transfer agency services and
$41,911 for accounting services provided to the Fund. For the fiscal year ended
October 31, 1996, the Fund paid Alex. Brown & Sons Incorporated an aggregate
distribution fee of $100,191.
As of May 31, 1997, to Fund Management's knowledge as provided by the
Directors and officers of the Fund, the following Directors and officers of the
Fund beneficially owned shares of Alex. Brown Incorporated. Mr. Semans, Chairman
and a Director of the Fund and a Director of ICC, beneficially owned 25,433
shares of Alex. Brown Incorporated. Mr. Cole, a Director of the Fund and
Chairman and a Director of ICC, beneficially owned 4,356 shares of Alex. Brown
Incorporated. Mr. Hale, a Director of the Fund and President and a Director of
ICC, beneficially owned 90,470 shares of Alex. Brown Incorporated. Ms. Sandra J.
Doeller, a Vice President of the Fund, beneficially owned 592 shares of Alex.
Brown Incorporated. Mr. Charles A. Reid, a Vice President of the Fund,
beneficially owned 1,875 shares of Alex. Brown Incorporated. Mr. Edward J.
Veilleux, a Vice President of the Fund and Executive Vice President of ICC,
beneficially owned 200 shares of Alex. Brown Incorporated. Mr. Joseph A.
Finelli, Treasurer of the Fund and a Vice President of ICC, beneficially owned
33 shares of Alex. Brown Incorporated. Ms. Laurie D. Collidge, Assistant
Secretary of the Fund, beneficially owned 48 shares of Alex. Brown Incorporated.
Other Funds Advised by ICC with Similar Investment Objectives
A number of funds in the Flag Investors family of funds invest primarily in
equity securities and accordingly seek capital appreciation, either in and of
itself, or along with income. However, each of these funds employs widely
differing investment policies and styles in seeking these objectives. The
following table provides comparative information on fees paid to ICC pursuant to
the advisory agreements in effect for such funds.
<TABLE>
<CAPTION>
Management Fee
Assets (as a percentage of
Fund (000's) average daily net assets)
- -------------------------------------------------------- ----------- ---------------------------
<S> <C> <C>
Flag Investors Equity Partners Fund, Inc. .............. $170,815/1 .78% (net of fee waivers)/1
Flag Investors International Fund, Inc. ............... $ 12,930/2 .00% (net of fee waivers)/2
Flag Investors Real Estate Securities Fund, Inc. ...... $ 25,111/3 .00% (net of fee waivers)/3
Flag Investors Telephone Income Fund, Inc. ............ $550,604/4 .66%/4
Flag Investors Value Builder Fund, Inc. ............... $345,426/5 .82%/5
</TABLE>
- ------------
1 Information given for the fiscal year ended May 31, 1997. Absent fee waivers,
Management Fees would be .91% of the fund's average daily net assets.
2 Information given for the fiscal year ended October 31, 1996. Absent fee
waivers, Management Fees would be .75% of the fund's average daily net assets.
3 Information given for the fiscal year ended December 31, 1996. Absent fee
waivers, Management Fees would be .65% of the fund's average daily net assets.
4 Information given for the fiscal year ended December 31, 1996.
5 Information given for the fiscal year ended March 31, 1997.
Shareholder Approval of the New Advisory Agreement
Approval of the New Advisory Agreement requires the affirmative vote of a
majority of the outstanding shares of the Fund. For purposes of this proposal,
"majority of the outstanding shares" means the vote of (i) 67% or more of the
Fund's outstanding shares present at the Special Meeting, if the holders of more
than 50% of the outstanding shares of the Fund are present or represented by
proxy, or (ii) more than 50% of the Fund's outstanding shares, whichever is
less.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW ADVISORY AGREEMENT.
7
<PAGE>
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about the Fund's current Directors and principal executive
officers, including their names, positions with the Fund, principal occupations
or employment during the past five years, the number of shares of the Fund
beneficially owned and the percentage of shares beneficially owned as of May 31,
1997, is set forth below. As of May 31, 1997, Directors and officers of the Fund
as a group beneficially owned an aggregate of 124,259 shares, representing 2.59%
of the shares of the Fund.
