<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 240.14a-11(c) or 240.14a-12
FLAG INVESTORS EMERGING GROWTH FUND, INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(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):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / 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.
One South Street
Baltimore, Maryland 21202
---------------------------
August 25, 1999
Dear Shareholder:
On June 4, 1999, Bankers Trust merged with Deutsche Bank AG. Bankers Trust
is the parent of Investment Company Capital Corp., the investment advisor to the
Flag Investors Emerging Growth Fund, Inc. (the "Fund"). Brown Investment
Advisory & Trust Company is the sub-advisor to the Fund. As a result of the
merger, we are asking shareholders of the Fund to approve new advisory and
sub-advisory agreements. Enclosed is further information relating to these
changes, including a Questions & Answers section, proxy statement and proxy
card(s).
Important information about the changes:
o The merger has no effect on the number of shares you own or the value of
those shares.
o The advisory and sub-advisory fees payable under the new advisory and
sub-advisory agreements have not increased.
o The investment objective of your mutual fund investment has not changed.
In addition to the change in advisory agreements, shareholders are also
being asked to approve other changes outlined in the enclosed Proxy Statement.
The Board of Directors of the Fund believes that the proposals are important and
recommends that you read the enclosed materials carefully and then vote for all
proposals.
What you need to do:
o Read all enclosed materials including the Questions & Answers section.
o Choose one of the following options to vote:
1. By Mail: Complete the enclosed proxy card and return it in the
postage- paid envelope provided.
2. By Telephone: Call the Toll-Free # on your proxy card.
3. By Internet: Logon to www.proxyvote.com.
4. Attend the Shareholder Meeting (details enclosed).
Sincerely,
/s/ Truman T. Semans
-----------------------------------
Truman T. Semans
Chairman
Flag Investors Emerging Growth Fund, Inc.
<PAGE>
August 25, 1999
IMPORTANT NEWS
FOR SHAREHOLDERS OF
FLAG INVESTORS EMERGING GROWTH FUND, INC.
While we encourage you to read the full text of the enclosed Proxy
Statement, here is a brief overview of some matters affecting the Fund which
require a shareholder vote.
Q & A: QUESTIONS AND ANSWERS
Q. What has happened to require a shareholder vote?
A. On June 4, 1999, Bankers Trust became a subsidiary of Deutsche Bank AG.
Bankers Trust is the parent of Investment Company Capital Corp. ("ICC"),
investment advisor to the Flag Investors Emerging Growth Fund, Inc. (the
"Fund"). Brown Investment Advisory & Trust Company ("Brown Trust") is the
sub-advisor to the Fund. Deutsche Bank, a banking company organized under the
laws of the Federal Republic of Germany, provides a comprehensive range of
global banking and financial services. Deutsche Bank now ranks as the fourth
largest investment manager in the world with $670 billion in assets in a full
range of active and index strategies. Deutsche Asset Management Americas handles
the investment management activities of Deutsche Bank in the Americas and, as of
July 31, 1999, manages $322 billion in assets.
To ensure that ICC may continue to serve as investment advisor and Brown Trust
as sub-advisor to the Fund, we are seeking shareholder approval of new advisory
and sub-advisory agreements. In addition, you are being asked to elect a Board
of Directors of the Fund and to modify or eliminate certain of the Fund's
fundamental investment policies in response to changes in the law.
THE BOARD MEMBERS OF YOUR FUND, INCLUDING THOSE WHO ARE NOT AFFILIATED WITH THE
FUND, RECOMMEND THAT YOU VOTE FOR THESE PROPOSALS.
Q. Why am I being asked to vote on the new advisory and sub-advisory
agreements?
A. The Investment Company Act of 1940, which regulates investment companies in
the United States such as the Fund, requires a shareholder vote to approve new
investment advisory agreements following certain types of business combinations.
The new advisory and sub-advisory agreements became effective immediately upon
consummation of the merger and will continue in effect only upon shareholder
approval.
Q. How does the merger affect the Fund?
A. The Fund and its investment objective have not changed as a result of the
merger. You still own the same shares in the same Fund as you did prior to the
merger. The new advisory and sub-advisory agreements contain substantially the
same terms and conditions as the investment advisory and sub-advisory agreements
in effect prior to the merger, except for the dates of execution, effectiveness
and initial
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term. If shareholders do not approve the new advisory and sub-advisory
agreements, these agreements will no longer continue and the Board of Directors
will take such action as it deems to be in the best interests of the Fund and
its shareholders.
Q. Have the investment advisory and sub-advisory fees remained the same?
A. Yes.
Q. What are the benefits of the merger?
A. There are several potential positive aspects of the merger you may be
interested in. Most notably, the combined institution will be one of the largest
financial institutions in the world, as well as a leader in a number of
important categories, including asset management. The financial strength of the
combined institution coupled with the increased breadth and depth of its
resources and capabilities are advantages the acquisition brings. Further, as a
truly global institution, the combined entity will be in a unique position to
provide coverage, services and products.
Q. How does the Board of Directors of the Fund recommend that I vote?
A. After careful consideration, the Board of Directors of the Fund recommends
that you vote in favor of all the proposals on the enclosed proxy card.
Q. Where can I get more information?
A. If you need more information, please call Shareholder Communications
Corporation, the Fund's information agent, at 1-800-732-6168.
Q. How can I vote my shares?
A. You may choose from one of the following options to vote your shares:
o By mail, with the enclosed proxy card(s) and return envelope.
o By telephone, with a toll-free call to the telephone number that appears
on your proxy card.
o Through the Internet, by using the Internet address located on your proxy
card and following the instructions on the site.
o In person at the shareholder meeting (see details enclosed in proxy
statement).
Q. Will the Fund pay for the proxy solicitation and legal costs associated with
this transaction?
A. No, ICC will bear these costs.
Please vote all issues on each proxy card that you receive. Thank you for
mailing your proxy card promptly.
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
One South Street
Baltimore, Maryland 21202
---------------------------
Notice of Special Meeting of Shareholders
October 7, 1999
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"). The
Special Meeting will be held on Thursday, October 7, 1999, 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. The purpose of the Special Meeting is to consider the proposals
set forth below and to transact 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 new Investment Advisory Agreement between the
Fund and Investment Company Capital Corp.
PROPOSAL 3: To approve a new Sub-Advisory Agreement among the Fund,
Investment Company Capital Corp. and Brown Investment
Advisory & Trust Company.
PROPOSAL 4: To eliminate the Fund's fundamental investment policy
concerning short sales.
PROPOSAL 5: To eliminate the Fund's fundamental investment policy
concerning the purchase of securities on margin.
PROPOSAL 6: To eliminate the Fund's fundamental investment policy
concerning purchases of oil, gas or mineral interests.
PROPOSAL 7: To modify the Fund's fundamental investment policy
concerning the purchase or sale of commodities or
commodity contracts.
PROPOSAL 8: To modify the Fund's fundamental investment policy
concerning borrowing.
Only shareholders of the Fund at the close of business on August 6, 1999
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. YOU MAY ALSO VOTE EASILY AND QUICKLY BY TELEPHONE OR THROUGH THE
INTERNET. TO DO SO, PLEASE FOLLOW THE INSTRUCTIONS INCLUDED ON YOUR ENCLOSED
PROXY CARD. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO VOTE 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.
/s/ Amy M. Olmert
--------------------------
Amy M. Olmert
Secretary
Dated: August 25, 1999
<PAGE>
FLAG INVESTORS EMERGING GROWTH FUND, INC.
One South Street
Baltimore, Maryland 21202
---------------------------------
PROXY STATEMENT
---------------------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
October 7, 1999
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, October 7, 1999, 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 25, 1999.
Summary
-------
At the Special Meeting, shareholders will be asked to elect a slate of
Directors, to approve a new Investment Advisory Agreement, to approve a new
Sub-Advisory Agreement and to consider a number of issues relating to the
fundamental investment policies of the Fund.
Proposal 1 asks shareholders of the Fund to elect a Board of Directors.
