<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:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Flag Investors Short-Intermediate Income Fund, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_________________________________________
2) Form, Schedule or Registration Statement No.:___________________
3) Filing Party:___________________________________________________
4) Date Filed:________________________
<PAGE>
Flag Investors Short-Intermediate Income Fund, Inc.
Dear Shareholder:
We are writing to ask you to vote to establish Alex. Brown Capital Advisory &
Trust (ABCAT) as sub-advisor to the Flag Investors Short-Intermediate Income
Fund, Inc. ABCAT was, until June 30, 1998, a subsidiary of Bankers Trust
Corporation (Bankers Trust), the parent of Investment Company Capital Corp.
(ICC), the Fund's advisor. On June 30, 1998, Bankers Trust sold ABCAT to a
combination of ABCAT employees, directors and outside investors, including the
Fund's portfolio managers. The Fund's portfolio managers are continuing in that
capacity under a dual employee agreement between ICC and ABCAT. However, as they
will be associated with ABCAT rather than ICC or Bankers Trust on a long-term
basis, we must make ABCAT a sub-advisor to the Fund to ensure the continuity of
the Fund's portfolio management.
Your Board has carefully reviewed this transaction with respect to the quality
and continuity of service to be provided by ABCAT. The Board specifically
reviewed items such as continuity of portfolio managers, the operational support
ABCAT will provide these managers and the financial strength of ABCAT. Following
this review, the Board recommends you vote in favor of making ABCAT a
sub-advisor to the Fund.
We are also asking you to vote to reelect the Fund's Directors and to add Joseph
R. Hardiman to the Fund's Board to replace John F. Kroeger who is retiring. Mr.
Hardiman served as President and Chief Executive Officer of the National
Association of Securities Dealers, Inc. (NASD) and its subsidiary, The NASDAQ
Stock Market, Inc., for nearly ten years. He brings excellent business and
investment experience as well as unquestioned integrity. While we are
enthusiastic that he will join the Board (with your approval) we are sad that he
is replacing Mr. Kroeger, one of the original Board members of the Flag
Investors Short-Intermediate Income Fund, Inc. Mr. Kroeger has provided sound
advice and asked pointed questions since the inception of the Fund in 1991. We
will miss him.
A proxy which explains these items in detail is attached. We ask that you read
it and then vote. Your vote is important to us.
Sincerely yours,
Richard T. Hale
Chairman
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
One South Street
Baltimore, Maryland 21202
--------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
September 25, 1998
TO THE SHAREHOLDERS OF FLAG INVESTORS SHORT-INTERMEDIATE
INCOME FUND, INC.
You are cordially invited to a special meeting (the "Special Meeting")
of the shareholders of Flag Investors Short-Intermediate Income Fund, Inc.
(formerly, Flag Investors Intermediate- Term Income Fund, Inc.) (the "Fund") on
Friday, September 25, 1998, at 2:15 p.m. Eastern Time at the offices of
Investment Company Capital Corp., in [the Conference Room on the 30th Floor of
The Alex. Brown Building, One South Street, Baltimore, Maryland 21202,] for the
purpose of considering the proposals set forth below and for the transaction of
such other business as may be properly brought before the Special Meeting:
PROPOSAL 1: To consider and act upon a proposal to elect a Board of
Directors of the Fund.
PROPOSAL 2: To approve a Sub-Advisory Agreement among the Fund,
Investment Company Capital Corp. and Alex. Brown Capital
Advisory & Trust.
Only shareholders of the Fund at the close of business on August 7,
1998 are entitled to notice of, and to vote at, this meeting or any adjournment
thereof.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD AS SOON AS
POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
Amy M. Olmert
Secretary
Dated: _____ ___, 1998
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
One South Street
Baltimore, Maryland 21202
--------------------
PROXY STATEMENT
--------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
September 25, 1998
This Proxy Statement is furnished by the Board of Directors of Flag
Investors Short-Intermediate Income Fund, Inc. (formerly, Flag Investors
Intermediate-Term Income Fund, Inc.) (the "Fund") in connection with the
solicitation of proxies for use at the special meeting of shareholders of the
Fund to be held on Friday, September 25, 1998, at 2:15 p.m. Eastern Time, or at
any adjournment thereof (the "Special Meeting"), at the offices of Investment
Company Capital Corp., in [the Conference Room on the 30th Floor of The Alex.
Brown Building, One South Street, Baltimore, Maryland 21202.] It is expected
that the Notice of Special Meeting, the Proxy Statement and a Proxy Card will be
mailed to shareholders on or about August 21, 1998.
