<PAGE>
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 Rule 14a-11(c) or Rule 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:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
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:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
Flag Investors Emerging Growth Fund, Inc.
Dear Shareholder:
We are writing to ask you to vote to establish Alex. Brown Capital Advisory &
Trust Company (ABCAT) as sub-advisor to the Flag Investors Emerging Growth
Fund, Inc. ABCAT was, until June 30, 1998, a subsidiary of Bankers Trust
Corporation (Bankers Trust), the parent of Investment Company Capital Corp.
(ICC), the Fund's advisor. On June 30, 1998, Bankers Trust sold ABCAT to a
combination of ABCAT employees, directors and outside investors, including the
Fund's portfolio manager. The Fund's portfolio manager and other portfolio
management personnel are continuing in that capacity under a dual employee
agreement between ICC and ABCAT. However, as they will be associated with
ABCAT rather than ICC or Bankers Trust on a long-term basis, we must make
ABCAT a sub-advisor to the Fund to ensure the continuity of the Fund's
portfolio management.
Your Board has carefully reviewed this transaction with respect to the quality
and continuity of service to be provided by ABCAT. The Board specifically
reviewed items such as continuity of portfolio management, the operational
support ABCAT will provide these managers and the financial strength of ABCAT.
Following this review, the Board recommends you vote in favor of making ABCAT
a sub-advisor to the Fund.
We are also asking you to vote to reelect the Fund's Directors and to add
Joseph R. Hardiman to the Fund's Board to replace John F. Kroeger who is
retiring. Mr. Hardiman served as President and Chief Executive Officer of the
National Association of Securities Dealers, Inc. (NASD) and its subsidiary,
The NASDAQ Stock Market, Inc., for nearly ten years. He brings excellent
business and investment experience as well as unquestioned integrity. While we
are enthusiastic that he will join the Board (with your approval) we are sad
that he is replacing Mr. Kroeger, one of the original Board members of the
Flag Investors Emerging Growth Fund, Inc. Mr. Kroeger has provided sound
advice and asked pointed questions since the inception of the Fund in 1987. We
will miss him.
A proxy which explains these items in detail is attached. We ask that you read
it and then vote. Your vote is important to us. Please take a moment now to
complete, sign and return your proxy card in the enclosed postage-paid envelope.
The Fund has retained Shareholder Communications Corporation (SCC), a
professional proxy solicitation firm, to assist in the voting process. If we
have not obtained your vote after a reasonable period of time, you may receive
a telephone call from a representative of SCC reminding you to exercise your
right to vote.
Thank you for your cooperation.
Sincerely yours,
/s/ Truman T. Semans
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Truman T. Semans
Chairman
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
One South Street
Baltimore, Maryland 21202
-----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
September 25, 1998
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 Friday, September 25, 1998, at 2:00 p.m. Eastern 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 proposals set forth below and for
the transaction of such other business as may be properly brought before the
Special Meeting:
PROPOSAL 1: To consider and act upon a proposal to elect a Board of Directors
of the Fund.
PROPOSAL 2: To approve a Sub-Advisory Agreement among the Fund,
Investment Company Capital Corp. and Alex. Brown Capital
Advisory & Trust Company.
Only shareholders of the Fund at the close of business on August 7,
1998 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.
Amy M. Olmert
Secretary
Dated: August 21, 1998
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
One South Street
Baltimore, Maryland 21202
--------------------
PROXY STATEMENT
--------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
September 25, 1998
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 Friday, September 25, 1998, at 2:00 p.m. Eastern 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 August 21, 1998.
The primary purpose of the Special Meeting is to permit the Fund's
shareholders to consider a Sub-Advisory Agreement among the Fund, Investment
Company Capital Corp. and Alex. Brown Capital Advisory & Trust Company.
Shareholders will also be asked to elect a Board of Directors.
If you do not expect to be present at the Special Meeting and wish
your shares to be voted, please sign and date 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 2:00 p.m. Eastern Time on Friday,
September 25, 1998. 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 election of the proposed Board of Directors of
the Fund ("Proposal 1") and FOR the Sub-Advisory Agreement ("Proposal 2"). All
shareholders of the Fund are entitled to vote on each 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 August 7, 1998, has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of, and to vote at,
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<PAGE>
the Special Meeting and at any adjournment thereof. On the Record Date, the
Fund had 6,309,367.052 shares outstanding, consisting of 3,378,684.419 Flag
Investors Emerging Growth Fund Class A Shares, 284,552.042 Flag Investors
Emerging Growth Fund Class B Shares, 335,623.093 Flag Investors Emerging
Growth Fund Institutional Shares and 2,310,507.498 Alex. Brown Capital
Advisory & 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 Investment
Company Capital Corp. ("ICC") and Alex. Brown Capital Advisory & Trust Company
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 (the "Advisor").
Additional solicitation may be made by Shareholder Communications Corporation, a
solicitation firm located in New York, New York that has been engaged by the
Fund to assist in proxy solicitation.
THE FUND WILL FURNISH TO SHAREHOLDERS, WITHOUT CHARGE, A COPY OF THE
ANNUL REPORT FOR ITS FISCAL YEAR ENDED OCTOBER 31, 1997, AND A COPY OF THE
SEMI-ANNUAL REPORT FOR THE PERIOD ENDED APRIL 30, 1998, UPON REQUEST. THE
ANNUAL AND SEMI-ANNUAL REPORTS OF THE FUND MAY BE OBTAINED BY WRITTEN REQUEST
TO FLAG INVESTORS EMERGING GROWTH FUND, INC., 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.
PROPOSAL 1: To consider and act upon a proposal to elect a Board of
Directors of the Fund.
At the Special Meeting, it is proposed that eight Directors be
elected to hold office until their successors are duly elected and qualified.
The persons named in the accompanying Proxy intend, in the absence of contrary
instructions, to vote all Proxies on behalf of the shareholders for the
election of Truman T. Semans, James J. Cunnane, Richard T. Hale, Joseph R.
Hardiman, Louis E. Levy, Eugene J. McDonald, Rebecca W. Rimel and Carl W. Vogt
(each a "Nominee" and collectively, the "Nominees"). All of the Nominees are
currently members of the Board of Directors, except for Mr. Hardiman. Messrs.
Semans, Cunnane, Hale, Levy, McDonald and Vogt and Ms. Rimel were elected by
shareholders of the Fund on February 11, 1997. John F. Kroeger, who has served
as a Director of the Fund since its inception, will retire from the Board of
Directors effective October 1, 1998.