<TABLE>
<CAPTION>
Shares
Business Experience During the Beneficially
Name and Position Past Five Years Owned as of
With the Fund (including all directorships) May 31, 1997** Percentage
- ------------------------ --------------------------------------------- ---------------- -----------
<S> <C> <C> <C>
Truman T. Semans* Managing Director, Alex. Brown & Sons 21,269 shares ***
Director and Chairman Incorporated; Director, Investment
Company Capital Corp. (registered
investment advisor). Formerly, Vice
Chairman, Alex. Brown & Sons
Incorporated. Director of 10 funds in the
Fund Complex.
Charles W. Cole, Jr.* Vice Chairman, Alex. Brown Capital None ***
Director Advisory & Trust Company (registered
investment advisor); Chairman,
Investment Company Capital Corp.
(registered investment advisor); Director,
Provident Bankshares Corporation and
Provident Bank of Maryland. Formerly,
President and Chief Executive Officer,
Chief Administrative Officer, and Director,
First Maryland Bancorp, The First
National Bank of Maryland and First
Omni Bank; Director, York Bank and
Trust Company.
James J. Cunnane Managing Director, CBC Capital None ***
Director (merchant banking), 1993-Present.
Formerly, Senior Vice President and Chief
Financial Officer, General Dynamics
Corporation (defense), 1989-1993; and
Director, The Arch Fund (registered
investment company). Director of each
fund in the
Fund Complex.
Richard T. Hale* Managing Director, Alex. Brown & Sons 7,184 shares ***
Director Incorporated; Director and President,
Investment Company Capital Corp.
(registered investment advisor); Chartered
Financial Analyst. Director of each fund
in the Fund Complex.
John F. Kroeger Director/Trustee, AIM Funds (registered 1,363 shares ***
Director investment companies). Formerly,
Consultant, Wendell & Stockel Associates,
Inc. (consulting firm) and General
Manager, Shell Oil Company. Director of
each fund in the Fund Complex.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Shares
Business Experience During the Beneficially
Name and Position Past Five Years Owned as of
With the Fund (including all directorships) May 31, 1997** Percentage
- --------------------------- -------------------------------------------------- ---------------- -----------
<S> <C> <C> <C>
Louis E. Levy Director, Kimberly-Clark Corporation 1,364 shares ***
Director (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. Director of each
fund in the Fund Complex.
Eugene J. McDonald President, Duke Management Company None ***
Director (investments); Executive Vice President, (3,106 shares)+
Duke University (education, research and health
care); Director, Central Carolina Bank & Trust
(banking), Key Funds (registered investment
companies), AMBAC Treasurers Trust (registered
investment company) and DP Mann Holdings
(insurance). Director of each fund in the Fund
Complex.
Rebecca W. Rimel President and Chief Executive Officer, The None ***
Director Pew Charitable Trusts; Director and
Executive Vice President, The Glenmede
Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts.
Director of 10 funds in the Fund
Complex.
Carl W. Vogt, Esq. Senior Partner, Fulbright & Jaworski None ***
Director L.L.P. (law); Director, Yellow Corporation (657 shares)+
(trucking). Formerly, Chairman and Member,
National Transportation Safety Board; Director,
National Railroad Passenger Corporation (Amtrak);
and Member, Aviation System Capacity Advisory
Committee (Federal Aviation Administration).
Director of 9 funds in the Fund Complex.
Frederick L. Meserve, Jr. Principal, Alex. Brown & Sons 15,826 shares ***
President Incorporated, 1977-Present; Principal,
Alex. Brown Capital Advisory & Trust
Company, 1993-Present.
Sandra J. Doeller Vice President, Alex. Brown & Sons 74,651 shares 1.56%
Vice President Incorporated, 1994-Present; Equity Trader,
Asset Management Department, Alex
Brown & Sons Incorporated,
1983-Present.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Shares
Business Experience During the Beneficially
Name and Position Past Five Years Owned as of
With the Fund (including all directorships) May 31, 1997** Percentage
- ---------------------- ----------------------------------------------------- ---------------- -----------
<S> <C> <C> <C>
Gary V. Fearnow Managing Director, Alex. Brown & Sons None ***
Vice President Incorporated and Manager, Private Client
Marketing, Alex. Brown & Sons
Incorporated.