The primary purpose of the Special Meeting is to permit the Fund's
shareholders to consider a Sub-Advisory Agreement among the Fund, Investment
Company Capital Corp. and Alex. Brown Capital Advisory & Trust. Shareholders
will also be asked to elect a Board of Directors.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please sign and date the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before 2:15 p.m. Eastern Time on Friday, September 25,
1998. No postage is required if the Proxy is mailed in the United States. If the
accompanying Proxy is executed properly and returned, shares represented by it
will be voted at the Special Meeting in accordance with the instructions on the
Proxy. However, if no instructions are specified, shares will be voted FOR the
election of the proposed Board of Directors of the Fund ("Proposal 1") and FOR
the Sub-Advisory Agreement ("Proposal 2"). All shareholders of the Fund are
entitled to vote on each Proposal. Shareholders may revoke their Proxies at any
time prior to the time they are voted by giving written notice to the Secretary
of the Fund, by delivering a subsequently dated Proxy or by attending and voting
at the Special Meeting.
-1-
<PAGE>
The close of business on August 7, 1998, has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting and at any adjournment thereof.
On the Record Date, the Fund had ___________ shares outstanding, consisting of
____________ Flag Investors Short-Intermediate Income Fund Class A Shares and
__________ Flag Investors Short-Intermediate Income Fund Institutional Shares.
Each full share will be entitled to one vote at the Special Meeting and each
fraction of a share will be entitled to the fraction of a vote equal to the
proportion of a full share represented by the fractional share.
The expenses of the Special Meeting will be borne by Investment Company
Capital Corp. ("ICC") and Alex. Brown Capital Advisory & Trust and will include
reimbursement to brokerage firms and others for expenses in forwarding Proxy
solicitation materials to beneficial owners. The solicitation of Proxies will be
largely by mail, but may include telephonic, telegraphic or oral communication
by employees and officers of ICC (the "Advisor"). Additional solicitation may be
made by Shareholder Communications Corp., a solicitation firm located in New
York, New York that has been engaged by the Fund to assist in proxy
solicitation.
THE FUND WILL FURNISH TO SHAREHOLDERS, WITHOUT CHARGE, A COPY OF THE
ANNUAL REPORT FOR ITS FISCAL YEAR ENDED DECEMBER 31, 1997, AND, WHEN AVAILABLE,
A COPY OF THE SEMI-ANNUAL REPORT FOR THE PERIOD ENDED JUNE 30, 1998, UPON
REQUEST. THE ANNUAL AND SEMI-ANNUAL REPORTS OF THE FUND MAY BE OBTAINED BY
WRITTEN REQUEST TO FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC., ONE
SOUTH STREET, BALTIMORE, MARYLAND 21202 OR BY CALLING (800) 767-FLAG.
The Fund is registered as an open-end, diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") and its shares are registered under the Securities Act of 1933, as
amended.
PROPOSAL 1: To consider and act upon a proposal to elect a Board of
Directors of the Fund.
At the Special Meeting, it is proposed that eight Directors be elected
to hold office until their successors are duly elected and qualified. The
persons named in the accompanying Proxy intend, in the absence of contrary
instructions, to vote all Proxies on behalf of the shareholders for the election
of Richard T. Hale, James J. Cunnane, Joseph R. Hardiman, Louis E. Levy, Eugene
J. McDonald, Rebecca W. Rimel, Truman T. Semans and Carl W. Vogt (each, a
"Nominee" and collectively, the "Nominees"). All of the Nominees are currently
members of the Board of Directors, except for Mr. Hardiman. Messrs. Hale,
Cunnane, Levy, McDonald, Semans and Vogt and Ms. Rimel were elected by
shareholders of the Fund on February 11, 1997. Mr. Kroeger, who has served as a
Director of the Fund since its inception, will retire from the Board of
Directors effective [October 1, 1998].
-2-
<PAGE>
The election of Directors is to assure future flexibility in complying
with the 1940 Act and Maryland law. In particular, as a result of last year's
merger between Bankers Trust Corporation and Alex. Brown Incorporated (now, BT
Alex. Brown Incorporated), 75% of the Board members must be disinterested
persons of the Advisor or Sub-Advisor ("Independent Directors") pursuant to
Section 15(f) of the 1940 Act for at least three years after the merger.
Furthermore, Section 16 of the 1940 Act requires that in order to fill vacancies
on the Board, at least two-thirds of the Directors holding office after such
vacancies are filled must have been elected by shareholders. The Special Meeting
will provide additional assurance that the Board will continue to have operating
flexibility by making it possible for the Board of Directors to fill vacancies
that may occur in the future.
Each of the Nominees has consented to being named in this Proxy
Statement and to serving as a Director if elected. The Fund knows of no reason
why any Nominee would be unable or unwilling to serve if elected. The new slate
of Directors will serve effective [October 1, 1998] or when elected by
shareholders, whichever is later.
The Fund is incorporated under the laws of the State of Maryland. Under
Maryland General Corporation Law, a corporation registered under the 1940 Act,
such as the Fund, is not required to hold an annual meeting in any year in which
the election of Directors is not required to be acted upon under the 1940 Act.