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<PAGE>
The election of Directors is to assure future flexibility in
complying with the 1940 Act and Maryland law. In particular, as a result of
last year's merger between Bankers Trust Corporation and Alex. Brown
Incorporated (now BT Alex. Brown Incorporated) (the "Merger"), 75% of the Board
Members must be disinterested persons of the Advisor pursuant to Section 15(f)
of the 1940 Act for at least three years after the Merger. Furthermore,
Section 16 of the 1940 Act requires that in order to fill vacancies on the
Board, at least two-thirds of the Directors holding office after such
vacancies are filled must have been elected by shareholders. The Special
Meeting will provide additional assurance that the Board will continue to have
operating flexibility by making it possible for the Board of Directors to fill
vacancies that may occur in the future.
Each of the Nominees has consented to being named in this Proxy
Statement and to serving as a Director if elected. The Fund knows of no reason
why any Nominee would be unable or unwilling to serve if elected. The new
slate of Directors will serve effective October 1, 1998 or when elected by
shareholders, whichever is later.
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. Because the Fund does not hold regular
annual shareholder meetings, each Nominee, if elected, will hold office until
his or her successor is elected and qualified.
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 or sub-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.
Information Regarding Nominees
The following information is provided for each Nominee. It includes
his or her name, position with the Fund, length of directorship, age,
principal occupations or employment during the past five years, directorships
with other companies which file reports periodically with the Securities and
Exchange Commission, number of directorships with the 12 registered investment
companies which hold themselves out to investors as related companies for
purposes of investment and investor services for which
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ICC provides investment advisory or administration services (collectively, the
"Fund Complex"), number of shares of the Fund beneficially owned and percentage
of shares beneficially owned. As of June 30, 1998, the Nominees as a group and
the Directors and officers of the Fund as a group beneficially owned an
aggregate of less than 1% of the total outstanding shares of the Fund.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned as of
Name and Position Business Experience during the Past June 30,
with the Fund Age Five Years (including all directorships) 1998** Percentage
-------------- --- ---------------------------------------- ---- ----------
<S> <C> <C> <C> <C>
Truman T. Semans* 71 Vice Chairman, Alex. Brown Capital Advisory 27,938.342 ***
Chairman and Director & Trust Company; Director, Investment Company shares
since 1987 Capital Corp. (registered investment advisor)
and Virginia Hot Springs Inc. (property
management). Formerly, Vice Chairman and
Managing Director, Alex. Brown & Sons
Incorporated (now BT Alex. Brown Incorporated).
Director of 10 funds in the Fund Complex.
James J. Cunnane 60 Managing Director, CBC Capital (merchant None ***
Director since 1994 banking), 1993-Present. Formerly, Senior
Vice President and Chief Financial
Officer, General Dynamics Corporation
(defense), 1989-1993; Director, The
Arch Fund (registered investment
company). Director of each fund in the
Fund Complex.
Richard T. Hale* 53 Managing Director, BT Alex. Brown 7,548.050 ***
Director since 1989 Incorporated; Director and President, shares
Investment Company Capital Corp.
(registered investment advisor);
Chartered Financial Analyst. Director of 11
funds in the Fund Complex.
Joseph R. Hardiman 61 Private Equity Investor and Capital Markets None ***
Nominee Consultant; Director, The Nevis Fund
(registered investment company). Formerly,
President and Chief Executive Officer, The
National Association of Securities Dealers,
Inc. and The NASDAQ Stock Market, Inc.,
1987-1997; Chief Operating Officer of
Alex. Brown & Sons Incorporated (now BT
Alex. Brown Incorporated), 1985 - 1987.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned as of
Name and Position Business Experience during the Past June 30,
with the Fund Age Five Years (including all directorships) 1998** Percentage
-------------- --- ---------------------------------------- ---- ----------
<S> <C> <C> <C> <C>
Louis E. Levy 65 Director, Kimberly-Clark Corporation 1,433.372 ***
Director since 1994 (personal consumer products) and shares
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 66 President, Duke Management Company None ***
Director since 1992 (investments); Executive Vice President,
Duke University (education, research
and health care); Director, Central
Carolina Bank & Trust (banking), Key
Funds (registered investment companies)
and DP Mann Holdings (insurance).
Formerly, Director, AMBAC Treasurers
Trust (registered investment company).
Director of each fund in the Fund
Complex.
Rebecca W. Rimel 47 President and Chief Executive Officer, The None ***
Director since 1996 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. 62 Senior Partner, Fulbright & Jaworski L.L.P. None ***
Director since 1996 (law); Director, Yellow Corporation
(trucking) and American Science &
Engineering (x-ray detection
equipment). Formerly, Chairman and
Member, National Transportation Safety
Board; Director, National Railroad
Passenger Corporation (Amtrak);
Director and Member, Aviation System
Capacity Advisory Committee (Federal
Aviation Administration). Director of
10 funds in the Fund Complex.
</TABLE>
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* Denotes an individual who is an "interested person" as defined in
the 1940 Act.
** This information has been provided by each Nominee for Director
of the Fund.
*** As of June 30, 1998, the Nominees as a group beneficially owned an
aggregate of less than 1% of the total outstanding shares of the Fund.
-5-
<PAGE>
Compensation of Directors
Each Director who is not an "interested person" within the meaning of
the 1940 Act, as well as the Fund's President, receives an aggregate annual
fee (plus reimbursement for reasonable out-of-pocket expenses incurred in
connection with his or her attendance at Board and committee meetings) from
the Fund and all of the funds in the Fund Complex for which he or she serves.
Payment of such fees and expenses is allocated among all such funds described
above in proportion to their relative net assets. For the fiscal year ended
October 31, 1997, Directors' fees attributable to the assets of the Fund
totaled $3,303. Officers of the Fund, except the President, as noted above,
receive no direct remuneration in such capacity from the Fund. Directors and
officers of the Fund who are employees of BT Alex. Brown Incorporated or its
affiliates ("BT Alex. Brown") may be considered to have received remuneration
indirectly.
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, and up to 100%, of his or her annual compensation pursuant to
a Deferred Compensation Plan. Messrs. Cunnane, Levy, McDonald and Vogt and Ms.
Rimel have each executed a Deferred Compensation Agreement and may defer a
portion of their compensation from the Fund and the Fund Complex. Currently,
the deferring Directors may select from various funds in the Fund Complex and
BT International Equity Fund, in which all or part of their deferral account
shall be deemed to be invested. Distributions from the deferring Directors'
deferral accounts will be paid in cash, in quarterly installments over a period
of ten years.
The aggregate compensation payable by the Fund to each of the Fund's
Directors serving during the fiscal year ended October 31, 1997 is set forth
in the compensation table below. The aggregate compensation payable to such
Directors during the fiscal year ended October 31, 1997 by the Fund Complex is
also set forth in the compensation table below.