Charles A. Reid Principal, Alex. Brown & Sons 195 shares ***
Vice President Incorporated, 1980-Present; Principal,
Alex. Brown Capital Advisory & Trust
Company, 1993-Present; Formerly, General Partner,
Baltimore Street Capital III (growth companies
investor).
Edward J. Veilleux Principal, Alex. Brown & Sons 2,309 shares ***
Vice President Incorporated; Vice President, Armata
Financial Corp. (registered broker-dealer);
Executive Vice President, Investment
Company Capital Corp. (registered
investment advisor).
Scott J. Liotta Manager, Fund Administration, Alex. None ***
Vice President and Brown & Sons Incorporated, July
Secretary 1996-Present. Formerly, Manager and
Foreign Markets Specialist, Putnam
Investments Inc. (registered investment
companies), April 1994-July 1996;
Supervisor, Brown Brothers Harriman &
Co. (domestic and global custody), August
1991-April 1994.
Joseph A. Finelli Vice President, Alex. Brown & Sons 98 shares ***
Treasurer Incorporated and Vice President,
Investment Company Capital Corp.
(registered investment advisor), September
1995-Present. Formerly, Vice President
and Treasurer, The Delaware Group of
Funds (registered investment companies)
and Vice President, Delaware
Management Company Inc. (investments),
1980-1995.
Laurie D. Collidge Asset Management Department, Alex. None ***
Assistant Secretary Brown & Sons Incorporated,
1991-Present.
</TABLE>
- ------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act. Mr. Cole has resigned from the Board, effective upon the consummation
of the Merger, so that 75% of the Board members will be Disinterested
persons within the contemplation of Section 15(f) of the 1940 Act.
** This information has been provided by each Director and officer.
*** As of May 31, 1997, the Directors and officers of the Fund as a group (17
persons) beneficially owned an aggregate of 124,259 shares, representing
2.59% of the shares of the Fund.
+ Represents shares not beneficially owned, but held by funds in the Fund
Complex, as of June 25, 1997, as designated by the Director pursuant to the
Fund Complex's Deferred Compensation Plan.
Investment Advisor
See "Investment Company Capital Corp." on page 6 for additional information
concerning the Advisor.
10
<PAGE>
Principal Underwriter
Alex. Brown & Sons Incorporated, located at One South Street, Baltimore,
Maryland 21202, a wholly-owned subsidiary of Alex. Brown Incorporated, acts as
the Fund's principal underwriter.
Portfolio Transactions
For the fiscal year ended October 31, 1996, the Fund paid no brokerage
commissions to affiliated brokers.
Beneficial Owners
To the knowledge of Fund Management, as of the Record Date, the following
was a beneficial owner of 5% or more of the outstanding shares of the Fund.
<TABLE>
<CAPTION>
Amount of Percent of
Name and Address Beneficial Ownership Total Shares Outstanding
- --------------------------------- ---------------------- -------------------------
<S> <C> <C>
T. Rowe Price, Trustee 530,009 shares 11.06%
Alex. Brown & Sons Inc.
Plan #100460
Flag Investors Emerging Growth
Attn: Asset Recon
P.O. Box 17215
Baltimore, MD 21297-0354
</TABLE>
Submission of Shareholder Proposals
As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings, except in certain limited circumstances. Shareholders who
wish to present a proposal for action at the next meeting or suggestions as to
nominees for the Board of Directors should submit the proposal or suggestions to
be considered to the Fund 60 days in advance of any such meeting for inclusion
in the Fund's proxy statement and form of proxy for such meeting as is held. The
Nominating Committee of the Board of Directors will give consideration to
shareholder suggestions as to nominees for the Board of Directors. Shareholders
retain the right, under limited circumstances, to request that a meeting of the
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.
Required Vote
Approval of the Proposal requires the affirmative vote of a majority of the
outstanding shares of the Fund. As defined in the 1940 Act, the vote of a
majority of the outstanding shares means the vote of (i) 67% or more of the
Fund's outstanding shares present at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares, whichever is less.
Abstentions and "broker non-votes" will not be counted for or against the
Proposal but will be counted for purposes of determining whether a quorum is
present. Abstentions will be counted as votes present for purposes of
determining a "majority of the outstanding voting securities" present at the
Special Meeting and will therefore have the effect of counting against the
Proposal. The Fund believes that brokers who hold shares as record owners for
beneficial owners have the authority under the rules of the various stock
exchanges to vote those shares with respect to the Proposal when they have not
received instructions from beneficial owners.