The Fund has availed itself of this provision and achieves cost savings by
eliminating printing costs, mailing charges and other expenses involved in
routine annual meetings. Because the Fund does not hold regular annual
shareholder meetings, each Nominee, if elected, will hold office until his or
her successor is elected and qualified.
Even with the elimination of routine annual meetings, the Board of
Directors may call special meetings of shareholders for action by shareholder
vote as may be required by the 1940 Act, or as required or permitted by the
Articles of Incorporation and By-Laws of the Fund. As described above,
shareholder meetings will be held, in compliance with the 1940 Act, to elect
Directors under certain circumstances. Shareholder meetings may also be held by
the Fund for other purposes, including to approve investment policy changes, a
new investment advisory or sub-advisory agreement or other matters requiring
shareholder action under the 1940 Act. In addition, Maryland General Corporation
Law provides for the calling of a special meeting by the written request of
shareholders holding at least 25% of the shares entitled to vote at the meeting.
Information Regarding Nominees
The following information is provided for each Nominee. It includes his
or her name, position with the Fund, length of directorship, age, principal
occupations or employment during the past five years, directorships with other
companies which file reports periodically with the Securities and Exchange
Commission, number of directorships with the 13 registered investment companies
which hold themselves out to investors as related companies for purposes of
investment and investor services for which ICC or an affiliated person of ICC
provides investment advisory or administration
-3-
<PAGE>
services (collectively, the "Fund Complex"), number of shares of the Fund
beneficially owned and percentage of shares beneficially owned. As of June 30,
1998, the Nominees as a group and the Directors and officers of the Fund as a
group beneficially owned an aggregate of less than 1% of the total outstanding
shares of the Fund.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned as of
Name and Position Business Experience during the Past June 30,
with the Fund Age Five Years (including all directorships) 1998** Percentage
----------------------- --- ---------------------------------------- ---- ----------
<S> <C> <C> <C> <C>
Richard T. Hale* 53 Managing Director, BT Alex. Brown 3,006.085 ***
Chairman and Director Incorporated; Director and President, shares
since 1991 Investment Company Capital Corp.
(registered investment advisor); and
Chartered Financial Analyst. Director of 12
funds in the Fund Complex.
James J. Cunnane 60 Managing Director, CBC Capital (merchant None ***
Director since 1994 banking), 1993-Present. Formerly, Senior
Vice President and Chief Financial
Officer, General Dynamics Corporation
(defense), 1989-1993 and Director, The
Arch Fund (registered investment
company). Director of each fund in the
Fund Complex.
Joseph R. Hardiman 61 Private Equity Investor and Capital Markets None ***
Nominee Consultant; Director,The Nevis Fund
(registered investment company). Formerly,
President and Chief Executive Officer, The
National Association of Securities Dealers,
Inc. and The NASDAQ Stock Market, Inc.,
1987-1997; and Chief Operating Officer of
Alex. Brown & Sons Incorporated (now BT
Alex. Brown Incorporated) 1985 - 1987.
Louis E. Levy 65 Director, Kimberly-Clark Corporation None ***
Director since 1994 (personal consumer products) and
Household International (finance and
banking); Chairman of the Quality Control
Inquiry Committee, American Institute of
Certified Public Accountants. Formerly,
Trustee, Merrill Lynch Funds for
Institutions, 1991-1993; Adjunct
Professor, Columbia University - Graduate
School of Business, 1991-1992; Partner,
KPMG Peat Marwick, retired 1990. Director
of each fund in the Fund Complex.
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned as of
Name and Position Business Experience during the Past June 30,
with the Fund Age Five Years (including all directorships) 1998** Percentage
----------------------- --- ---------------------------------------- ---- ----------
<S> <C> <C> <C> <C>
Eugene J. McDonald 66 President, Duke Management Company None ***
Director since 1992 (investments); Executive Vice President,
Duke University (education, research and
health care); Director, Central Carolina Bank
& Trust (banking), Key Funds (registered
investment companies) and DP Mann
Holdings (insurance). Formerly, Director,
AMBAC Treasurers Trust (registered
investment company). Director of each fund
in the Fund Complex.
Rebecca W. Rimel 47 President and Chief Executive Officer, The None ***
Director since 1997 Pew Charitable Trusts; Director and
Executive Vice President, The Glenmede
Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts.
Director of 11 funds in the Fund Complex.
Truman T. Semans* 71 Managing Director Emeritus, BT Alex. None ***
Director since 1997 Brown Incorporated; Vice Chairman, Alex.
Brown Capital Advisory & Trust; Director,
Investment Company Capital Corp.
(registered investment advisor) and Virginia
Hot Springs Inc. (property management).
Formerly, Vice Chairman, Alex. Brown &
Sons Incorporated (now BT Alex. Brown
Incorporated). Director of 11 funds in the
Fund Complex.