-6-
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Total Compensation Number of Funds
Compensation Benefits Accrued as from the Fund in Fund Complex
Payable Part of Fund and Fund Complex for which Director
Name and Position from the Fund Expenses Payable to Directors Serves
----------------- ------------- ---------- -------------------- ------
<S> <C> <C> <C> <C>
Truman T. Semans, Chairman $0 $0 $0 11(2)
and Director (1)
Charles W. Cole, Jr., Director(1)(3) $0 $0 $0 9
Richard T. Hale, Director (1) $0 $0 $0 12(2)
W. James Price, Director (1)(4) $0 $0 $0 7
James J. Cunnane, Director $542(5) (6) $39,000 13(2)
John F. Kroeger, Director(7) $681 (6) $49,000 13(2)
Louis E. Levy, Director $542 (6) $39,000 13(2)
Eugene J. McDonald, Director $542(5) (6) $39,000 13(2)
Rebecca W. Rimel, Director $439(5) (6) $39,000(8) 11(2)
Carl W. Vogt, Esq., Director $443(5) (6) $39,000(8) 11(2)
Harry Woolf, Director (4) $113(5) (6) $ 9,750 12(2)
</TABLE>
- -----------------
(1) Denotes an individual who is an "interested person" as defined in the
1940 Act.
(2) One of these funds ceased operations on July 29, 1998.
(3) Resigned as Director of the Fund effective September 1, 1997.
(4) Messrs. Price and Woolf retired as Directors effective December 31,
1996. Mr. Woolf was appointed President of the Fund effective September
1, 1997. For serving as President, Mr. Woolf receives compensation from
the Fund and certain other funds in the Fund Complex, in addition to
his retirement benefits.
(5) Of the amounts payable to Messrs. Cunnane, McDonald, Vogt and Woolf,
and Ms. Rimel, $542, $542, $443, $113 and $439, respectively, was
deferred pursuant to the Fund Complex's Deferred Compensation Plan.
(6) The Fund Complex has adopted a retirement plan for eligible
Directors, as described below. The actuarially computed pension
expense for the Fund for the fiscal year ended October 31, 1997 was
$1,993.
(7) Intends to retire as Director of the Fund, effective October 1, 1998.
(8) Ms. Rimel and Mr. Vogt receive proportionately higher compensation
from each fund for which they serve as a Director.
The Fund Complex has adopted a retirement plan (the "Retirement
Plan") for Directors who are not employees of the Fund, the Fund's investment
advisor or their respective affiliates (each, a "Participant" and
collectively, the "Participants"). After completion of six years of service,
each Participant will be entitled to receive an annual retirement benefit
equal to a percentage of the fees earned by such Participant in his or her
last year of service. Upon retirement, each Participant will receive annually
10% of such fee for each year that he or she served after completion of the
first five years, up to a maximum annual benefit of 50% of the fee earned by
the Participant in his or her last year of service. The fee will be paid
quarterly, for life, by each fund for which he or she serves. The Retirement
Plan is unfunded and unvested. Mr. Kroeger has qualified but has not received
benefits. The Fund has two Participants, a Director who retired effective
-7-
<PAGE>
December 31, 1994 and Mr. Woolf who retired effective December 31, 1996, who
have qualified for the Retirement Plan by serving thirteen years and fourteen
years, respectively, as Directors in the Fund Complex and each of whom will be
paid a quarterly fee of $4,875 by the Fund Complex for the rest of his life.
Such fees are allocated to each fund in the Fund Complex based upon the
relative net assets of such fund to the Fund Complex.
Set forth in the table below are the estimated annual benefits
payable to a Participant upon retirement assuming various years of service and
payment of a percentage of the fee earned by such Participant in his or her
last year of service, as described below. The approximate credited years of
service, shown in parentheses, for each Participant at December 31, 1997, are
as follows: Messrs. Cunnane (3), Kroeger (15), Levy (3), McDonald (5), Vogt (2)
and Ms. Rimel (2).
Estimated Annual Benefits Payable by Fund Complex Upon Retirement
Years of Service Chairman of Audit Committee Other Participants
---------------- --------------------------- ------------------
6 years $4,900 $3,900
7 years $9,800 $7,800
8 years $14,700 $11,700
9 years $19,600 $15,600
10 years or more $24,500 $19,500
Meetings and Committees of the Board of Directors
There were four regular and two special meetings of the Board of
Directors held during the fiscal year ended October 31, 1997. In such fiscal
year, all Directors attended at least 75% of the meetings of the Board of
Directors held during their respective terms.
The Board of Directors has an Audit and Compliance Committee. The
Audit and Compliance Committee makes recommendations to the full Board of
Directors with respect to the engagement of independent accountants. The
Committee reviews, with the independent accountants, the results of the audit
engagement and matters having a material effect on the Fund's financial
operations. The members of the Audit and Compliance Committee during the
fiscal year ended October 31, 1997, were Messrs. Kroeger (Chairman), Cunnane,
Levy, McDonald, Vogt and Woolf and Ms. Rimel, each of whom is not an
"interested person" within the meaning of the 1940 Act. Mr. Woolf was a member
of the Audit and Compliance Committee until his retirement on December 31,
1996. Mr. Levy will become Chairman of the Audit and Compliance Committee,
and, if elected, Mr. Hardiman will become a member of such Committee effective
upon Mr. Kroeger's retirement. The
-8-
<PAGE>
Audit and Compliance Committee met four times during the fiscal year ended
October 31, 1997. In such fiscal year, all members attended at least 75% of
the meetings of the Audit and Compliance Committee held during their
respective terms. The Chairman of the Audit and Compliance Committee receives
an aggregate annual fee of $10,000 from the Fund Complex. Payment of such fee
is allocated among all funds in the Fund Complex in proportion to their
relative net assets.
The Board of Directors has a Nominating Committee. The Nominating
Committee makes recommendations to the full Board of Directors with respect to
candidates for the Board of Directors. The members of the Nominating Committee
during the fiscal year ended October 31, 1997, were Messrs. McDonald
(Chairman), Cunnane, Kroeger, Levy, Vogt and Woolf, and Ms. Rimel, each of
whom is not an "interested person" within the meaning of the 1940 Act. Mr.
Woolf was a member of the Nominating Committee until his retirement on
December 31, 1996. If elected, Mr. Hardiman will become a member of the
Nominating Committee effective upon Mr. Kroeger's retirement. The Nominating
Committee met once during the fiscal year ended October 31, 1997 and all
members attended the meeting.