Other Matters
No business other than the matter described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
11
<PAGE>
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND WHO
WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO FILL IN, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
By Order of the Directors,
Scott J. Liotta
Vice President and Secretary
Dated: July 17, 1997
12
<PAGE>
EXHIBIT A
FORM OF NEW
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the ______ day of
____________, 1997 by and between FLAG INVESTORS EMERGING GROWTH FUND, INC. a
Maryland corporation (the "Fund") and INVESTMENT COMPANY CAPITAL CORP., a
Maryland corporation (the "Advisor"), with respect to the following recital of
fact:
RECITAL
WHEREAS, the Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended; and
WHEREAS, the Advisor is a registered investment advisor and engages in the
business of acting as an investment advisor; and
WHEREAS, the Fund and the Advisor desire to enter into an agreement to
provide investment advisory and administrative services for the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. Appointment. The Fund hereby appoints the Advisor to manage and
supervise all aspects of the investment and reinvestment of the cash, securities
or other properties comprising the Fund's assets, subject at all times to the
policies and control of the Fund's Board of Directors. The Advisor hereby
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Delivery of Documents. The Fund has furnished or will furnish the
Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the State of
Maryland on July 3, 1987 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as from time to time amended, are
herein called the "Articles");
(b) The Fund's By-Laws and all amendments thereto (such By-Laws, as
presently in effect and as from time to time amended, are herein called the
"By-Laws");
(c) Resolutions of the Fund's Board of Directors and shareholders
authorizing the appointment of the Advisor and approving this Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to Section
8(a) of the Investment Company Act of 1940, as amended (the "1940 Act") on
Form N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on September 8, 1987;
(e) The Fund's Registration Statement on Form N-1A under the 1940 Act and
under the Securities Act of 1933, as amended (the "1933 Act") as filed with
the SEC relating to the shares of the Fund, and all amendments thereto; and
(f) The Fund's most recent prospectus (such prospectus, as presently in
effect and all amendments and supplements thereto are herein called
"Prospectus").
The Fund will furnish the Advisor from time to time with copies, properly
certified or authenticated, of all amendments or supplements to the foregoing,
if any, and all documents, notices and reports filed with the SEC.
3. Duties of Investment Advisor. The Advisor shall give the Fund the
benefit of its best judgment, efforts and facilities in rendering its services
as Advisor. In carrying out its obligations under paragraph 1 hereof, the
Advisor shall:
(a) formulate and implement continuing programs for the purchases and
sales of securities and regularly report thereon to the Fund's Board of
Directors; and
A-1
<PAGE>
(b) in accordance with the Fund's investment objectives, policies and
investment restrictions reflected in the Prospectus determine what issuers
and securities shall be represented in the Fund's portfolio and in what
proportion and regularly report them to the Fund's Board of Directors; and
(c) provide the Board of Directors of the Fund on a regular basis with
financial reports with respect to the Fund's portfolio investments and
analyses of the Fund's operations and the operations of comparable investment
companies; and
(d) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic, foreign
or otherwise, whether affecting the economy generally or the portfolio of the
Fund, and whether concerning the individual issuers whose securities are
included in the Fund's portfolio or the activities in which they engage, or
with respect to securities which the Advisor considers desirable for
inclusion in the Fund's portfolio; and
(e) take, on behalf of the Fund, all actions which appear to the Fund
necessary to carry into effect such purchase and sale programs and
supervisory functions as aforesaid, including the placing of orders for the
purchase and sale of portfolio securities; and
(f) supervise and manage all aspects of the Fund's operations; and
(g) provide the Fund with such executive, administrative and clerical
services as are deemed advisable by the Fund's Board of Directors; and
(h) arrange, but not pay for, the periodic updating of prospectuses and
supplements thereto, proxy materials, tax returns, reports to the Fund's
shareholders and reports to and filings with the SEC and state Blue Sky
authorities; and
(i) provide the Fund with, or obtain, adequate office space and all
necessary equipment and services, including telephone service, heat,
utilities, stationery, supplies and similar items for any offices as are
deemed advisable by the Fund's Board of Directors; and
(j) be responsible for the maintenance of such accounts books and records
as may be required by law or may, in the judgment of the Board of Directors,
be appropriate for the orderly transaction of the Fund's business, provided
that, if the Fund enters into a contract with any third party for the
maintenance of any such accounts, books and records, the Advisor shall be
responsible for supervision of and coordination with such third party on
behalf of the Fund but shall not be responsible for the costs related to such
contract or for the performance of such contract by such third party; and
(k) supervise, on behalf of the Fund, the operations of the Fund's
transfer and dividend disbursing agent; and
4. Broker-Dealer Relationships. The Advisor is responsible for decisions to
buy and sell securities for the Fund, broker-dealer selection, and negotiation
of its brokerage commission rates. In performing this function the Advisor shall
comply with applicable policies established by the Board of Directors and shall
provide the Board of Directors with such reports as the Board of Directors may
require in order to monitor the Fund's portfolio transaction activities.