Proposals 2 and 3 ask shareholders to consider a new Investment Advisory
Agreement between the Fund and Investment Company Capital Corp. ("ICC" or the
"Advisor") and a new Sub-Advisory Agreement among the Fund, ICC and Brown
Investment Advisory & Trust Company ("Brown Trust" or the "Sub-Advisor"). This
action is necessary because the merger on June 4, 1999 (the "Merger") between
Bankers Trust Corporation ("Bankers Trust"), the indirect parent of ICC, and a
U.S. subsidiary of Deutsche Bank AG ("Deutsche Bank") may have arguably resulted
in an assignment and, therefore, termination of the Fund's prior Investment
Advisory and Sub-Advisory Agreements under the Investment Company Act of 1940,
as amended (the "1940 Act"). The proposed new Investment Advisory and
Sub-Advisory Agreements are identical to the Fund's prior Investment Advisory
and Sub-Advisory Agreements, except for the dates of execution, effectiveness
and initial term.
Proposals 4 through 8 ask shareholders to approve changes in the
fundamental investment policies of the Fund. Shareholders are being asked to
modify or eliminate
1
<PAGE>
certain of the Fund's investment policies primarily to update these policies to
reflect changes in the law. The changes to the Fund's fundamental policies would
become effective upon shareholder approval or at such later date as the proper
officers of the Fund determine.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please vote your Proxy (the "Proxy") by mail, telephone or
Internet, allowing sufficient time for the Proxy to be received on or before
2:00 p.m. Eastern Time on Thursday, October 7, 1999. If your proxy is properly
returned, shares represented by it will be voted at the Special Meeting in
accordance with your instructions. However, if no instructions are specified on
the Proxy with respect to a specific Proposal, the Proxy will be voted FOR the
approval of such Proposal and in accordance with the judgment of the persons
appointed as proxies upon any other matter that may properly come before the
Special Meeting. 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 6, 1999, 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 that
date, the Fund had 6,315,075.267 shares outstanding. 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, Internet or oral
communication by employees and officers of ICC and Brown Trust (collectively,
the "Advisors"). Additional solicitation may be made by Shareholder
Communications Corporation ("Shareholder Communications"), a solicitation firm
located in New York, New York, that has been engaged by the Fund to assist in
proxy solicitation.
Upon request, the Fund will furnish to shareholders, without charge, a copy
of the Annual Report for its fiscal year ended October 31, 1998 and a copy of
the Semi-Annual Report for the period ended April 30, 1999. 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) 553-8080.
The Fund is registered as an open-end diversified management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended. The Fund offers four classes of shares: Class A, Class
B, Institutional and Brown Investment Advisory & Trust.
2
<PAGE>
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 Richard R. Burt, Richard T. Hale, Joseph R. Hardiman, Louis E.
Levy, Eugene J. McDonald, Rebecca W. Rimel, Truman T. Semans and Robert H.
Wadsworth (each a "Nominee" and collectively, the "Nominees"). All of the
Nominees are currently members of the Board of Directors except Messrs. Burt
and Wadsworth. Ms. Rimel and Messrs. Semans, Hale, Hardiman, Levy, and McDonald
were last elected by a vote of shareholders on September 25, 1998. Messrs.
James J. Cunnane and Carl W. Vogt, who are currently members of the Board, are
not seeking reelection and will resign from the Board effective upon the
election of their successors. It is the intention of the Board that at least
75% of its members will be disinterested persons within the contemplation of
Section 15(f) of the 1940 Act and will remain disinterested persons for at
least three years after the Merger.
At a meeting held on July 28, 1999, the nominating committees (with each
committee comprised of four independent directors) of the Boards of Directors of
the Deutsche Funds, Inc. ("Deutsche Funds") and the Deutsche Portfolios
recommended to the full Boards the nomination of Ms. Rimel and Messrs. Hale,
Hardiman, Levy, McDonald and Semans to each Board. If approved by the full
Boards of the Deutsche Funds and the Deutsche Portfolios, and if subsequently
approved by shareholders, they will serve as directors of the Deutsche Funds and
the Deutsche Portfolios. The Deutsche Funds and the Deutsche Portfolios are
advised by a subsidiary of Deutsche Bank.
The proposal to elect the Board of Directors is being presented for
shareholder approval pursuant to requirements under the 1940 Act. Under the 1940
Act, Directors may not fill vacancies unless at least two-thirds of the
Directors holding office after such vacancies are filled have been elected by
the shareholders. The Special Meeting will provide the Board with operating
flexibility by providing greater assurance that the Board of Directors will be
able 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. 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.
3
<PAGE>
Information Regarding Nominees
The following information is provided for each Nominee. As of May 31, 1999,
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
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1999** Percentage
- ----------------------- ----- ------------------------------------------- ---------------- -----------
<S> <C> <C> <C> <C>
Truman T. Semans* 72 Vice Chairman, Brown Investment 27,410.49 ***
Chairman and Advisory & Trust Company (formerly,
Director since 1987 Alex. Brown Capital Advisory & Trust
Company); Director, Investment Company
Capital Corp. (registered investment
advisor); and Director and Chairman, the
Executive Committee of Virginia Hot
Springs, Inc. (property management).
Formerly, Managing Director, BT Alex.
Brown Incorporated; and Vice Chairman,
Alex. Brown & Sons Incorporated (now
BT Alex. Brown Incorporated). Director of
10 funds in the Fund Complex.****
Richard R. Burt 52 Chairman, IEP Advisors, Inc.; Chairman of None ***
Nominee the Board, Weirton Steel Corporation;
Member of the Board, Archer Daniels Midland
Company (agribusiness operations), Hollinger
International Inc. (publishing), Homestake
Mining Company (mining and exploration), HCL
Technologies (information technology) and Anchor
Technologies (gaming software and equipment);
Director, Mitchell Hutchins family of funds and
Deutsche Funds, Inc.; Trustee, Deutsche
Portfolios (registered investment companies);
and Member, Textron Corporation International
Advisory Council. Formerly, Partner, McKinsey &
Company (consulting), 1991-1994; and U.S. Chief
Negotiator in Strategic Arms Reduction Talks
(START) with former Soviet Union and U.S.
Ambassador to the Federal Republic of Germany,
1985-1991. Nominee for Director of 8 funds in
the Fund Complex.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1999** Percentage
- ----------------------- ----- ---------------------------------------------- ---------------- -----------
<S> <C> <C> <C> <C>
Richard T. Hale* 54 Managing Director, Deutsche Asset 7,548.00 ***
Director since 1989 Management Americas; Managing Director,
BT Alex. Brown Incorporated; Director and
President, Investment Company Capital
Corp. (registered investment advisor); and
Chartered Financial Analyst. Director of 10
funds in the Fund Complex.
Joseph R. Hardiman 62 Private Equity Investor and Capital Markets None ***
Director since 1998 Consultant; and Director, Wit Capital Group
(registered broker dealer) and The Nevis Fund
(registered investment company). Formerly,
Director, Circon Corp. (medical instruments),
November 1998 - January 1999; 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, 1985-1987; and General
Partner, Alex. Brown & Sons Incorporated
(now BT Alex. Brown Incorporated), 1976-
1985. Director of each fund in the Fund
Complex.
Louis E. Levy 66 Director, Kimberly-Clark Corporation 2,547.00 ***
Director since 1994 (personal consumer products) and
Household International (finance and banking).
Formerly, Chairman of the Quality Control
Inquiry Committee, American Institute of
Certified Public Accountants, November 1998 -
January 1999; Trustee, Merrill Lynch Funds for
Institutions, 1991-1993; Adjunct Professor,
Columbia University - Graduate School of
Business, 1991-1992; and Partner, KPMG Peat
Marwick, retired 1990. Director of each fund in
the Fund Complex.
Eugene J. McDonald 67 President, Duke Management Company None ***
Director since 1992 (investments); Executive Vice President,
Duke University (education, research and health
care); Executive Vice Chairman and Director,
Central Carolina Bank & Trust (banking), and
Director, Victory Funds (registered investment
companies). Formerly, Director, AMBAC Treasurers
Trust (registered investment company) and DP
Mann Holdings (insurance). Director of each fund
in the Fund Complex.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1999** Percentage
- ----------------------- ----- ---------------------------------------------- ---------------- -----------
<S> <C> <C> <C> <C>
Rebecca W. Rimel 48 President and Chief Executive Officer, The None ***
Director since 1996 Pew Charitable Trusts (charitable funds);
and Director and Executive Vice President,
The Glenmede Trust Company (investment
trust and wealth management). Formerly,
Executive Director, The Pew Charitable
Trusts. Director of 11 funds in the Fund
Complex.