The Board of Directors has a Compensation Committee. The Compensation
Committee makes recommendations to the full Board of Directors with respect to
the compensation of Directors. The members of the Compensation Committee
during the fiscal year ended October 31, 1997, were Messrs. Woolf (Chairman),
Cunnane, Kroeger, Levy, McDonald and Vogt, and Ms. Rimel, each of whom is not
an "interested person" within the meaning of the 1940 Act. Mr. Woolf was a
member of the Compensation Committee until his retirement on December 31,
1996. If elected, Mr. Hardiman will become a member of the Compensation
Committee effective upon Mr. Kroeger's retirement. Mr. Cunnane became Chairman
of the Compensation Committee upon Mr. Woolf's retirement. The Compensation
Committee met once during the fiscal year ended October 31, 1997 and all
members attended the meeting.
On September 1, 1997, Alex. Brown Incorporated, the indirect parent
of Investment Company Capital Corp., merged with and into a subsidiary of
Bankers Trust New York Corporation (now known as Bankers Trust Corporation).
In connection with the Merger, Mr. Truman T. Semans, a Director of the Fund
and ICC, and Mr. Richard T. Hale, a Director of the Fund and a Director and
President of ICC, exchanged their shares of Alex. Brown Incorporated (26,258
shares and 89,545 shares, respectively) for shares of Bankers Trust
Corporation at the rate of 0.83 shares of Bankers Trust Corporation (valued at
such time at $103.75 per share) for each share of Alex. Brown Incorporated.
Since the Merger, Mr. Semans has sold or gifted 18,404 shares and Mr. Hale has
sold 366 shares of Bankers Trust Corporation. As of June 30, 1998, to Fund
Management's knowledge, Mr. Semans beneficially owned 3,390 shares and Mr. Hale
beneficially owned 74,722 shares of Bankers Trust Corporation.
Board Approval of the Election of Directors
At a meeting of the Board of Directors held June 30, 1998, the Board
of Directors recommended that shareholders vote FOR each of the Nominees for
Director named herein. In recommending that shareholders elect the Nominees as
Directors of the Fund, the Board of Directors considered the Nominees'
experience and qualifications.
Shareholder Approval of the Election of Directors
The election of Directors requires the affirmative vote of a
plurality of all votes cast at the Special Meeting, provided that one-third of
the shares entitled to vote are present in person or by proxy at the Special
Meeting. If you give no voting instructions, your shares will be voted FOR all
Nominees named herein. If the Directors are not
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<PAGE>
approved by shareholders of the Fund, the Board of Directors will consider
alternative nominations.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
THE ELECTION OF THE DIRECTORS.
Proposal 2: To approve a Sub-Advisory Agreement among the Fund, Investment
Company Capital Corp. and Alex. Brown Capital Advisory & Trust
Company.
Investment Company Capital Corp. serves as investment advisor to the
Fund. (See "Investment Advisor and Sub-Advisor" on page 11 for additional
information concerning the Advisor.) Bankers Trust Corporation ("Bankers
Trust"), the indirect parent of ICC, was until June 30, 1998 also the parent
of Alex. Brown Capital Advisory & Trust Company ("ABCAT"). However, on that date
Bankers Trust completed the sale of ABCAT to a combination of ABCAT employees,
directors, and outside investors, including the Fund's portfolio manager,
Frederick L. Meserve, Jr. Mr. Meserve (the "Manager") and other portfolio
management personnel are continuing in that capacity under a dual employee
agreement between ICC and ABCAT. However, as they will be associated with
ABCAT rather than ICC or Bankers Trust on a long-term basis, the Fund is
asking that you approve a Sub-Advisory Agreement among ICC, ABCAT and the Fund
in order to ensure the continuity of the Fund's portfolio management.
Pursuant to the proposed Sub-Advisory Agreement (the terms of which
are discussed below), ABCAT will serve as sub-advisor to the Fund and the
Manager will continue managing the Fund's investments in the future. ICC will
compensate ABCAT out of its advisory fee which will remain the same.
Accordingly, the overall cost to the Fund of advisory and management services
will not increase as a result of the proposed sub-advisory arrangement.
The Proposed Sub-Advisory Agreement
On June 29, 1998, the Board of Directors, including a majority of the
Independent Directors, unanimously approved a proposed Sub-Advisory Agreement
among the Fund, ICC and ABCAT, the form of which is attached as Exhibit A.
In evaluating the proposed Sub-Advisory Agreement, the Board
considered that the proposed sub-advisory arrangement with ABCAT would enable
the Fund to retain the services of the Manager on a long-term basis and,
therefore, ensure continuity in management of the Fund. The Board also
considered the performance record of the Fund under the Manager, the
operational support ABCAT will provide the Manager, and the financial strength
of ABCAT. Finally, the Board noted that the compensation under the proposed
Sub-Advisory Agreement was comparable with other sub-advisory fees negotiated
by the Advisor.
-10-
<PAGE>
The proposed Sub-Advisory Agreement provides that ABCAT, under the
supervision of the Advisor and in return for its fee, will (a) provide the
Fund with such executive, administrative and clerical services as are deemed
advisable by the Fund's Board of Directors; (b) determine which issuers and
securities shall be represented in the Fund's portfolio and regularly report
thereon to the Fund's Board of Directors; (c) formulate and implement
continuing programs for the purchases and sales of the securities of such
issuers and regularly report thereon to the Fund's Board of Directors; (d)
take, on behalf of the Fund, all actions which appear to the Fund necessary to
carry into effect such purchase and sale programs as aforesaid, including the
placing of orders for the purchase and sale of securities of the Fund; (e)
provide the Board of Directors of the Fund on a regular basis with financial
reports with respect to the Fund's portfolio investments and analyses of the
Fund's operations and the operations of comparable investment companies; and
(f) obtain and evaluate pertinent information about significant developments
and economic, statistical and financial data, domestic, foreign or otherwise,
whether affecting the economy generally or the Fund, and whether concerning
the individual issuers whose securities are included in the Fund's portfolio
or the activities in which they engage, or with respect to securities which
ICC considers desirable for inclusion in the Fund's portfolio.
The proposed Sub-Advisory Agreement provides for compensation to
ABCAT from ICC, calculated daily and paid at the end of each calendar month,
at the annual rate of 0.55% of the Fund's average daily net assets provided
that, if necessary, the Sub-Advisor's annual compensation will be reduced in
an amount proportional to the Advisor's waiver so that the Fund's total
expenses for that year do not exceed 1.50% of the Flag Investors Class A
Shares' average daily net assets.