The Advisor's primary consideration in effecting securities transactions
will be to obtain best price and execution of orders on an overall basis.
Accordingly, the Advisor will take into consideration in executing individual
transactions the net price available. However, the Advisor may also take into
consideration other factors as discussed below.
The Advisor will take into consideration the ability of the broker-dealer
to meet the Fund's portfolio transaction execution needs on a continuing basis.
Accordingly, the Advisor will consider the reliability, integrity and financial
condition of the broker-dealer, the size of and difficulty in executing the
particular order and the general ability of the broker-dealer to execute the
Fund's transactions reliably and promptly. To the extent that the executions and
prices offered by more than one broker-dealer are comparable, the Advisor may,
in its discretion, effect transactions with broker-dealers that furnish
statistical, research or other information or services which are deemed by the
Advisor to be beneficial to the Fund's investment program. Accordingly, the
Advisor shall not be
A-2
<PAGE>
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker or dealer an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Advisor determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the Advisor's overall
responsibilities with respect to the Fund.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking the most favorable price and execution
available and such other policies as the Directors may determine, the Advisor
may consider services in connection with the sale of shares of the Fund as a
factor in the selection of broker-dealers to execute portfolio transactions for
the Fund.
Subject to the policies established by the Board of Directors in compliance
with applicable law, the Advisor may direct Alex. Brown & Sons Incorporated
("Alex. Brown") to execute portfolio transactions for the Fund on an agency
basis. The commissions paid to Alex. Brown must be, as required by Rule 17e-1
under the 1940 Act, "reasonable and fair compared to the commission, fee or
other remuneration received or to be received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time." If the purchase or sale of securities consistent with the
investment policies of the Fund or one or more other account of the Advisor is
considered at or about the same time, transactions in such securities will be
allocated among the accounts in a manner deemed equitable by the Advisor. Alex.
Brown may combine such transactions, in accordance with applicable laws and
regulations, in order to obtain the best net price and most favorable execution.
The Fund will not deal with the Advisor or Alex. Brown in any transaction
in which the Advisor or Alex. Brown acts as a principal with respect to any part
of the Fund's order. If Alex. Brown is participating in an underwriting or
selling group, the Fund may not buy portfolio securities from the group except
in accordance with policies established by the Board of Directors in compliance
with rules of the SEC.
5. Control by Board of Directors. Any management or supervisory activities
undertaken by the Advisor pursuant to this Agreement, as well as any other
activities undertaken by the Advisor on behalf of the Fund pursuant thereto,
shall at all times be subject to any directives of the Board of Directors of the
Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any rules and
regulations adopted thereunder as amended; and
(b) the provisions of the Registration Statement of the Fund under the
1933 Act and the 1940 Act and any rules and regulations adopted thereunder as
amended; and
(c) the provisions of the Fund's Articles of Incorporation; and
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law and
applicable rules of any registered national securities organization.
7. Expenses. The expenses connected with the Fund shall be allocable
between the Fund and the Advisor as follows:
(a) The Advisor shall, subject to compliance with applicable banking
regulations, furnish, at its expense and without cost to the Fund (except as
provided in paragraph 8 hereof), the services of such officers and employees
as may be required by the Fund for the proper conduct of its affairs; travel
expenses of employees and officers of the Advisor; office space, equipment,
research services and supplies; expenses of maintaining accounts, books, and
records, except to the extent such services are provided by a third party
pursuant to a contract with the Fund.