Robert H. Wadsworth 59 President, The Wadsworth Group None ***
Nominee (registered investment advisor), First Fund
Distributors, Inc. (registered broker dealer)
and Guinness Flight Investment Funds, Inc.;
Director, The Germany Fund, Inc., The New
Germany Fund, Inc., The Central European Equity
Fund, Inc., and Deutsche Funds, Inc.; Trustee,
Deutsche Portfolios; and Vice President,
Professionally Managed Portfolios and Advisors
Series Trust (registered investment companies).
Nominee for Director of 8 funds in the Fund
Complex.
</TABLE>
- ----------------
* 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 May 31, 1999, the Nominees as a group beneficially owned an
aggregate of less than 1% of the total outstanding shares of the Fund.
**** The "Fund Complex" consists of 12 registered investment companies which
hold themselves out to investors as related companies for purposes of
investment and investor services for which ICC provides investment
advisory or administrative services.
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,
1998, Independent Directors' fees (including fees paid to the Fund's President)
attributable to the assets of the Fund totaled $5,951. Officers of the Fund,
except the Fund's President, receive no direct remuneration from the Fund.
Officers of the Fund who are employees of Deutsche
6
<PAGE>
Asset Management Americas or its affiliates may be considered to have received
remuneration indirectly.
Any Director who receives fees from the Fund is permitted to defer between
50% and 100% of his or her annual compensation pursuant to a Deferred
Compensation Plan. Ms. Rimel and Messrs. Cunnane, Levy, McDonald and Vogt 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, 1998 is set forth in
the compensation table below. The aggregate compensation payable to such
Directors during the fiscal year ended October 31, 1998 by the Fund Complex is
also set forth in the compensation table below.
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(1) ....... $ 0 $0 $ 0 10
Richard T. Hale, Director(1) ........ $ 0 $0 $ 0 10
James J. Cunnane, Director .......... $ 676(2) (3) $39,000 13(4)
Joseph R. Hardiman, Director(5) ..... N/A N/A $ 9,750 11(6)
John F. Kroeger, Director(7) ........ $ 849 (3) $49,000 13(4)
Louis E. Levy, Director ............. $ 715 (3) $44,000 13(4)
Eugene J. McDonald, Director ........ $ 676(2) (3) $39,000 13(4)
Rebecca W. Rimel, Director .......... $ 693(2) (3) $39,000 12(4,6)
Carl W. Vogt, Esq., Director ........ $ 687(2) (3) $39,000 13(4,6)
</TABLE>
- ----------------
(1) Denotes an individual who is an "interested person" as defined in the 1940
Act.
(2) All amounts payable to Ms. Rimel and Messrs. Cunnane, McDonald and Vogt were
deferred pursuant to the Fund Complex's Deferred Compensation Plan.
(3) The Fund Complex has adopted a Retirement Plan for eligible Directors and
the Fund's President, as described below. The actuarially computed pension
expense allocated to the Fund for the fiscal year ended October 31,1998 was
approximately $2,643.
(4) One of these funds ceased operations on July 29, 1998. (5) Elected to the
Fund's Board effective October 1, 1998.
(6) Ms. Rimel receives, and Messrs. Hardiman and Vogt received (prior to their
appointment or election as Director to all of the funds in the Fund Complex)
proportionately higher compensation from each fund for which they serve as a
Director.
(7) Retired effective October 1, 1998. Deceased, November 26, 1998.
7
<PAGE>
The Fund Complex has adopted a retirement plan (the "Retirement Plan") for
the Fund's President and Directors who are not employees of the Fund, the Fund's
investment advisor or their respective affiliates (each, a "Participant"). 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 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 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. The Fund has two Participants, a Director who retired effective
December 31, 1994, and Harry Woolf, the Fund's President, who retired as a
Director effective December 31, 1996. These participants qualified for the
Retirement Plan by serving thirteen years and fourteen years, respectively, as
Directors in the Fund Complex and each 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, 1998, are as follows: Ms.
Rimel (3), and Messrs. Cunnane (4), Hardiman (0), Levy (4), McDonald (6), and
Vogt (3).
Estimated Annual Benefits Payable By Fund Complex Upon Retirement
Chairmen of Audit
Years of Service and Executive Committees 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 meetings of the Board of Directors held during the
fiscal year ended October 31, 1998. All incumbent Directors attended all of the
meetings 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
8
<PAGE>
Compliance Committee during the fiscal year ended October 31, 1998, were Ms.
Rimel and Messrs. Levy (Chairman), Cunnane, Hardiman, McDonald and Vogt, each of
whom is not an "interested person" within the meaning of the 1940 Act. Mr.
Kroeger was Chairman of the Audit and Compliance Committee until his retirement.
If elected, Messrs. Burt and Wadsworth will become members of the Audit and
Compliance Committee. The Audit and Compliance Committee met four times during
the fiscal year ended October 31, 1998. All incumbent members attended all of
the meetings of the Audit and Compliance Committee held during their respective
terms. The Chairman receives an aggregate annual fee of $10,000 from the Fund
Complex. Payment of the 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, 1998, were Ms. Rimel and Messrs. McDonald
(Chairman), Cunnane, Hardiman, Levy and Vogt, each of whom is not an "interested
person" within the meaning of the 1940 Act. If elected, Messrs. Burt and
Wadsworth will become members of the Nominating Committee. The Nominating
Committee met once during the fiscal year ended October 31, 1998.
All incumbent 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, 1998, were Ms. Rimel and Messrs. Cunnane
(Chairman), Hardiman, Levy, McDonald and Vogt, each of whom is not an
"interested person" within the meaning of the 1940 Act. If elected, Messrs. Burt
and Wadsworth will become members of the Compensation Committee. The
Compensation Committee did not meet during the fiscal year ended October 31,
1998.
The Board of Directors has an Executive Committee. The Executive Committee
makes recommendation to the full Board of Directors with respect to the renewal
of the Fund's agreements with its service providers. The members of the
Executive Committee during the fiscal year ended October 31, 1998, were Ms.
Rimel and Messrs. McDonald (Chairman), Cunnane, Levy, Hardiman and Vogt, each of
whom is not an "interested person" within the meaning of the 1940 Act. If
elected, Messrs. Burt and Wadsworth will become members of the Executive
Committee. The Executive Committee was formed on September 28, 1998, and did not
meet during the fiscal year ended October 31, 1998. The Chairman receives an
aggregate annual fee of $10,000 from the Fund Complex. Payment of the fee is
allocated among all funds in the Fund Complex in proportion to their relative
net assets.
9
<PAGE>
Board Approval of the Election of Directors
At meetings of the Board of Directors held on March 30, 1999 and July 28,
1999, 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 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 new Investment Advisory Agreement between the
Fund and Investment Company Capital Corp.
General Information
ICC is the Fund's investment advisor and Brown Trust is the Fund's
sub-advisor. ICC is an indirect wholly owned subsidiary of Bankers Trust. On
November 30, 1998, Bankers Trust, Deutsche Bank and Circle Acquisition
Corporation entered into an Agreement and Plan of Merger (the "Merger
Agreement"). Pursuant to the terms of the Merger Agreement, Circle Acquisition
Corporation, a wholly owned, New York subsidiary of Deutsche Bank, merged with
and into Bankers Trust on June 4, 1999, with Bankers Trust continuing as the
surviving entity. Under the terms of the Merger, each outstanding share of
Bankers Trust common stock was converted into the right to receive $93 in cash,
without interest.
As a result of the Merger, Bankers Trust became a wholly owned subsidiary
of Deutsche Bank. Deutsche Bank is a banking company with limited liability
organized under the laws of the Federal Republic of Germany. Deutsche Bank is
the parent company of a group consisting of banks, capital markets companies,
mutual fund management companies, mortgage banks, a property finance company,
installment financing and leasing companies, insurance companies, research and
consultancy companies and other domestic and foreign companies (the "Deutsche
Group"). At March 31, 1999, the Deutsche Group had total assets of U.S. $727
billion. The Deutsche Group's capital and reserves at March 31, 1999, were U.S.