The proposed Sub-Advisory Agreement provides that ABCAT 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. ABCAT will maintain, at its
expense and without cost to the Fund, a trading function in order to place
orders for the purchase and sale of portfolio securities for the Fund. The
Fund assumes and pays or causes to be paid all other expenses of the Fund,
including, without limitation: payments to ICC under the Investment Advisory
Agreement; the charges and expenses of any registrar, any custodian or any
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent
or agents appointed by the Fund; brokers' commissions chargeable to the Fund
in connection with portfolio securities transactions to which the Fund is a
party; all taxes, including securities issuance and transfer taxes, and fees
payable by the Fund to federal, state or other governmental agencies; the
costs and expenses of engraving or printing of certificates representing
shares of the Fund; all costs and expenses in connection with the registration
and maintenance of registration of the Fund and its shares with the SEC and
various states and other jurisdictions (including filing fees, legal fees and
disbursements of counsel); the costs and expenses of printing, including
typesetting, and distributing prospectuses and
-11-
<PAGE>
statements of additional information of the Fund and supplements thereto to
the Fund's shareholders; all expenses of shareholders' and Directors' meetings
and of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in
cash; charges and expenses of any outside service used for pricing of the
Fund's shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not "interested persons" (as defined in the 1940
Act) of the Fund and of the independent accountants, in connection with any
matter relating to the Fund; membership dues of industry associations;
interest payable on Fund borrowings; postage; insurance premiums on property
or personnel (including officers and Directors) of the Fund which inure to its
benefit; extraordinary expenses (including, but not limited to, legal claims,
liabilities and litigation costs and any indemnification related thereto); and
all other charges and costs of the Fund's operation unless otherwise
explicitly provided herein.
The services of ABCAT are not deemed to be exclusive, and ABCAT 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. Officers or directors
of ABCAT may serve as officers or Directors of the Fund, the Fund's officers
or Directors may serve as officers or directors of ABCAT, to the extent
permitted by law; and officers or directors of ABCAT 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.
The proposed Sub-Advisory Agreement would take effect upon the later
to occur of (i) October 1, 1998 or (ii) the obtaining of shareholder approval.
The proposed Sub-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.
The proposed Sub-Advisory Agreement may be terminated at any time,
without the payment of any penalty, by the Fund upon a vote of the Fund's
Board of Directors or by vote of a majority of the Fund's outstanding voting
securities or by ICC or ABCAT, upon sixty (60) days' written notice to the
other parties. The agreement automatically terminates in the event of its
assignment or upon termination of the Investment Advisory Agreement.
The proposed Sub-Advisory Agreement obligates ABCAT, 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
ABCAT is not liable for any act or omission which does not constitute willful
misfeasance, bad faith or gross negligence on the part of
-12-
<PAGE>
ABCAT or its officers, partners or employees, or reckless disregard by ABCAT
of its duties under the agreement.
Alex. Brown Capital Advisory & Trust Company
ABCAT is a trust company chartered under the laws of the State of
Maryland that had under management as of June 30, 1998, approximately $2.9
billion. ABCAT is a wholly-owned subsidiary of Brown Capital Holdings
Incorporated ("Brown Capital Holdings"), a Maryland corporation whose
principal executive officer is Michael D. Hankin. Brown Capital Holdings is
owned by management and employees of ABCAT and outside investors. ABS Capital
Partners II, L.P., a Delaware limited partnership, holds 27.826% of the total
outstanding shares of Brown Capital Holdings. The sole general partner of ABS
Capital Partners II, L.P. is ABS Partners II, L.L.C., a Delaware limited
liability company, whose General Manager is Mr. Donald Hebb. The address of
ABCAT and Brown Capital Holdings is 19 South Street, Baltimore, Maryland
21202, and the address of ABS Capital Partners II, L.P. and ABS Partners II,
L.L.C. is One South Street, Baltimore, Maryland 21202.
The following information is provided for each director and the
principal executive officer of ABCAT:
-13-
<PAGE>
<TABLE>
<CAPTION>
Name and Position with ABCAT Address Principal Occupation
---------------------------- ------- --------------------
<S> <C> <C>
Michael D. Hankin
Director, President and Chief 19 South Street Director, President and Chief
Executive Officer Baltimore, MD 21202 Executive Officer of ABCAT.
William C. Baker 7332 Brightside Road Chairman of Chesapeake Bay
Director Baltimore, MD 21212 Foundation.
Benjamin H. Griswold, IV One South Street Managing Director of BT Alex.
Director Baltimore, MD 21202 Brown Incorporated.
David L. Hopkins, Jr. 19 South Street Director and Chairman of ABCAT.
Director and Chairman Baltimore, MD 21202
Truman T. Semans 19 South Street Director and Vice Chairman of ABCAT;
Director and Vice Chairman Baltimore, MD 21202 Director of Investment
Company Capital Corp.
Charles W. Cole, Jr. 19 South Street Director and Vice Chairman of ABCAT.
Director and Vice Chairman Baltimore, MD 21202
Earl L. Lineham 515 Fairmount Avenue Private Investor
Director Suite 900 Woodbrook Capital, Inc.
Towson, MD 21286
John J.F. Sherrerd One Tower Bridge Retired, Sherrerd & Co.
Director 9th Floor
West Conshohocken, PA 19428
Walter D. Pinkard, Jr. 7 East Redwood Principal of Colliers Pinkard
Director Baltimore, MD 21202 WD Pinkard & Co.
</TABLE>
ABCAT does not currently advise any other mutual fund. However, as
previously noted, Mr. Frederick L. Meserve, the Fund's portfolio manager and
an employee of both ICC and ABCAT has managed the Fund's investments since
1993.
In connection with the sale of ABCAT by BT Alex. Brown on June 30,
1998, Truman T. Semans, a Director and Vice Chairman of ABCAT and Chairman of
the Board of Directors of the Fund, purchased 19,000 shares (1.322%) of Brown
Capital Holdings at $10 per share and Charles W. Cole, a Director and Vice
Chairman of ABCAT and a former Director of the Fund, purchased 18,000 shares
(1.252%) of Brown Capital Holdings at $10 per share. In addition, Messrs.
Semans and Cole purchased notes from Brown Capital Holdings in the amount of
$50,073 and $47,483 respectively, which mature in 3 years and pay interest
-14-
<PAGE>
based on the prime rate. In addition, Mr. Meserve, the Fund's portfolio
manager and former President of the Fund, owns 2.25% of the outstanding shares
of Brown Capital Holdings and Charles A. Reid and Sandra J. Doeller, former
Vice Presidents of the Fund and currently employees of ABCAT, own 2.25% and
0.33%, respectively, of the outstanding shares of Brown Capital Holdings.
Shareholder Approval of the Proposed Sub-Advisory Agreement
Approval of the proposed Sub-Advisory Agreement requires the
affirmative vote of a majority of the outstanding shares of the Fund. For the
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 THE APPROVAL OF THE NEW SUB-ADVISORY
AGREEMENT.