(b) The Fund assumes and shall pay or cause to be paid all other
expenses of the Fund, including, without limitation: the fees of the
Advisor, any sub-advisor and Alex. Brown; the charges and expenses of any
A-3
<PAGE>
registrar, any custodian appointed by the Fund for the safekeeping of its
cash, portfolio securities and other property, and any stock transfer,
dividend or accounting agent or agents appointed by the Fund and any
accounting services provider appointed by the Fund; brokers' commissions
chargeable to the Fund in connection with portfolio securities transactions
to which the Fund is a party; all taxes, including securities issuance and
transfer taxes, and corporate fees payable by the Fund to Federal, State or
other governmental agencies; the cost and expense of engraving or printing of
stock certificates representing shares of the Fund; all costs and expenses in
connection with maintenance of registration of the Fund and its shares with
the SEC and various states and other jurisdictions (including filing fees and
legal fees and disbursements of counsel); except as provided in subparagraph
(a) above, the expenses of printing, including typesetting, and distributing
prospectuses of the Fund and supplements thereto to the Fund's shareholders;
all expenses of shareholders' and directors' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders; fees
and travel expenses of Directors or members of any advisory board or
committee other than such Directors or members who are "interested persons"
within the meaning of Section 2(a)(19) of the 1940 Act; all expenses incident
to the payment of any dividend, distribution, withdrawal or redemption,
whether in shares or in cash; charges and expenses of any outside service
used for pricing of the Fund's shares; charges and expenses of legal counsel,
including counsel to the Directors of the Fund who are not interested persons
(as defined in the 1940 Act) of the Fund, and of independent accountants, in
connection with any matter relating to the Fund; membership dues of industry
associations; interest payable on Fund borrowings; postage; insurance
premiums on property or personnel (including officers and directors) of the
Fund which inure to its benefit; extraordinary expenses (including, but not
limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of the
Fund's operation unless otherwise explicitly provided herein.
8. Delegation of Responsibilities. The Advisor may, but shall be under no
duty to, perform services on behalf of the Fund which are not required by this
Agreement upon the request of the Fund's Board of Directors. Such services will
be performed on behalf of the Fund and the Advisor's charge in rendering such
services may be billed monthly to the Fund, subject to examination by the Fund's
independent accountants. Payment or assumption by the Advisor of any Fund
expense that the Advisor is not required to pay or assume under this Agreement
shall not relieve the Advisor of any of its obligations to the Fund nor obligate
the Advisor to pay or assume any similar Fund expense on any subsequent
occasions. The Advisor may, with the approval of the majority of the Fund's
Directors who are not "interested persons" of the Fund, appoint a Sub-Advisor
for the Fund. Such Sub-Advisor shall be paid by the Advisor.
9. Compensation. For the services to be rendered and the expenses assumed
by the Advisor, the Fund shall pay to the Advisor compensation at an annual rate
of .85% of the Fund's average daily net assets; provided that, if necessary, the
Advisor's annual compensation will be reduced so that the Fund's total expenses
for that year do not exceed 1.50% of the Fund's average daily net assets. Except
as hereinafter set forth, compensation under this Agreement shall be calculated
and accrued daily and the amounts of the daily accruals shall be paid monthly.
If this Agreement becomes effective subsequent to the first day of a month or
shall terminate before the last day of a month, compensation for that part of
the month this Agreement is in effect shall be prorated in a manner consistent
with the calculation of the fees as set forth above. Payment of the Advisor's
compensation for the preceding month shall be made as promptly as possible.
10. Non-Exclusivity. The services of the Advisor to the Fund are not to be
deemed to be exclusive, and the Advisor shall be free to render investment
advisory and other services to others (including other investment companies) and
to engage in other activities, so long as its services under this Agreement are
not impaired thereby. It is understood and agreed that officers or directors of
the Advisor may serve as officers or Directors of the Fund, and that officers or
Directors of the Fund may serve as officers or directors of the Advisor to the
extent permitted by law; and that the officers and directors of the Advisor are
not prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers or directors
of any other firm or corporation, including other investment companies.