$19.6 billion. Since
10
<PAGE>
the Merger, Bankers Trust, ICC and Brown Trust along with their affiliates, have
continued to offer the same range of financial products and services, including
investment advisory services, that they offered prior to the Merger.
The Merger on June 4, 1999 may have resulted in an assignment and,
therefore a termination, of the Fund's prior Investment Advisory Agreement under
the 1940 Act. 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)
interested persons of any such party (the "Independent Directors"), unanimously
approved the New Advisory Agreement (attached as Exhibit A) on March 30, 1999.
The New Advisory Agreement is identical to the Fund's prior Investment Advisory
Agreement, except for the dates of execution, effectiveness and initial term.
On May 25, 1999, ICC was granted an exemptive order (the "Exemptive Order")
by the Securities and Exchange Commission (the "SEC") permitting implementation,
without obtaining prior shareholder approval, of the New Advisory Agreement
during an interim period commencing on the date of the closing of the Merger and
continuing, for a period of up to 150 days, through the date on which the New
Advisory Agreement is approved by the shareholders of the Fund (the "Interim
Period"). Under the terms of the Exemptive Order, ICC is allowed to receive
advisory fees during the Interim Period pursuant to the New Advisory Agreement.
In accordance with the Exemptive Order, the advisory fees charged to the Fund
and paid to ICC under the New Advisory Agreement have been held in an
interest-bearing escrow account and the Fund expects to continue to deposit
these fees in such account until approval of the New Advisory Agreement by
shareholders of the Fund has been obtained. If the New Advisory Agreement is not
approved by the shareholders of the Fund by the expiration of the Interim
Period, the fees held in escrow will be remitted to the Fund. As of July 31,
1999, the amount escrowed totaled $200,183.91.
ICC does not anticipate that the Merger will result in any reduction in the
quality of services now provided to the Fund. Nor does ICC anticipate that the
Merger will have any adverse effect on its ability to fulfill its obligations
under the New Advisory Agreement or to operate its business in a manner
consistent with past business practice.
The Prior Advisory Agreement
Prior to June 4, 1999, ICC served as investment advisor to the Fund
pursuant to an Investment Advisory Agreement between ICC and the Fund, dated as
of September 1, 1997 (the "Prior Advisory Agreement"). The Prior Advisory
Agreement was initially approved by the shareholders of the Fund on August 14,
1997. The Prior Advisory Agreement was last approved by the Fund's Board of
Directors, including a majority of the Independent Directors, on September 29,
1998.
11
<PAGE>
The New Advisory Agreement
Other than the dates of execution, effectiveness and initial term, the New
Advisory Agreement which has been in effect since June 4, 1999 is identical to
the Prior Advisory Agreement. The terms of the New Advisory Agreement are
summarized below and are qualified by reference to Exhibit A.
Advisory Fees. 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 Prior 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, ICC would have received the same compensation as it received under
the Prior Advisory Agreement.
The New Advisory Agreement. The New Advisory Agreement provides that the
Advisor, in return for its fee, will (a) formulate and implement continuing
programs for the purchases and sales of securities and regularly report to the
Fund's Board of Directors; (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; (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 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
12
<PAGE>
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, the Advisor may delegate certain of its
duties enumerated above to a sub-advisor.
Under the New Advisory Agreement, the Fund pays ICC compensation at an
annual rate of 0.85% 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. Compensation shall be calculated and accrued daily and the amounts of
the daily accruals shall be paid monthly.
The New Advisory Agreement provides that the Advisor will furnish, subject
to compliance with applicable banking regulations, 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. The Fund assumes and pays all other expenses of the Fund. These
expenses include, but are not limited to, payments to the Fund's distributor
under the Fund's plans of distribution; the charges and expenses of any
registrar, any custodian or 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; and broker's commissions
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party. Additional information regarding other Fund expenses
is included in the New Advisory Agreement attached as Exhibit A.
The services of the Advisor are not to be deemed exclusive, and the Advisor
is free to render investment advisory and corporate administrative or 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. The Advisor's officers or directors may serve as officers or directors
of the Fund, and the Fund's officers or directors may serve as officers or
directors of the Advisor, to the extent permitted by law.
Following the expiration of its initial two-year term, the New Advisory
Agreement continues in full force and effect from year to year, provided that
such continuance is approved at least annually by the Fund's Board or by the
vote of a majority of the Fund's outstanding voting securities, 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.
13
<PAGE>
The New Advisory Agreement may be terminated at any time, on waivable
written notice within 60 days and without any penalty, by vote of the Fund's
Board of Directors, by vote of a majority of the Fund's outstanding voting
securities or by the Advisor. The agreement automatically terminates in the
event of its assignment.
The New Advisory Agreement obligates the Advisor 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
the Advisor is not 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 the agreement.
Board Considerations. The Board held a meeting on March 30, 1999, at which
the Board, including the Independent Directors, unanimously approved the New
Advisory Agreement and recommended the New Advisory Agreement for approval by
the shareholders of the Fund. 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
Prior 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 Bankers Trust and Deutsche Bank 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:
1. 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 (Bankers Trust and Deutsche Bank,
respectively, in this case). The Fund would be in compliance with this provision
of Section 15(f).
2. 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). Bankers Trust and
Deutsche Bank are not aware of any express or implied term, condition,
arrangement
14
<PAGE>
or understanding that would impose an "unfair burden" on the Fund as a result of
the Merger. Bankers Trust and Deutsche Bank 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 ICC's organization and upon the ability of ICC to provide
advisory services to the Fund. The Board considered the skills and capabilities
of ICC in this regard and the representations of Bankers Trust and Deutsche Bank
that no material change was planned in the current management or facilities of
ICC.
The Board was also informed of the resources of Deutsche Bank 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 Deutsche
Bank's experience as advisor and service provider to two families of U.S. mutual
funds as well as numerous non-U.S. mutual funds.
The Board also considered other effects on the Fund of ICC becoming an
affiliated person of Deutsche Bank. Following the Merger, the 1940 Act will
prohibit or impose certain conditions on the ability of the Fund to engage in
certain transactions with Deutsche Bank. For example, absent exemptive relief,
the Fund will be prohibited from entering into securities transactions in which
Deutsche Bank acts as a principal. Currently the Fund is prohibited from
entering into only those transactions in which Bankers Trust acts as principal.
The Fund will also have to satisfy certain conditions in order to engage in
securities transactions in which Deutsche Bank is acting as an underwriter. The
Fund is already required to satisfy such conditions when engaging in
transactions in which Bankers Trust 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, insofar as
they apply to approval of the New Advisory Agreement, would be borne by the
Advisor.
After consideration of the above factors and such other factors and
information that the Board deemed relevant, the Board, including the Independent
Directors, unanimously approved the New Advisory Agreement and voted to
recommend its approval to the shareholders of the Fund.
Additional Information. On March 11, 1999, Bankers Trust Company, a
separate subsidiary of Bankers Trust, announced that it had reached an agreement
with the United States Attorney's Office in the Southern District of New York to
resolve an investigation concerning inappropriate transfers of unclaimed funds
and related record-keeping problems that occurred between 1994 and early 1996.
ICC became a subsidiary of Bankers Trust after these events took place. Pursuant
to its agreement with the U.S. Attorney's office, Bankers Trust Company pleaded
guilty to misstating
15
<PAGE>
entries in the bank's books and records and agreed to pay a $63.5 million fine
to state and federal authorities. On July 26, 1999, the federal criminal
proceedings were concluded with Bankers Trust Company's formal sentencing. The
events leading up to the guilty pleas did not arise out of the investment
advisory or management activities provided by ICC to the Fund.