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about each of the Fund's current Directors and principal
executive officers, including his or her name, position with the Fund, length
of service in such position, age, principal occupations or employment during
the past five years, number of shares of the Fund beneficially owned and
percentage of shares beneficially owned as of June 30, 1998, is set forth
below. Directors and officers of the Fund are also directors and officers of
some or all of the other investment companies managed, administered or advised
by BT Alex. Brown or its affiliates.
<TABLE>
<CAPTION>
Shares
Business Experience during Beneficially
the Owned as of
Position Past Five Years June 30,
Name with the Fund Age (including all directorships) 1998** Percentage
---- ------------- --- ----------------------------- ---- ----------
<S> <C> <C> <C> <C> <C>
Truman T. Semans* Chairman and 71 See "Information Regarding 27,938.342 ***
Director since Nominees." shares
1987
James J. Cunnane Director since 60 See "Information Regarding None ***
1994 Nominees."
Richard T. Hale* Director since 53 See "Information Regarding 7,548.050 shares ***
1989 Nominees"
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Shares
Business Experience during Beneficially
the Owned as of
Position Past Five Years June 30,
Name with the Fund Age (including all directorships) 1998** Percentage
---- ------------- --- ----------------------------- ------ ----------
<S> <C> <C> <C> <C> <C>
John F. Kroeger Director since 74 Formerly, Director/Trustee, 1,432.366 shares ***
1987 AIM Funds (registered
investment companies);
Consultant, Wendell & Stockel
Associates, Inc. (consulting
firm); General Manager,
Shell Oil Company. Director of
each fund in the Fund Complex.
Louis E. Levy Director since 65 See "Information Regarding 1,433.372 shares ***
1994 Nominees."
Eugene J. McDonald Director since 66 See "Information Regarding None ***
1992 Nominees."
Rebecca W. Rimel Director since 47 See "Information Regarding None ***
1996 Nominees."
Carl W. Vogt, Esq. Director since 62 See "Information Regarding None ***
1996 Nominees."
Harry Woolf President since 75 Professor-at-Large Emeritus, None ***
1997 Institute for Advanced Study;
Director, ATL and Spacelabs
Medical Corp. (medical
equipment), Family Health
International (non-profit
research and education) and
Research America (non-profit
medical research). Formerly,
Director, Merrill Lynch Cluster
C Funds and Flag Investors/ISI
and BT Alex. Brown Cash
Reserve Family of Funds
(registered investment
companies); Trustee, Reed
College (education) and
Rockefeller Foundation.
Amy M. Olmert Secretary since 35 Vice President, BT Alex. Brown None ***
1997 Incorporated, 1997-Present.
Formerly, Senior Manager,
Coopers & Lybrand L.L.P.
(now, PricewaterhouseCoopers
LLP), 1988-1997.
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Shares
Business Experience during Beneficially
the Owned as of
Position Past Five Years June 30,
Name with the Fund Age (including all directorships) 1998** Percentage
---- ------------- --- ----------------------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Joseph A. Finelli Treasurer since 41 Vice President, BT Alex. Brown 139.451 shares ***
1995 Incorporated and Vice
President, Investment Company
Capital Corp. (registered
investment advisor), 1995-
Present. Formerly, Vice
President and Treasurer, The
Delaware Group of Funds
(registered investment
companies) and Vice President,
Delaware Management
Company Inc. (investments),
1980-1995.
Scott J. Liotta Assistant 33 Assistant Vice President, BT None ***
Secretary since Alex. Brown Incorporated,
1997 1996-Present. Formerly,
Manager and Foreign Markets
Specialist, Putnam Investments
Inc. (registered investment
companies), 1994-1996;
Supervisor, Brown Brothers
Harriman & Co. (domestic and
global custody), 1991-1994.
</TABLE>
- --------------------
* Denotes an individual who is an "interested person" as defined in the
1940 Act.
** This information has been provided by each Director and officer of the
Fund.
*** As of June 30, 1998, the Directors and officers of the Fund as a group
(12 persons) beneficially owned an aggregate of less than 1% of the
total outstanding shares of the Fund.
Investment Advisor and Sub-Advisor
Investment Company Capital Corp., located at One South Street,
Baltimore, Maryland, 21202, serves as investment advisor to the Fund. As
compensation for such services for the fiscal year ended October 31, 1997, ICC
received from the Fund fees of $782,095. ICC is an indirect subsidiary of
Bankers Trust Corporation.
See "Alex. Brown Capital Advisory & Trust Company" on page 8 for
additional information concerning the Sub-Advisor.
Principal Underwriter
ICC Distributors, Inc., located at Two Portland Square, Portland,
Maine 04101, acts as the Fund's principal underwriter.
-17-
<PAGE>
Portfolio Transactions
For the fiscal year ended October 31, 1997, the Fund paid no
brokerage commissions to affiliated brokers.
Independent Accountants
A majority of the Fund's Board of Directors who are not "interested
persons" (within the meaning of the 1940 Act) of the Fund have selected
PricewaterhouseCoopers LLP as the independent accountants of the Fund for the
fiscal year ending October 31, 1998. A representative of
PricewaterhouseCoopers LLP will be available by telephone during the Special
Meeting, if needed, to make a statement if desired and to respond to
appropriate questions from shareholders.
Beneficial Owners
To the knowledge of Fund Management, as of the Record Date, the
following were beneficial owners of 5% or more of the outstanding shares of
the Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Amount of Beneficial Ownership Percent of Total Shares Outstanding
T. Rowe Price, Trustee 585,419.324 shares 9.28%
Alex. Brown & Sons Plan #100460
PO Box 17215
Baltimore, Maryland 21297-1215
Alex. Brown Capital Advisory
& Trust Company* 2,038,313.134 shares 32.31%*
c/o BT Alex. Brown Incorporated
PO Box 1346
Baltimore, Maryland 21203-1346
</TABLE>
- ----------
* Due to stock ownership, ABCAT may be deemed to be a controlling person of the
Fund.
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 sixty (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 Proposal 1 (the election of the proposed Board of
Directors of the Fund) requires the affirmative vote of a plurality of all
votes cast at the Special Meeting, provided that one-third of the shares
entitled to vote are present in person or by Proxy at the Special Meeting.
Approval of Proposal 2 (the Sub-Advisory Agreement) requires the
-18-
<PAGE>
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 Proposals 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
Proposal 2.
Other Matters
No business other than the matters 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.
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, SIGN AND
DATE 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,
Amy M. Olmert
Secretary
Dated: August 21, 1998
-19-
<PAGE>
Exhibit A
FLAG INVESTORS EMERGING GROWTH FUND, INC.
FORM OF
SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT is made as of the
____ day of _________, 1998 by and among FLAG INVESTORS EMERGING GROWTH FUND,
INC., a Maryland corporation (the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a
Maryland corporation (the "Advisor"), and ALEX. BROWN CAPITAL ADVISORY &
TRUST COMPANY, a Maryland trust company (the "Sub-Advisor").