Carl W. Vogt, Esq. 62 Senior Partner, Fulbright & Jaworski L.L.P. None ***
Director since 1997 (law); Director, Yellow Corporation
(trucking) and American Science &
Engineering (x-ray detection equipment).
Formerly, Chairman and Member, National
Transportation Safety Board; Director,
National Railroad Passenger Corporation
(Amtrak) and Director and Member,
Aviation System Capacity Advisory
Committee (Federal Aviation
Administration). Director of 11 funds in the
Fund Complex.
</TABLE>
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* Denotes an individual who is an "interested person" as defined in the
1940 Act.
** This information has been provided by each Nominee for Director of the
Fund.
*** As of June 30, 1998, the Nominees as a group beneficially owned an
aggregate of less than 1% of the total outstanding shares of the Fund.
-5-
<PAGE>
Compensation of Directors
Each Director who is not an "interested person" within the meaning of
the 1940 Act, as well as the Fund's President, receives an aggregate annual fee
(plus reimbursement for reasonable out-of-pocket expenses incurred in connection
with his or her attendance at Board and committee meetings) from the Fund and
all of the funds in the Fund Complex for which he or she serves. Payment of such
fees and expenses is allocated among all such funds described above in
proportion to their relative net assets. For the fiscal year ended December 31,
1997, Independent Directors' fees attributable to the assets of the Fund totaled
$4,976. Officers of the Fund, except the President, as noted above, receive no
direct remuneration in such capacity from the Fund. Officers of the Fund who are
employees of BT Alex. Brown Incorporated or its affiliates ("BT Alex. Brown")
may be considered to have received remuneration indirectly.
Any Director who receives fees from the Fund is permitted to defer a
minimum of 50%, and up to 100%, of his or her annual compensation pursuant to a
Deferred Compensation Plan. Messrs. Cunnane, Levy, McDonald and Vogt and Ms.
Rimel have each executed a Deferred Compensation Agreement and may defer a
portion of their compensation from the Fund and the Fund Complex. Currently, the
deferring Directors may select from various funds in the Fund Complex 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 December 31, 1997 is set forth in
the compensation table below. The aggregate compensation payable to such
Directors during the fiscal year ended December 31, 1997 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>
Richard T. Hale, Chairman and $0 $0 $0 12(2)
Director (1)
Charles W. Cole, Jr., Director (1),(3) $0 $0 $0 9
Truman T. Semans, Director(1) $0 $0 $0 11(2)
James J. Cunnane, Director $465(4) (5) $39,000 13(2)
John F. Kroeger, Director(6) $584 (5) $49,000 13(2)
Louis E. Levy, Director $465 (5) $39,000 13(2)
Eugene J. McDonald, Director $465(4) (5) $39,000 13(2)
Rebecca W. Rimel, Director $475(4) (5) $39,000(7) 11(2)
Carl W. Vogt, Esq., Director $480(4) (5) $39,000(7) 11(2)
</TABLE>
- --------------------
(1) Denotes an individual who is an "interested person" as defined in the 1940
Act.
(2) One of these funds ceased operations on July __, 1998.
(3) Resigned as Director of the Fund effective September 1, 1997.
(4) Of the amounts payable to Messrs. Cunnane, McDonald and Vogt and Ms. Rimel,
$465, $465, $480 and $475, respectively, was deferred pursuant to the Fund
Complex's Deferred Compensation Plan.
(5) The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the fiscal year ended December 31, 1997 was $4,620.
(6) Intends to retire as Director of the Fund effective [October 1, 1998].
(7) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from
each fund for which they serve as a Director.
-6-
<PAGE>
The Fund Complex has adopted a retirement plan (the "Retirement Plan")
for Directors who are not employees of the Fund, the Fund's investment advisor
or their respective affiliates (each, a "Participant" and collectively, the
"Participants"). After completion of six years of service, each Participant will
be entitled to receive an annual retirement benefit equal to a percentage of the
fees earned by such Participant in his or her last year of service. Upon
retirement, each Participant will receive annually 10% of such fee for each year
that he or she served after completion of the first five years, up to a maximum
annual benefit of 50% of the fee earned by the Participant in his or her last
year of service. The fee will be paid quarterly, for life, by each fund for
which he or she serves. The Retirement Plan is unfunded and unvested. Mr.
Kroeger has qualified but has not received benefits. The Fund has two
Participants, a Director who retired effective December 31, 1994 and Mr. Woolf
who retired effective December 31, 1996, who have qualified for the Retirement
Plan by serving thirteen years and fourteen years, respectively, as Directors in
the Fund Complex and each of whom will be paid a quarterly fee of $4,875 by the
Fund Complex for the rest of his life. Such fees are allocated to each fund in
the Fund Complex based upon the relative net assets of such fund to the Fund
Complex.
Set forth in the table below are the estimated annual benefits payable
to a Participant upon retirement assuming various years of service and payment
of a percentage of the fee earned by such Participant in his or her last year of
service, as described below. The approximate credited years of service, shown in
parentheses, for each Participant at December 31, 1997, are as follows: Messrs.