As a result of the pleas, absent an order from the SEC, ICC would not be
able to continue as Advisor. The SEC granted Bankers Trust Company a temporary
order under Section 9(c) of the 1940 Act to permit Bankers Trust Company and its
affiliates to continue to provide investment advisory services to registered
investment companies, and Bankers Trust Company, pursuant to Section 9(c) of the
1940 Act, has filed an application for a permanent order. On May 7, 1999, the
SEC extended the temporary order under Section 9(c) of the 1940 Act until the
SEC takes final action on the application for a permanent order or, if earlier,
November 8, 1999. However, there is no assurance that the SEC will grant a
permanent order. If the SEC refuses to grant a permanent order, shareholders
will receive supplemental proxy materials requesting approval to release any
amounts held in escrow up to the time of the refusal and such other action as
deemed appropriate by the Board.
Investment Company Capital Corp.
ICC is a registered investment advisor that had under management as of June
30, 1999 approximately $10 billion, including assets of the Fund and the assets
of ICC's other clients. ICC is a wholly owned subsidiary of BT Alex. Brown
Incorporated ("BT Alex. Brown") and an indirect subsidiary of Bankers Trust. The
principal address of ICC and BT Alex. Brown is One South Street, Baltimore,
Maryland, 21202 and the principal address of Bankers Trust is 130 Liberty
Street, New York, New York, 10006. Bankers Trust is a wholly owned subsidiary of
Deutsche Bank. The principal address of Deutsche Bank is Deutsche Bank
Aktiengesellschaft, Taunusalage 12, D-60262 Frankfurt am Main, Federal Republic
of Germany.
Deutsche Asset Management Americas is an operating unit of Deutsche Bank
consisting of ICC and other asset management affiliates of Deutsche Bank.
16
<PAGE>
The following information is provided for each Director and the principal
executive officer of ICC.
Directors and Principal Executive Officer of ICC
<TABLE>
<CAPTION>
Name and Position
with the Advisor Address Principal Occupation
- -------------------------- --------------------------- -----------------------------------
<S> <C> <C>
Richard T. Hale One South Street Managing Director,
Director and President Baltimore, Maryland 21202 Deutsche Asset Management Americas
Margaret-Mary V. Preston One South Street Managing Director,
Director Baltimore, Maryland 21202 BT Alex. Brown Incorporated
Mayo A. Shattuck III One South Street President, Chief Operating Officer
Director Baltimore, Maryland 21202 and Director,
BT Alex. Brown Incorporated
Truman T. Semans Furness House Vice Chairman,
Director 19 South Street Brown Investment Advisory &
Baltimore, Maryland 21202 Trust Company
</TABLE>
For the fiscal year ended October 31, 1998, the Fund paid ICC an aggregate
fee of $1,103,023 for advisory services. For such fiscal year, the Fund also
paid ICC aggregate fees of $87,294 for transfer agency services provided to the
Fund and $59,460 for accounting services provided to the Fund. For the same
period, the Fund paid $25,373 to Bankers Trust Company for custody services
provided to the Fund.
As of June 4, 1999, to the Fund management's knowledge as provided by the
Directors of the Fund, the following Directors of the Fund beneficially owned
shares of Bankers Trust that were converted into the right to receive $93 per
share in cash, without interest, pursuant to the terms of the Merger. Mr. Hale,
Director of the Fund and President and a Director of ICC, beneficially owned
74,190 shares of Bankers Trust. Mr. Semans, Chairman and a Director of the Fund
and a Director of ICC, beneficially owned 329 shares of Bankers Trust.
Other Funds Advised by ICC with Similar Investment Objectives
A number of funds in the Fund Complex 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.
17
<PAGE>
<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. ................ $ 465,382(1) 0.79%(1)
Flag Investors International Fund, Inc. .................. $ 12,187(2) 0.00% (net of fee waivers)(2)
Flag Investors Real Estate Securities Fund, Inc. ......... $ 41,462(3) 0.35% (net of fee waivers)(3)
Flag Investors Communications Fund, Inc. ................. $ 1,445,143(4) 0.68%(4)
Flag Investors Value Builder Fund, Inc. .................. $ 922,789(5) 0.75%(5)
</TABLE>
- ----------------
(1) Information given for the fiscal year ended May 31, 1999.
(2) Information given for the fiscal year ended October 31, 1998. Absent fee
waivers, Management fees would be 0.75% of the fund's average daily net
assets.
(3) Information given for the fiscal year ended December 31, 1998. Absent fee
waivers, Management fees would be 0.65% of the fund's average daily net
assets.
(4) Information given for the fiscal year ended December 31, 1998.
(5) Information given for the fiscal year ended March 31, 1999.
Shareholder Approval of the New Advisory Agreement
Approval of the New Advisory Agreement requires the affirmative vote of a
majority of the outstanding voting securities of the Fund (as defined in the
1940 Act). In the event that shareholders of the Fund do not approve the New
Advisory Agreement, 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.
THE BOARD OF DIRECTORS RECOMMENDS THAT
THE SHAREHOLDERS OF THE FUND
VOTE FOR APPROVAL OF THE NEW ADVISORY AGREEMENT.
PROPOSAL 3: To approve a new Sub-Advisory Agreement among the Fund, Investment
Company Capital Corp. and Brown Investment Advisory & Trust
Company.
General Information
Brown Trust is the Fund's sub-advisor. Shareholders are being asked to
approve a new Sub-Advisory Agreement among ICC, Brown Trust and the Fund which
has been in effect since the closing of the Merger on June 4, 1999. For a
description of the Merger, together with the factors considered by the Board in
its review and analysis of such Merger, please see Proposal 2 beginning on page
10.
The Merger may have resulted in an assignment and, therefore a termination,
of the Fund's prior Sub-Advisory Agreement under the 1940 Act. In anticipation
of the Merger, the Directors of the Fund, including the Directors who are not
(i) parties to the new Sub-Advisory Agreement among the Fund, ICC and Brown
Trust (the "New
18
<PAGE>
Sub-Advisory Agreement") or (ii) interested persons of any such party (the
"Independent Directors"), unanimously approved the New Sub-Advisory Agreement
(attached as Exhibit B) on March 30, 1999. The New Sub-Advisory Agreement is
identical to the Fund's prior Sub-Advisory Agreement, except for the dates of
execution, effectiveness and initial term.
On May 25, 1999, ICC was granted an Exemptive Order by the SEC permitting
implementation, without obtaining prior shareholder approval, of the New Sub-
Advisory Agreement during an interim period commencing on the date of the
closing of the Merger and continuing, for a period of up to 150 days, through
the date on which the New Sub-Advisory Agreement is approved by the shareholders
of the Fund (the "Interim Period"). Under the terms of the Exemptive Order,
Brown Trust is allowed to receive sub-advisory fees during the Interim Period
pursuant to the New Sub-Advisory Agreement. In accordance with the Exemptive
Order, the sub-advisory fees paid to Brown Trust by ICC under the New
Sub-Advisory Agreement have been held and will continue to be held in an
interest-bearing escrow account until approval of the New Sub-Advisory Agreement
by shareholders of the Fund has been obtained. If the New Sub-Advisory Agreement
is not approved by the shareholders of the Fund by the expiration of the Interim
Period, Brown Trust will not be entitled to accrued fees and interest paid to
ICC.
Brown Trust does not anticipate that the Merger will result in any
reduction in the quality of services now provided to the Fund. Nor does Brown
Trust anticipate that the Merger will have any adverse effect on its ability to
fulfill its obligations under the New Sub-Advisory Agreement or to operate its
business in a manner consistent with past business practice.
The Prior Sub-Advisory Agreement
Prior to June 4, 1999, Brown Trust served as sub-advisor to the Fund
pursuant to a Sub-Advisory Agreement among the Fund, ICC and Alex. Brown Capital
Advisory and Trust Company (now known as Brown Trust), dated as of October 1,
1998 (the "Prior Sub-Advisory Agreement"). The Prior Sub-Advisory Agreement was
initially approved by the shareholders of the Fund on September 25, 1998. The
prior Sub-Advisory Agreement was initially approved by the Fund's Board of
Directors, including a majority of the Independent Directors, on June 29, 1998.
The New Sub-Advisory Agreement
Other than the dates of execution, effectiveness and initial term, the New
Sub-Advisory Agreement which has been in effect since June 4, 1999 is identical
to the Prior Sub-Advisory Agreement. The terms of the New Sub-Advisory Agreement
are summarized below and are qualified by reference to Exhibit B.