11. Term and Approval. This Agreement shall become effective at the close
of business on the date hereof and shall continue in force and effect for an
initial term of two years and from year to year thereafter, provided that such
continuance is specifically approved at least annually:
A-4
<PAGE>
(a) (i) by the Fund's Board of Directors or (ii) by the vote of the
holders of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors who are not
parties to this Agreement or interested persons (as defined in the 1940 Act)
of a party to this Agreement (other than as Fund Directors), by votes cast in
person at a meeting specifically called for such purpose.
12. Termination. This Agreement may be terminated at any time, on sixty
(60) days' written notice to the other party, without the payment of any
penalty, by vote of the Fund's Board of Directors or by vote of the holders of a
majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), or by the Advisor. The notice provided for herein may
be waived by either party. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" having the meaning defined in
Section 2(a)(4) of the 1940 Act.
13. Liability.
(a) In the performance of its duties hereunder, the Advisor shall be
obligated to exercise care and diligence and to act in good faith and to use
its best efforts within reasonable limits in performing all services provided
for under this Agreement, but the Advisor shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of the Advisor or its officers, directors or
employees, or reckless disregard by the Advisor of its duties under this
Agreement.
(b) The Advisor agrees that any claims by it against the Fund may be
satisfied only from the assets of the Fund, and no shareholders, Directors or
officers of the Fund may be held personally liable or responsible for any
obligations arising out of this Agreement.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
15. Questions of Interpretation. Any question of interpretation of any term
or provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the 1940 Act, shall be resolved by reference to such term
or provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any such
court, by rules, regulations or orders of the Securities and Exchange Commission
issued pursuant to said Act. In addition, where the effect of a requirement of
the 1940 Act, reflected in any provision of this Agreement is revised by rule,
regulation or order of the Securities and Exchange Commission, such provision
shall be deemed to incorporate the effect of such rule, regulation or order.
Otherwise the provisions of this Agreement shall be interpreted in accordance
with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers as of the day and year first
above written.
[SEAL] FLAG INVESTORS EMERGING GROWTH
FUND,INC.
Attest:-------------- By:-----------------------------------
Name:
Title:
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest:-------------- By:-----------------------------------
Name:
Title:
A-5
<PAGE>
FLAG INVESTORS
PROXY SERVICES
P.O. BOX 9148
FARMINGDALE, NY 11735
FLAG INVESTORS EMERGING GROWTH FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
August 14, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FLAG INVESTORS EMERGING
GROWTH FUND, INC.
This proxy is for your use in voting the matter relating to Flag Investors
Emerging Growth Fund, Inc. (the "Fund"). The undersigned shareholder(s) of the
Fund, revoking previous proxies, hereby appoint(s), Scott J. Liotta, I. Alisa
Stesch and Laurie D. Collidge and each of them (with full power of substitution)
the proxies of the undersigned to attend the Special Meeting of Shareholders of
the Fund to be held on August 14, 1997 (the "Special Meeting") and any
adjournments thereof, to vote all of the shares of the Fund that the signer
would be entitled to vote if personally present at the Special Meeting and on
any matter incident to the conduct of the Special Meeting, all as set forth in
the Notice of Special Meeting of Shareholders and Proxy Statement of the Board
of Directors. Said proxies are directed to vote or refrain from voting pursuant
to the Proxy Statement as indicated upon the matter set forth below.
This proxy will be voted as indicated below. If no indication is made, this
proxy will be voted FOR the proposal set forth below. The undersigned
acknowledges receipt with this proxy of a copy of the Notice of Special Meeting
of Shareholders and the Proxy Statement of the Board of Directors.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |X|
KEEP THIS PORTION FOR YOUR RECORDS
- -------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS
PORTION ONLY
FLAG INVESTORS EMERGING GROWTH FUND, INC.
Vote on The Proposal
To approve or disapprove a new Investment Advisory Agreement between
the Fund and Investment Company Capital Corp.
|_| For |_| Against |_| Abstain
Please print and sign your
name in the space provided to
authorize the voting of your __________________________________ __________
shares as indicated and return Signature [PLEASE SIGN WITHIN BOX] Date
promptly. When signing on
behalf of a corporation,
partnership, estate, trust
<PAGE>
or in any other __________________________________ __________
representative capacity, Signature (Joint Owners) Date
please sign your name and
title. For joint accounts,
each joint owner must sign.
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE>
001