Cunnane (3), Kroeger [(14)], Levy (3), McDonald (5), Vogt (2) and Ms. Rimel (2).
<TABLE>
<CAPTION>
Estimated Annual Benefits Payable by Fund Complex Upon Retirement
Years of Service Chairman of Audit Committee Other Participants
---------------- --------------------------- ------------------
<S> <C> <C>
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
</TABLE>
7
<PAGE>
Meetings and Committees of the Board of Directors
There were four regular and two special meetings of the Board of
Directors held during the fiscal year ended December 31, 1997. In such fiscal
year, all Directors, except Mr. Kroeger, attended at least 75% of the meetings
of the Board of Directors held during their respective terms.
The Board of Directors has an Audit and Compliance Committee. The Audit
and Compliance Committee makes recommendations to the full Board of Directors
with respect to the engagement of independent accountants. The Committee
reviews, with the independent accountants, the results of the audit engagement
and matters having a material effect on the Fund's financial operations. The
members of the Audit and Compliance Committee during the fiscal year ended
December 31, 1997, were Messrs. Kroeger (Chairman), Cunnane, Levy, McDonald,
Vogt and Ms. Rimel, each of whom is not an "interested person" within the
meaning of the 1940 Act. Mr. Levy will become Chairman of the Audit and
Compliance Committee, and, if elected, Mr. Hardiman will become a member of such
Committee effective upon Mr. Kroeger's retirement. The Audit and Compliance
Committee met four times during the fiscal year ended December 31, 1997. In such
fiscal year, all members attended at least 75% of the meetings of the Audit and
Compliance Committee held during their respective terms. The Chairman of the
Audit and Compliance Committee receives an aggregate annual fee of $10,000 from
the Fund Complex. Payment of such fee is allocated among all funds in the Fund
Complex in proportion to their relative net assets.
The Board of Directors has a Nominating Committee. The Nominating
Committee makes recommendations to the full Board of Directors with respect to
candidates for the Board of Directors. The members of the Nominating Committee
during the fiscal year ended December 31, 1997, were Messrs. McDonald
(Chairman), Cunnane, Kroeger, Levy, Vogt and Ms. Rimel, each of whom is not an
"interested person" within the meaning of the 1940 Act. If elected, Mr. Hardiman
will become a member of the Nominating Committee effective upon Mr. Kroeger's
retirement. The Nominating Committee did not meet during the fiscal year ended
December 31, 1997.
-8-
<PAGE>
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 December 31, 1997, were Messrs. Cunnane (Chairman),
Kroeger, Levy, McDonald and Vogt, and Ms. Rimel, each of whom is not an
"interested person" within the meaning of the 1940 Act. If elected, Mr. Hardiman
will become a member of the Compensation Committee effective upon Mr. Kroeger's
retirement. The Compensation Committee did not meet during the fiscal year ended
December 31, 1997.
On September 1, 1997, Alex. Brown Incorporated, the indirect parent of
Investment Company Capital Corp., merged with and into a subsidiary of Bankers
Trust New York Corporation (now known as Bankers Trust Corporation). In
connection with the Merger, Mr. Truman T. Semans, a Director of the Fund and
ICC, and Mr. Richard T. Hale, a Director of the Fund and a Director and
President of ICC, exchanged their shares of Alex. Brown Incorporated (________
shares and _______ shares, respectively) for shares of Bankers Trust Corporation
at the rate of ___________. As of June 30, 1998, to Fund Management's knowledge,
Mr. Semans beneficially owned 3,390 shares and Mr. Hale beneficially owned
74,322 shares of Bankers Trust Corporation.
Board Approval of the Election of Directors
At a meeting of the Board of Directors held June 30, 1998, the Board of
Directors recommended that shareholders vote FOR each of the Nominees for
Director named herein. In recommending that shareholders elect the Nominees as
Directors of the Fund, the Board of Directors considered the Nominees'
experience and qualifications.
Shareholder Approval of the Election of Directors
The election of Directors requires the affirmative vote of a plurality
of all votes cast at the Special Meeting, provided that one-third of the shares
entitled to vote are present in person or by proxy at the Special Meeting. If
you give no voting instructions, your shares will be voted FOR all Nominees
named herein. If the Directors are not approved by shareholders of the Fund, the
Board of Directors will consider alternative nominations.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR THE
ELECTION OF THE DIRECTORS.
Proposal 2: To approve a Sub-Advisory Agreement among the Fund, Investment
Company Capital Corp. and Alex. Brown Capital Advisory & Trust.