WHEREAS, the Advisor is the investment advisor to the Fund,
which is an open-end, diversified management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund and the Advisor wish to retain the
Sub-Advisor for purposes of rendering advisory services to the Fund and the
Advisor in connection with the Advisor's responsibilities to the Fund on the
terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt
whereof is hereby acknowledged, the parties hereto agree as follows:
1. Appointment of Sub-Advisor. The Fund hereby appoints the
Sub-Advisor to act as the Fund's Sub-Advisor under the supervision of the
Fund's Board of Directors and the Advisor, and the Sub-Advisor hereby accepts
such appointment, all subject to the terms and conditions contained herein.
2. Delivery of Documents. The Fund has furnished the
Sub-Advisor with copies properly certified or authenticated of each of the
following:
(a) The Fund's Articles of Incorporation, filed with the
Department of Assessments and Taxation of the State of Maryland on
July 2, 1987 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to
time be amended, are herein called the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time
be amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration Filed Pursuant
to Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as
filed with the Securities and Exchange Commission (the "SEC") on
September 8, 1987;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No.
33-21119) and under the 1940 Act as filed with the SEC on April 8,
1988 relating to the shares of the Fund, and all amendments thereto;
and
(f) The Fund's most recent prospectus (such prospectus, as
presently in effect, and all amendments and supplements thereto are
herein called the "Prospectus").
A-1
<PAGE>
The Fund will furnish the Sub-Advisor from time to time with
copies, properly certified or authenticated, of all amendments or supplements
to the foregoing, if any, and all documents, notices and reports filed with
the SEC.
3. Duties of Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub-Advisor shall, subject to overall supervision
by the Advisor:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to
the Fund's Board of Directors;
(c) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and
regularly report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund;
(e) provide the Board of Directors of the Fund on a
regular basis with financial reports with respect to the Fund's
portfolio investments and analyses of the Fund's operations and the
operations of comparable investment companies; and
(f) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial
data, domestic, foreign or otherwise, whether affecting the economy
generally or the Fund, and whether concerning the individual issuers
whose securities are included in the Fund's portfolio or the
activities in which they engage, or with respect to securities which
the Advisor considers desirable for inclusion in the Fund's
portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide
the Board of Directors with such reports as the Board of Directors may require
in order to monitor the Fund's portfolio transaction activities. In selecting
a broker-dealer to execute each particular transaction, the Sub-Advisor will
take the following into consideration: the best net price available; the
reliability, integrity and financial condition of the broker-dealer; the size
of and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of the Fund on
a continuing basis. Accordingly, the price to the Fund in any transaction may
be less favorable than that available from another broker-dealer if the
difference is reasonably justified by other aspects of the portfolio execution
services offered. Subject to such policies as the Board of Directors may
determine, the Sub-Advisor shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely by reason
of its having caused the Fund to pay a broker-dealer that provides brokerage
and research services to the Sub-Advisor an amount of commission for effecting
a portfolio investment transaction in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction, if
the Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the
A-2
<PAGE>
orders placed by it on behalf of the Fund to such broker-dealers who also
provide research or statistical material or other services to the Fund or the
Sub-Advisor. Such allocation shall be in such amounts and proportions as the
Sub-Advisor shall determine and the Sub-Advisor will report on said allocation
regularly to the Board of Directors of the Fund, indicating the brokers to
whom such allocations have been made and the basis therefor.
Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking the most
favorable price and execution available and such other policies as the
Directors may determine, the Sub-Advisor may consider services in connection
with the sale of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Subject to the policies established by the Board of
Directors in compliance with applicable law, the Sub-Advisor may direct BT
Alex. Brown Incorporated ("BT Alex. Brown") to execute portfolio transactions
for the Fund on an agency basis. The commissions paid to BT Alex. Brown must
be, as required by Rule 17e-1 under the 1940 Act, "reasonable and fair
compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." If the purchase or
sale of securities consistent with the investment policies of the Fund or one
or more other accounts of the Sub-Advisor is considered at or about the same
time, transactions in such securities will be allocated among the accounts in
a manner deemed equitable by the Sub-Advisor. BT Alex. Brown and the
Sub-Advisor may combine such transactions, in accordance with applicable laws
and regulations, in order to obtain the best net price and most favorable
execution.
The Fund will not deal with the Sub-Advisor or BT Alex.
Brown in any transaction in which the Sub-Advisor or BT Alex. Brown acts as a
principal with respect to any part of the Fund's order. If BT Alex. Brown is
participating in an underwriting or selling group, the Fund may not buy
portfolio securities from the group except in accordance with policies
established by the Board of Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any activities
undertaken by the Sub-Advisor on behalf of the Fund pursuant hereto, shall at
all times be subject to any applicable directives of the Board of Directors of
the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times
conform to:
(a) all applicable provisions of the 1940 Act and
any rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration Statement of
the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of
Incorporation;
(d) the provisions of the By-Laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable among the Fund, the Sub-Advisor and the Advisor as follows:
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<PAGE>
(a) The Sub-Advisor shall, subject to compliance
with applicable banking regulations, furnish, at its expense and
without cost to the Fund, the services of one or more officers of the
Fund, to the extent that such officers may be required by the Fund
for the proper conduct of its affairs.
(b) The Sub-Advisor shall maintain, at its expense
and without cost to the Fund, a trading function in order to carry
out its obligations under Section 3 hereof to place orders for the
purchase and sale of portfolio securities for the Fund.
(c) The Fund assumes and shall pay or cause to be
paid all other expenses of the Fund, including, without limitation:
payments to the Advisor under the Investment Advisory Agreement
between the Fund and the Advisor; the charges and expenses of any
registrar, any custodian or any depository appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property,
and any transfer, dividend or accounting agent or agents appointed by
the Fund; brokers' commissions chargeable to the Fund in connection
with portfolio securities transactions to which the Fund is a party;
all taxes, including securities issuance and transfer taxes, and fees
payable by the Fund to federal, state or other governmental agencies;
the costs and expenses of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection
with the registration and maintenance of registration of the Fund and
its shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the
costs and expenses of printing, including typesetting, and
distributing prospectuses and statements of additional information of
the Fund and supplements thereto to the Fund's shareholders; all
expenses of shareholders' and Directors' meetings and of preparing,
printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of
any dividend, distribution, withdrawal or redemption, whether in
shares or in cash; charges and expenses of any outside service used
for pricing of the Fund's shares; charges and expenses of legal
counsel, including counsel to the Directors of the Fund who are not
"interested persons" (as defined in the 1940 Act) of the Fund and of
the independent accountants, in connection with any matter relating
to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property
or personnel (including officers and Directors) of the Fund which
inure to its benefit; extraordinary expenses (including but not
limited to, legal claims, liabilities and litigation costs and any
indemnification related thereto); and all other charges and costs of
the Fund's operation unless otherwise explicitly provided herein.