19
<PAGE>
Sub-Advisory Fees. The sub-advisory fee as a percentage of net assets
payable to the sub-advisor will be the same under the New Sub-Advisory
Agreement as under the Prior Sub-Advisory Agreement.
The New Sub-Advisory Agreement. The New Sub-Advisory Agreement provides
that Brown Trust, 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 issues 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.
Under the New Sub-Advisory Agreement ICC pays Brown Trust an annual fee
based on the Fund's average daily net assets. The fee is 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 would 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.
Compensation shall be calculated and accrued daily and the amounts of the daily
accruals shall be paid monthly.
The New Sub-Advisory Agreement provides that Brown Trust will furnish,
subject to compliance with applicable banking regulations, 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. Brown Trust 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 of the Fund. The Fund assumes and pays all other expenses
of the Fund. These expenses include, but are not limited to, payments to ICC
under the New Advisory Agreement, payments to the Fund's distributor under the
Fund's plans of distribution; the charges and expenses of any registrar, any
custodian or 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; and broker's commissions
20
<PAGE>
chargeable to the Fund in connection with portfolio securities transactions to
which the Fund is a party. Additional information regarding other Fund expenses
is included in the New Sub-Advisory Agreement attached as Exhibit B.
The services of Brown Trust are not to be deemed exclusive, and Brown Trust
is 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 the agreement are not impaired thereby. Brown Trust's officers
and Directors may serve as officers or Directors of the Fund, and officers or
Directors of the Fund may serve as officers or Directors of Brown Trust to the
extent permitted by law; and the officers and directors of Brown Trust 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 New Sub-Advisory
Agreement continues in full force and effect from year to year, provided that
such continuance is approved at least annually by the Fund's Board or by the
vote of a majority of the Fund's outstanding voting securities, and by the
affirmative vote of a majority of the Directors who are not parties to the
agreement or "interested parties" 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 New Sub-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 or Brown
Trust, upon 60 days' waivable written notice. The agreement automatically
terminates in the event of its assignment.
The New Sub-Advisory Agreement obligates Brown Trust 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
Brown Trust is not liable for any act or omission which does not constitute
willful misfeasance, bad faith or gross negligence on the part of Brown Trust or
its officers, directors or employees or reckless disregard by Brown Trust of its
duties under the agreement.
Board Considerations. The Board held a meeting on March 30, 1999, at which
the Board, including the Independent Directors, unanimously approved the New
Sub-Advisory Agreement and recommended the New Sub-Advisory Agreement for
approval by the shareholders of the Fund. In evaluating the New Sub-Advisory
Agreement, the Board considered substantially the same factors that led it to
approve the New Advisory Agreement, particularly the continuity of services. In
this regard, the Board took into account that the Fund's Prior Sub-Advisory
Agreement and the New Sub-Advisory Agreement, including their terms relating to
the services to be provided thereunder by Brown Trust and the fees and expenses,
are substantially identical.
21
<PAGE>
Brown Investment Advisory & Trust Company
Brown Trust is a trust company chartered under the laws of the State of
Maryland that had assets under management as of June 30, 1999, of approximately
$3.742 billion. Brown Trust is a wholly owned subsidiary of Brown Capital
Holdings Corporation ("Brown Capital Holdings"), a Maryland corporation whose
principal executive officer is Michael D. Hankin. Brown Capital Holdings is
owned by management and employees of Brown Trust 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
Brown Trust 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 Brown Trust.
<TABLE>
<CAPTION>
Name and Position
with Brown Trust Address Principal Occupation
- ---------------------------- ---------------------- ---------------------------------
<S> <C> <C>
Michael D. Hankin 19 South Street Director, President and
Director, President and Baltimore, MD 21202 Chief Executive Officer of
Chief Executive Officer Brown Trust.
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
Director Baltimore, MD 21202 BT Alex. Brown Incorporated
David L. Hopkins, Jr. 19 South Street Director and Chairman of
Director and Chairman Baltimore, MD 21202 Brown Trust.
Truman T. Semans 19 South Street Director and Vice Chairman
Director and Vice Chairman Baltimore, MD 21202 of Brown Trust; Director of
Investment Company Capital Corp.
Earl L. Linehan 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>
For the period from October 1, 1998 through December 31, 1998, ICC paid
Brown Trust an aggregate fee of 49,625 for sub-advisory services after fee
waivers.
22
<PAGE>
Other Funds with Similar Investment Objectives Sub-Advised by Brown Trust
Brown Trust acts as sub-advisor to two other funds which 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.
Advisory Fee
Assets (as a percentage of
Fund (000's) average daily net assets)
- ----------------------------------- --------- --------------------------
BIA Small Cap Growth Fund ......... $42,049(1) 1.00%(1)
BIA Growth Equity Fund ............ $15,449(1) 0.75%(1)
- --------------
(1)Information given for the period ended July 30, 1999.
In connection with the sale of Brown Trust by BT Alex. Brown on June 30,
1998, Truman T. Semans, a Director and Vice Chairman of Brown Trust and Chairman
of the Board of Directors of the Fund, purchased 19,000 shares (1.322%) of Brown
Capital Holdings at $10 per share. In addition, Mr. Semans purchased notes from
Brown Capital Holdings in the amount of $50,073, which mature in 3 years and pay
interest based on the prime rate.
Shareholder Approval of the New Sub-Advisory Agreement
Approval of the New Sub-Advisory Agreement requires the affirmative vote of
a majority of the outstanding voting securities of the Fund (as defined in the
1940 Act). In the event that shareholders of the Fund do not approve the New
Sub-Advisory Agreement, 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 Sub-Advisory Agreement.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF THE FUND
VOTE FOR APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
PROPOSAL 4: To eliminate the Fund's fundamental investment policy
concerning short sales.
At the Special Meeting, the shareholders of the Fund will vote regarding
the elimination of the Fund's fundamental investment policy with respect to
short sales. Currently, the Fund has a fundamental investment policy stating
that:
The Fund will not effect short sales of securities.
If shareholders approve, this policy will be eliminated.
The primary purpose of this Proposal is to eliminate the Fund's fundamental
investment policy on short sales. This policy was initially adopted primarily to
comply with state regulatory requirements, which have been eliminated as a
result of federal legislation. If the Proposal is approved, the Fund, subject to
the approval of the
23
<PAGE>
Board of Directors and upon proper disclosure in the Fund's registration
statement, would be able to make short sales in conformity with Section 18 of
the 1940 Act. In a short sale, an investor sells a borrowed security and has a
corresponding obligation to the lender to return the identical security.
Approval of the Proposal is not expected to significantly affect the way the
Fund is managed because the Fund has no present intention to engage in short
sales. However, the Directors are requesting approval of the Proposal in order
to eliminate an unnecessary policy and are doing so at this time in order to
take advantage of the fact that the Fund is holding a shareholder meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF THE FUND
VOTE FOR THE ELIMINATION OF THE FUND'S FUNDAMENTAL INVESTMENT POLICY CONCERNING
SHORT SALES.
PROPOSAL 5: To eliminate the Fund's fundamental investment policy
concerning the purchase of securities on margin.
At the Special Meeting, the shareholders of the Fund will vote regarding
the elimination of the Fund's fundamental policy with respect to purchasing
securities on margin. Currently, the Fund has a fundamental policy stating that:
The Fund will not purchase securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance of
transactions).
If shareholders approve, this policy will be eliminated.
The primary purpose of this Proposal is to eliminate the Fund's fundamental
investment policy on purchasing securities on margin. This policy was initially
adopted primarily to comply with state regulatory requirements, which have been
eliminated as a result of federal legislation. If the proposal is approved, the
Fund would be able to purchase securities on margin. Margin purchases involve
the purchase of securities with money borrowed from a broker. "Margin" is the
cash or eligible securities that the borrower places with a broker as collateral
against the loan. Approval of the Proposal is not expected to significantly
affect the way the Fund is managed because the Fund has no present intention to
purchase securities on margin. However, the Directors are requesting approval of
the Proposal in order to eliminate an unnecessary policy and are doing so at
this time to take advantage of the fact that the Fund is holding a shareholder
meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF THE FUND
VOTE FOR THE ELIMINATION OF THE FUND'S FUNDAMENTAL
INVESTMENT POLICY CONCERNING THE PURCHASE
OF SECURITIES ON MARGIN.