Investment Company Capital Corp. serves as investment advisor to the
Fund. (See "Investment Advisor and Sub-Advisor" on page ____ for additional
information concerning the Advisor.) [Bankers Trust Corporation ("Bankers
Trust")], the indirect parent of ICC, was until [July 1, 1998] also the parent
of Alex. Brown Capital Advisory & Trust ("ABCAT"). However, on that date Bankers
Trust completed the sale of ABCAT to a combination of ABCAT employees, directors
and outside investors, including the Fund's portfolio managers. M. Elliott
Randolph, Jr. and Paul D. Corbin, the Fund's portfolio managers (the "Managers")
and other portfolio management personnel, are continuing in that capacity under
a dual employee agreement between ICC and ABCAT. However, as they will be
associated with ABCAT rather than ICC or Bankers Trust on a long-term basis, the
Fund is asking that you approve a Sub-Advisory Agreement among ICC, ABCAT and
the Fund in order to ensure the continuity of the Fund's portfolio management.
-9-
<PAGE>
Pursuant to the proposed Sub-Advisory Agreement (the terms of which are
discussed below), ABCAT will serve as sub-advisor to the Fund and the Managers
will continue managing the Fund's investments in the future. ICC will compensate
ABCAT out of its advisory fee which will remain the same. Accordingly, the
overall cost to the Fund of advisory and management services will not increase
as a result of the proposed sub-advisory arrangement.
The Proposed Sub-Advisory Agreement
On June 29, 1998, the Board of Directors, including a majority of the
Independent Directors, unanimously approved a proposed Sub-Advisory Agreement
among the Fund, ICC and ABCAT, the form of which is attached as Exhibit A.
In evaluating the proposed Sub-Advisory Agreement, the Board considered
that the proposed sub-advisory arrangement with ABCAT would enable the Fund to
retain the services of the Managers on a long-term basis and, therefore, ensure
continuity in management of the Fund. The Board also considered the performance
record of the Fund under the Managers, the operational support ABCAT will
provide the Managers, and the financial strength of ABCAT. Finally, the Board
noted that the compensation under the proposed Sub-Advisory Agreement was
comparable with other sub-advisory fees negotiated by the Advisor.
The proposed Sub-Advisory Agreement provides that ABCAT, under the
supervision of the Advisor and in return for its fee, will (a) provide the Fund
with such executive, administrative and clerical services as are deemed
advisable by the Fund's Board of Directors; (b) determine which issuers and
securities shall be represented in the Fund's portfolio and regularly report
thereon to the Fund's Board of Directors; (c) formulate and implement continuing
programs for the purchases and sales of the securities of such issuers and
regularly report thereon to the Fund's Board of Directors; (d) take, on behalf
of the Fund, all actions which appear to the Fund necessary to carry into effect
such purchase and sale programs as aforesaid, including the placing of orders
for the purchase and sale of securities of the Fund; (e) provide the Board of
Directors of the Fund on a regular basis with financial reports with respect to
the Fund's portfolio investments and analyses of the Fund's operations and the
operations of comparable investment companies; and (f) obtain and evaluate
pertinent information about significant developments and economic, statistical
and financial data, domestic, foreign or otherwise, whether affecting the
economy generally or the Fund, and whether concerning the individual issuers
whose securities are included in the Fund's portfolio or the activities in which
they engage, or with respect to securities which ICC considers desirable for
inclusion in the Fund's portfolio.
The proposed Sub-Advisory Agreement provides for compensation to ABCAT
from ICC, calculated daily and paid at the end of each calendar month, equal to
the sum of the amounts determined by applying the following annual rates to the
Fund's average daily net assets: 0.23% of the first $1 billion of the Fund's
average daily net assets, 0.20% of the next $500 million of the Fund's average
daily net assets and 0.16% of the Fund's
-10-
<PAGE>
average daily net assets in excess of $1.5 billion. The proposed Sub-Advisory
Agreement provides that ABCAT will waive its fees in proportion to any fee
waivers by ICC.
The proposed Sub-Advisory Agreement provides that ABCAT will furnish,
at its expense and without cost to the Fund, the services of one or more
officers of the Fund to the extent that such officers may be required by the
Fund for the proper conduct of its affairs. ABCAT will maintain, at its expense
and without cost to the Fund, a trading function in order to place orders for
the purchase and sale of portfolio securities for the Fund. The Fund assumes and
pays or causes to be paid all other expenses of the Fund, including, without
limitation: payments to ICC under the Investment Advisory Agreement, payments to
the Fund's distributor under the Fund's plan of distribution; the charges and
expenses of any registrar, any custodian or any depository appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, and
any transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to federal,
state or other governmental agencies; the costs and expenses of engraving or
printing of certificates representing shares of the Fund; all costs and expenses
in connection with the registration and maintenance of registration of the Fund
and its shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting, and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and Directors' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of Directors or Director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
Directors of the Fund who are not "interested persons" (as defined in the 1940
Act) of the Fund and of the independent accountants, in connection with any
matter relating to the Fund; membership dues of industry associations; interest
payable on Fund borrowings; postage; insurance premiums on property or personnel
(including officers and Directors) of the Fund which inure to its benefit;
extraordinary expenses (including, but not limited to, legal claims, liabilities
and litigation costs and any indemnification related thereto); and all other
charges and costs of the Fund's operation unless otherwise explicitly provided
herein.