8. Compensation. For the services to be rendered hereunder
by the Sub-Advisor, the Advisor shall pay to the Sub-Advisor monthly
compensation equal to the sum of 0.55% of the Fund's average daily net assets
provided that, if necessary, the Sub-Advisor's annual compensation will be
reduced in an amount proportional to the Advisor's waiver so that the Fund's
total expenses for that year do not exceed 1.50% of the Flag Investors Class A
Shares' average daily net assets. Except as hereinafter set forth,
compensation under this Agreement shall be calculated and accrued daily and
the amounts of the daily accruals shall be paid monthly. If this Agreement
becomes effective subsequent to the first day of a month or shall terminate
before the last day of a month, compensation for that part of the month this
Agreement is in effect shall be prorated in a manner consistent with the
calculation of the fees as set forth above. Payment of the Sub-Advisor's
compensation for the preceding month shall be made as promptly as possible.
9. Additional Responsibilities. The Sub-Advisor may, but
shall not be under any duty to, perform services on behalf of the Fund which
are not required by this Agreement upon the request of the Fund's Board of
Directors. Such services will be performed on behalf of the Fund and the
Sub-Advisor's charges in rendering such services will be billed monthly to the
Fund, subject to
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<PAGE>
examination by the Fund's independent certified public accountants. Payment or
assumption by the Sub-Advisor of any Fund expense that the Sub-Advisor is not
required to pay or assume under this Agreement shall not relieve the
Sub-Advisor of any of its obligations to the Fund nor obligate the Sub-Advisor
to pay or assume any similar Fund expenses on any subsequent occasions.
10. Term. This Agreement shall become effective at 12:01
a.m. on the date hereof and shall remain in force and effect, subject to
Section 12 hereof, for two years from the date hereof.
11. Renewal. Following the expiration of its initial
two-year term, this Agreement shall continue in force and effect from year to
year, provided that such continuance is specifically approved at least
annually:
(a) (i) by the Fund's Board of Directors or (ii) by
the vote of a majority of the outstanding voting securities of the
Fund (as defined in Section 2(a)(42) of the 1940 Act); and
(b) by the affirmative vote of a majority of the
Directors who are not parties to this Agreement or "interested
persons" of a party to this Agreement (other than as Directors of the
Fund) by votes cast in person at a meeting specifically called for
such purpose.
12. Termination. This Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Fund's Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund (as defined in Section 2(a)(42) of the 1940 Act), on sixty (60) days'
written notice to the Advisor and the Sub-Advisor. This Agreement may be
terminated at any time, without the payment of any penalty, by the Advisor or
the Sub-Advisor on sixty (60) days' written notice to the Fund and the other
party. Upon the termination of the Investment Advisory Agreement, this
Agreement shall automatically terminate on sixty (60) days written notice. The
notice provided for herein may be waived by any person to whom such notice is
required. This Agreement shall automatically terminate in the event of its
assignment (as defined in Section 2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers or Directors of the Sub-Advisor may serve
as officers or Directors of the Fund, and that officers or Directors of the
Fund may serve as officers or Directors of the Sub-Advisor to the extent
permitted by law; and that the officers and Directors of the Sub-Advisor are
not prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers, trustees
or directors of any other firm, trust or corporation, including other
investment companies.
14. Liability of Sub-Advisor. In the performance of its
duties hereunder, the Sub-Advisor shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts within
reasonable limits to ensure the accuracy of all services performed under this
Agreement, but the Sub-Advisor shall not be liable for any act or omission
which does not constitute willful misfeasance, bad faith or gross negligence
on the part of the Sub-Advisor or its officers, directors or employees, or
reckless disregard by the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-
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<PAGE>
Advisor for this purpose shall be 19 South Street, Baltimore, Maryland 21202,
and the address of the Advisor and the Fund shall be One South Street,
Baltimore, Maryland 21202.
16. Questions and Interpretation. Any question of
interpretation of any term or provision of this Agreement having a counterpart
in or otherwise derived from a term or provision of the 1940 Act shall be
resolved by reference to such term or provision of the 1940 Act and to
interpretations thereof, if any, by the United States Courts or in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC issued pursuant to said Act. In addition, where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
revised by rule, regulation or order of the SEC, such provision shall be
deemed to incorporate the effect of such rule, regulation or order. Otherwise
the provisions of this Agreement shall be interpreted in accordance with the
laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS EMERGING GROWTH FUND, INC.
_________________________ By: _____________________________________
Name: Name:
Title:
Attest: INVESTMENT COMPANY CAPITAL CORP.
_________________________ By: _____________________________________
Name: Name:
Title:
Attest: ALEX. BROWN CAPITAL ADVISORY & TRUST COMPANY
_________________________ By: _____________________________________
Name: Name: ______________________________
Title: ______________________________
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<PAGE>
FLAG INVESTORS
PROXY SERVICES
P.O. BOX 515
BALTIMORE, MD 21202
FLAG INVESTORS EMERGING GROWTH FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 25, 1998
------------------
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 matters relating to Flag Investors
Emerging Growth Fund, Inc. (the "Fund"). The undersigned shareholder(s) of the
Fund, revoking previous proxies, hereby appoint(s), Edward J. Veilleux, Amy M.
Olmert and Scott J. Liotta, 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 September 25, 1998 (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 matters set forth below.
This proxy will be voted as indicated below. If no indication is made, this
proxy will be voted FOR the proposals 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 Directors
1. To consider and act upon a proposal to elect a Board of Directors.
01) Richard T. Hale 05) James J. Cunnane
02) Joseph R. Hardiman 06) Louis E. Levy
03) Eugene J. McDonald 07) Rebecca W. Rimel
04) Truman T. Semans 08) Carl W. Vogt
|_| FOR ALL
|_| WITHHOLD ALL
|_| FOR ALL EXCEPT:
To withhold authority to vote mark "FOR ALL EXCEPT" and write the
nominee's name on the line below.
--------------------------------------------
<PAGE>
Vote on Sub-Advisory Agreement
2. To approve a Sub-Advisory Agreement among the Fund, Investment Company
Capital Corp. and Alex. Brown Capital Advisory & Trust Company.
<TABLE>
<CAPTION>
<S> <C> <C>
|_| 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
or in any other _______________________________________ _____________
representative capacity, Signature (Joint Owners) Date
please sign your name and
title. For joint accounts,
each joint owner must sign.
</TABLE>
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