24
<PAGE>
PROPOSAL 6: To eliminate the Fund's fundamental investment policy
concerning purchases of oil, gas or mineral interests.
At the Special Meeting, the shareholders of the Fund will vote regarding
the elimination of the Fund's fundamental investment policy with respect to
purchasing oil, gas or mineral interests. Currently, the Fund has a fundamental
investment policy stating that:
The Fund will not purchase participations or other direct interests in oil,
gas or other mineral exploration or development programs.
If shareholders approve, this policy will be eliminated.
The primary purpose of this Proposal is to remove the Fund's fundamental
investment policy regarding purchases of oil, gas or mineral interests. This
policy was initially adopted to comply with state regulatory requirements, which
have been eliminated as a result of federal legislation. If the Proposal is
approved, the Fund would be permitted to invest directly in oil, gas or mineral
interests. These investments are subject to certain risks including substantial
price fluctuations, unpredictable economic and political circumstances, the
existence of cartels in certain industries, and the development of new
technologies for finding and producing such materials. Approval of the Proposal
is not expected to significantly affect the way the Fund is managed because the
Fund has no present intention to invest directly in oil, gas or mineral
interests. However, the Directors are requesting approval of the Proposal in
order to eliminate an unnecessary policy and are doing so at this time to take
advantage of the fact that the Fund is holding a shareholder meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF THE FUND
VOTE FOR THE ELIMINATION OF THE FUND'S FUNDAMENTAL
INVESTMENT POLICY CONCERNING PURCHASES
OF OIL, GAS OR MINERAL INTERESTS.
PROPOSAL 7: To modify the Fund's fundamental investment policy concerning
the purchase or sale of commodities or commodity contracts.
At the Special Meeting, the shareholders of the Fund will vote regarding
the modification of the Fund's fundamental investment policy concerning the
purchase or sale of commodities or commodity contracts. Currently, the Fund has
a fundamental policy stating that:
The Fund will not purchase or sell commodities or commodities contracts.
If shareholders approve, the Fund's fundamental investment policy would
state that:
25
<PAGE>
The Fund will not purchase or sell commodities or commodity contracts
provided that the Fund may invest in financial futures and options on such
futures.
The primary purpose of this Proposal is to modify the Fund's policy on
commodities to make clear that the Fund may invest in financial futures and
options on such futures. The 1940 Act requires the Fund to have a policy with
respect to commodities. The modified policy contained in the Proposal will
satisfy the 1940 Act while clarifying that the Fund may invest in financial
futures and options thereon.
Approval of the Proposal is not expected to significantly affect the way
the Fund is managed because the Fund has no present intention to invest in
financial futures or options. However, the Directors are requesting approval of
the Proposal in order to clarify the Fund's investment policy and are doing so
at this time to take advantage of the fact that the Fund is holding a
shareholder meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF THE FUND VOTE FOR THE MODIFICATION OF
THE FUND'S FUNDAMENTAL INVESTMENT POLICY
CONCERNING THE PURCHASE OR SALE OF COMMODITIES
OR COMMODITY CONTRACTS.
PROPOSAL 8: To modify the Fund's fundamental investment policy concerning
borrowing.
At the Special Meeting, the shareholders of the Fund will vote regarding
the modification of the Fund's fundamental investment policy on borrowing.
Currently, the Fund has a fundamental investment policy stating that:
The Fund will not borrow money, except as a temporary measure to facilitate
settlements and for extraordinary or emergency purposes and then only from
banks and in an amount not exceeding 10% of the value of the total assets of
the Fund at the time of such borrowing, provided that, while borrowings by
the Fund equaling 5% or more of the Fund's total assets are outstanding, the
Fund will not purchase securities.
If shareholders approve, the Fund's fundamental investment policy would
state that:
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes in an amount not exceeding 10% of the
value of the total assets of the Fund at the time of such borrowing.
The primary purpose of this proposal is to modify the Fund's fundamental
investment policy on borrowing to provide the Fund with increased investment
flexibility. The 1940 Act requires all funds to adopt a fundamental policy
regarding borrowing. The Proposal will permit the Fund to meet its regulatory
requirements under the 1940
26
<PAGE>
Act, while allowing the Fund increased flexibility in making investment
decisions. Under its current policy, the Fund may borrow only from banks. If the
Proposal is approved, the Fund could borrow from institutions other than banks,
to the extent permitted by law. Approval of the Proposal is not expected to
significantly affect the way the Fund is managed because the Fund has no present
intention to borrow from institutions other than banks. However, the Directors
are requesting approval of this policy to provide the Fund with increased
investment flexibility and they are doing so at this time to take advantage of
the fact that the Fund is holding a shareholder meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS OF THE FUND
VOTE FOR THE MODIFICATION OF THE FUND'S FUNDAMENTAL INVESTMENT POLICY
CONCERNING BORROWING.
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about the Fund's current Directors and principal executive
officers is set forth below. Each officer of the Fund will hold such office
until a successor has been elected by the Board of Directors. 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 Beneficially
Name and Position During the Past Five Years, Owned as of
With the Fund Age including all Directorships May 31, 1999 Percentage
- ------------------------ ----- ---------------------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
Truman T. Semans* 72 See "Information Regarding Nominees." 27,410.49 **
Chairman and Director
since 1987
James J. Cunnane 61 Managing Director, CBC Capital (merchant None **
Director since 1994 banking); and Director, Net.World (telecommu-
nications). Director of each fund in the Fund
Complex.
Richard T. Hale* 54 See "Information Regarding Nominees." 7,548.00 **
Director since 1989
Joseph R. Hardiman 62 See "Information Regarding Nominees." None **
Director since 1998
Louis E. Levy 66 See "Information Regarding Nominees." 2,547.00 **
Director since 1994
Eugene J. McDonald 67 See "Information Regarding Nominees." None **
Director since 1992
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Shares
Business Experience Beneficially
Name and Position During the Past Five Years, Owned as of
With the Fund Age including all Directorships May 31, 1999 Percentage
- ------------------------ ----- -------------------------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
Rebecca W. Rimel 48 See "Information Regarding Nominees." None **
Director since 1996
Carl W. Vogt, Esq. 63 Senior Partner, Fulbright & Jaworski L.L.P. None **
Director since 1996 (law); and Director, Yellow Corporation (truck-
ing) and American Science & Engineering (x-ray
detection equipment). 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 each fund
in the Fund Complex.
Harry Woolf 76 Professor-at-Large Emeritus, Institute for None **
President since 1997 Advanced Study; and Director, Family Health
International (non-profit research and education)
and Research America (non-profit medical
research). Formerly, Director, ATL and
Spacelabs Medical Corp. (medical equipment);
Trustee, Reed College (education) and Rock-
efeller Foundation; and Director, Merrill Lynch
Cluster C Funds and Flag Investors/ISI and
Deutsche Banc Alex. Brown Cash Reserve
Fund, Inc. Fund Complex (registered invest-
ment companies).
Amy M. Olmert 36 Vice President, Deutsche Asset Management None **
Secretary since 1997 Americas since 1999; and Vice President, BT
Alex. Brown Incorporated, 1997-1999. For-
merly, Senior Manager, Coopers & Lybrand
L.L.P. (now PricewaterhouseCoopers LLP),
1988 -1997.
Charles A. Rizzo 42 Vice President and Department Head, Deutsche None **
Treasurer since 1999 Asset Management Americas since 1999; and
Vice President and Department Head, BT Alex.
Brown Incorporated, 1998-1999. Formerly,
Senior Manager, PricewaterhouseCoopers, LLP,
1993-1998.