The services of ABCAT are not deemed to be exclusive, and ABCAT is free
to render investment advisory and other services to others, (including other
investment companies), and to engage in other activities, so long as its
services under the agreement are not impaired thereby. Officers or directors of
ABCAT may serve as officers or Directors of the Fund, the Fund's officers or
Directors may serve as officers or directors of ABCAT, to the extent permitted
by law; and officers or directors of ABCAT are not prohibited from engaging in
any other business activity or from rendering services to any other person, or
from serving as partners, officers, trustees or directors of any other firm,
trust or corporation, including other investment companies.
-11-
<PAGE>
The proposed Sub-Advisory Agreement would take effect upon the later to
occur of (i) [October 1, 1998] or (ii) the obtaining of shareholder approval.
The proposed Sub-Advisory Agreement will continue in effect for an initial
two-year term and thereafter for successive annual periods as long as such
continuance is approved in accordance with the 1940 Act.
The proposed Sub-Advisory Agreement may be terminated at any time,
without the payment of any penalty, by the Fund upon a vote of the Fund's Board
of Directors or by vote of a majority of the Fund's outstanding voting
securities or by ICC or ABCAT, upon sixty (60) days' written notice to the other
parties. The agreement automatically terminates in the event of its assignment.
The proposed Sub-Advisory Agreement obligates ABCAT, in the performance
of its duties under the agreement, to exercise care and diligence and to act in
good faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under the agreement, but ABCAT is not liable
for any act or omission which does not constitute willful misfeasance, bad faith
or gross negligence on the part of ABCAT or its officers, partners or employees,
or reckless disregard by ABCAT of its duties under the agreement.
Alex. Brown Capital Advisory & Trust
ABCAT is a trust company chartered under the laws of the State of
Maryland that had under management as of June 30, 1998, approximately [$______].
ABCAT is a wholly-owned subsidiary of Brown Capital Holdings Incorporated
("Brown Capital Holdings"), a Maryland corporation whose principal executive
officer is Michael D. Hankin. Brown Capital Holdings is owned by management and
employees of ABCAT and outside investors. ABS Capital Partners II, L.P., a
Delaware limited partnership, holds 27.826% of the total outstanding shares of
Brown Capital Holdings. The sole general partner of ABS Capital Partners II,
L.P. is ABS Partners II, L.L.C., a Delaware limited liability company, whose
General Manager is Mr. Donald Hebb. The address of ABCAT and Brown Capital
Holdings is 19-21 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.
-12-
<PAGE>
The following information is provided for each director and the
principal executive officer of ABCAT:
<TABLE>
<CAPTION>
Name and Position with ABCAT Address Principal Occupation
- ------------------------------------- --------------------- --------------------------
<S> <C> <C>
Michael D. Hankin
Director, President and Chief 19-21 South Street Director, President and Chief
Executive Officer Baltimore, MD 21202 Executive Officer of ABCAT
William C. Baker 7332 Brightside Road Chairman of Chesapeake Bay
Director Baltimore, MD 21212 Foundation
Benjamin H. Griswold, IV One South Street Managing Director of BT Alex.
Director Baltimore, MD 21202 Brown Incorporated
David L. Hopkins, Jr. 19-21 South Street
Director and Chairman Baltimore, MD 21202 Chairman of ABCAT
Truman T. Semans 19-21 South Street Vice Chairman of ABCAT,
Director and Vice Chairman Baltimore, MD 21202 Director of Investment
Company Capital Corp. and
Managing Director Emeritus of
BT Alex. Brown Incorporated
Charles W. Cole, Jr. 19-21 South Street Vice Chairman of ABCAT
Director and Vice Chairman Baltimore, MD 21202
Earl L. Lineham 515 Fairmount Avenue Private Investor
Director Suite 900 Woodbrook Capital, Inc.
Towson, MD 21286
John J.F. Sherrerd One Tower Bridge Retired, Sherrerd & Co.
Director 9th Floor
West Conshohocken, PA 19428
Walter D. Pinkard, Jr. 7 East Redwood Principal of Colliers Pinkard
Director Baltimore, MD 21202 WD Pinkard & Co.
</TABLE>
ABCAT does not currently advise any other mutual fund. However, as
previously noted, Messrs. Randolph and Corbin, the Fund's portfolio managers,
are employees of both ICC and ABCAT and have managed the Fund's investments
since its inception.
In connection with the sale of ABCAT by BT Alex. Brown on June 30,
1998, Truman T. Semans, a Vice Chairman of ABCAT and a Director of the Fund,
purchased 19,000 shares (1.322%) of Brown Capital Holdings at $10 per share and
Charles W. Cole, a Vice-Chairman of ABCAT and a former Director of the Fund,
purchased 18,000 shares (1.252%) of Brown Capital Holdings at $10 per share.