Tracie E. Richter 31 Vice President, Deutsche Asset Management None **
Assistant Secretary Americas since 1999; Treasurer and Chief
since 1999 Financial Officer, Morgan Grenfell Investment
Trust 1998-Present; and Vice President, Morgan
Grenfell Inc., 1998-1999. Formerly, Vice Presi-
dent, Bankers Trust Company, 1996-1998; and
Tax Associate, Goldman Sachs Asset Manage-
ment, 1993-1996.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Shares
Business Experience Beneficially
Name and Position During the Past Five Years, Owned as of
With the Fund Age including all Directorships May 31, 1999 Percentage
- ----------------------- ----- ---------------------------------------------- -------------- -----------
<S> <C> <C> <C> <C>
Daniel O. Hirsch 45 Director, Deutsche Asset Management Americas None **
Assistant Secretary since 1999; and Principal, BT Alex. Brown
since 1999 Incorporated, 1998-1999. Formerly, Assistant
General Counsel, United States Securities and
Exchange Commission, 1993-1998.
</TABLE>
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
** As of May 31, 1999 the Directors and officers of the Fund as a group (13
persons) beneficially owned an aggregate of less than 1% the Fund.
Investment Advisor and Sub-Advisor
See "Investment Company Capital Corp." on page 16 and "Brown Investment
Advisory & Trust Company" on page 22 for additional information concerning the
Advisor and the Sub-Advisor.
Principal Underwriter
ICC Distributors, Inc., located at Two Portland Square, Portland, Maine,
04104, acts as the Fund's principal underwriter.
Portfolio Transactions
In the fiscal year ended October 31, 1998, the Fund paid no brokerage
commissions to BT Alex. Brown Incorporated or its affiliates.
Independent Accountants
A majority of the Fund's Board of Directors who are not "interested
persons" of the Fund have selected PricewaterhouseCoopers LLP as the independent
accountants of the Fund for the fiscal year ending October 31, 1999. 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, no person
beneficially owned 5% or more of the outstanding shares of the Fund.
Submission of Shareholder Proposals
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
29
<PAGE>
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, a new Sub-Advisory Agreement or other matters
requiring shareholder action under the 1940 Act.
A meeting may also be called by shareholders holding at least 10% of the
shares entitled to vote at the meeting for the purpose of voting upon the
removal of Directors. Upon written request by ten or more shareholders, who have
been such for at least six months and who hold shares constituting 1% of the
outstanding shares, stating that such shareholders wish to communicate with the
other shareholders for the purpose of obtaining the signatures necessary to
demand a meeting to consider removal of a Director, the Fund has undertaken to
provide a list of shareholders or to disseminate appropriate materials. 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.
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 Proposal 1 requires the affirmative vote of a plurality of all
votes cast at the Special Meeting, provided that a majority of the voting
securities entitled to vote are present in person or by proxy at the Special
Meeting. Approval of Proposals 2 through 8 requires the affirmative vote of a
majority of the outstanding voting securities of the Fund. As defined in the
1940 Act, the vote of "a majority of the outstanding voting securities" of the
Fund means the vote of (i) 67% or more of the
30
<PAGE>
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 Proposals
2 through 8. 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 Proposals 1 through 3 when they
have not received instructions from beneficial owners.
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 VOTE BY MAIL, TELEPHONE OR INTERNET
AS EXPLAINED IN THE INSTRUCTIONS INCLUDED ON YOUR PROXY CARD.
By Order of the Directors,
/s/ Amy M. Olmert
--------------------------
Amy M. Olmert
Secretary
Dated: August 25, 1999
31
<PAGE>
EXHIBIT A
FLAG INVESTORS EMERGING GROWTH FUND, INC.
FORM OF INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the 4th day of June, 1999
by and between FLAG INVESTORS EMERGING GROWTH FUND, INC., a Maryland corporation
(the "Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor").
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 of Investment Advisor. 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;
A-1
<PAGE>
(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
(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
A-2
<PAGE>
(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.
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
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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 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 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 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. BT 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 BT Alex. Brown in any
transaction in which the 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 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:
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(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 Deutsche Banc Alex. Brown; the charges and
expenses of any 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
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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 0.85% 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
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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) (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
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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:
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EXHIBIT B
FLAG INVESTORS EMERGING GROWTH FUND, INC.
FORM OF SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT is made as of the 4th day of June,
1999 by and among FLAG INVESTORS EMERGING GROWTH FUND, INC., a Maryland
corporation (the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation (the "Advisor"), and BROWN INVESTMENT 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;
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(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").
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
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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
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
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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:
(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
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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
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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 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
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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-Advisor for this purpose shall be 19-21 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.
B-7
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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.
[SEAL] FLAG INVESTORS EMERGING GROWTH FUND, INC.
Attest: By
----------------------- -----------------------------------------
Name:
Title:
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest: By
----------------------- -----------------------------------------
Name:
Title:
[SEAL] BROWN INVESTMENT ADVISORY & TRUST COMPANY
Attest: By
----------------------- -----------------------------------------
Name:
Title:
B-8
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33832K100
33832K308
33832K407
33832K506
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Three Ways To Vote Your Proxy
Proxy Voting Quick & Easy
The enclosed proxy statement provides details on important issues affecting your
Fund(s). The Board of your Fund(s) recommends that you vote FOR all proposals.
We are offering three ways to vote: by automated touch-tone phone, the World
Wide Web or mail. Voting by telephone or Web may be quicker and more cost
effective than the traditional method of mailing back your proxy card; however,
that option is still available to you.
Your proxy vote is important! Please vote today.
How to Vote:
By Automated Touch-Tone Phone*
Using our automated touch-tone phone system, dial the number provided on your
proxy card and follow the directions given.
By the Web*
Visit www.proxyvote.com and enter the 12-digit control number located on your
proxy card.
By Mail
Simply return your executed proxy in the enclosed postage-paid envelope.
* Do not mail the Proxy Card if voting by Web or telephone.
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[FLAG INVESTORS]
[PROXY SERVICES]
[P.O. BOX 9148]
[FARMINGDALE, NY 11735]
FORM OF
FLAG INVESTORS EMERGING GROWTH FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
October 7, 1999
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
FLAG INVESTORS EMERGING GROWTH FUND, INC.
This proxy is for your use in voting on various 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 Kathy L. Churko 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 October 7, 1999 (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 by Telephone
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Call 1-800-000-0003
3) Enter the 12-digit control number set forth on the Proxy card and follow
the simple instructions.
To Vote by Internet:
1) Read the Proxy Statement and have the Proxy card below at hand.
2) Go to Website www.proxyvote.com
3) Enter the 12-digit control number set forth on the Proxy card and follow
the simple instructions.
Please print and sign your name in the space provided to authorize the voting of
your shares as indicated and return promptly. When signing on behalf of a
corporation, partnership, estate, trust or in any other representative capacity,
please sign your name and title. For joint accounts, each joint owner must
sign.
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE COMPLETE, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
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.
Truman T. Semans Richard R. Burt
Richard T. Hale Joseph R. Hardiman
Louis E. Levy Eugene J. McDonald
Rebecca W. Rimel Robert H. Wadsworth
|_|FOR ALL
|_|WITHHOLD ALL
|_|FOR ALL EXCEPT:
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To withhold authority to vote mark "FOR ALL EXCEPT" and write the
nominee's name on the line below.
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Vote on Proposals
2. To approve a new Investment Advisory Agreement between the Fund and
Investment Company Capital Corp.
|_| For |_| Against |_| Abstain
3. To approve a new Sub-Advisory Agreement among the Fund, Investment
Company Capital Corp. and Brown Investment Advisory & Trust Company.
|_| For |_| Against |_| Abstain
4. To eliminate the Fund's fundamental investment policy concerning short
sales.
|_| For |_| Against |_| Abstain
5. To eliminate the Fund's fundamental investment policy concerning the
purchase of securities on margin.
|_| For |_| Against |_| Abstain
6. To eliminate the Fund's fundamental investment policy concerning
purchases of oil, gas or mineral interests.
|_| For |_| Against |_| Abstain
7. To modify the Fund's fundamental investment policy concerning the
purchase or sale of commodities or commodity contracts.
|_| For |_| Against |_| Abstain
8. To modify the Fund's fundamental investment policy concerning
borrowing.
|_| For |_| Against |_| Abstain
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<TABLE>
<CAPTION>
<S> <C> <C>
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, trustor in any other representative --------------------------------------- --------------
capacity please sign your name and title. For joint accounts, Signature (Joint Owners) Date
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.