Messrs. Semans and Cole also purchased notes from Brown Capital Holdings in the
amount of $50,073 and $47,483 respectively, which mature in 3 years and pay
interest based on the prime rate. In addition, Messrs. Randolph and Corbin, the
Fund's portfolio managers and formerly President and Vice-President,
respectively, of the Fund, own 2.25% and 1.30% of the outstanding shares of
Brown Capital Holdings.
-13-
<PAGE>
Shareholder Approval of the Proposed Sub-Advisory Agreement
Approval of the proposed Sub-Advisory Agreement requires the
affirmative vote of a majority of the outstanding shares of the Fund. For the
purposes of this proposal "majority of the outstanding shares" means the vote of
(i) 67% or more of the Fund's outstanding shares present at the Special Meeting,
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
shares, whichever is less.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE FUND VOTE FOR
APPROVAL OF THE NEW SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about each of the Fund's current Directors and principal
executive officers, including his or her name, position with the Fund, length of
service in such position, age, principal occupations or employment during the
past five years, number of shares of the Fund beneficially owned and percentage
of shares beneficially owned as of June 30, 1998, is set forth below. Directors
and officers of the Fund are also directors and officers of some or all of the
other investment companies managed, administered or advised by BT Alex. Brown or
its affiliates.
<TABLE>
<CAPTION>
Shares
Position Business Experience during the Beneficially
with the Past Five Years Owned as of
Name Fund Age (including all directorships) June 30, 1998** Percentage
---- ---- --- ----------------------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Richard T. Hale* Chairman 53 See "Information Regarding 3,006.085 shares ***
and Director Nominees."
since 1991
James J. Cunnane Director 60 See "Information Regarding None ***
since 1994 Nominees."
John F. Kroeger Director 74 Formerly, Director/Trustee, AIM None ***
since 1991 Funds (registered investment
companies), Consultant, Wendell
& Stockel Associates, Inc.
(consulting firm) and General
Manager, Shell Oil Company.
Director of each fund in the Fund
Complex.
Louis E. Levy Director 65 See "Information Regarding None ***
since 1994 Nominees."
Eugene J. McDonald Director 66 See "Information Regarding None ***
since 1992 Nominees."
Rebecca W. Rimel Director 47 See "Information Regarding None ***
since 1997 Nominees."
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Shares
Position Business Experience during the Beneficially
with the Past Five Years Owned as of
Name Fund Age (including all directorships) June 30, 1998** Percentage
---- ---- --- ----------------------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Truman T. Semans* Director 71 See "Information Regarding None ***
since 1997 Nominees."
Carl W. Vogt, Esq. Director 62 See "Information Regarding None ***
since 1997 Nominees."
Harry Woolf President 75 Professor-at-Large Emeritus, None ***
since 1997 Institute for Advanced Study;
Director, ATL and Spacelabs
Medical Corp. (medical
equipment), Family Health
International (non-profit
research and education)
and Research America
(non-profit medical
research). Formerly,
Director, Merrill Lynch
Cluster C Funds and Flag
Investors/ISI and BT Alex.
Brown Cash Reserve Family
of Funds (registered
investment companies);
Trustee, Reed College
(education) and
Rockefeller Foundation.
Amy M. Olmert Secretary 35 Vice President, BT Alex. Brown None ***
since 1997 Incorporated, 1997-Present.
Formerly, Senior Manager,
Coopers & Lybrand L.L.P. (now,
PricewaterhouseCoopers LLP),
1988 - 1997.
Joseph A. Finelli Treasurer 41 Vice President, BT Alex. Brown None ***
since 1995 Incorporated and Vice President,
Investment Company Capital
Corp. (registered investment
advisor), 1995-Present. Formerly,
Vice President and Treasurer, The
Delaware Group of Funds
(registered investment companies)
and Vice President, Delaware
Management Company Inc.
(investments), 1980-1995.
Scott J. Liotta Assistant 33 Assistant Vice President, BT Alex. None ***
Secretary Brown Incorporated, 1996-
since 1997 Present. Formerly, Manager and
Foreign Markets Specialist,
Putnam Investments Inc.
(registered investment companies),
1994-1996 and Supervisor, Brown
Brothers Harriman & Co.
(domestic and global custody),
1991-1994.
</TABLE>
- --------------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
** This information has been provided by each Director and officer of the
Fund.
*** As of June 30, 1998, the Directors and officers of the Fund as a group (12
persons) beneficially owned an aggregate of less than 1% of the total
outstanding shares of the Fund.
-15-
<PAGE>
Investment Advisor and Sub-Advisor
Investment Company Capital Corp., located at One South Street,
Baltimore, Maryland 21202, serves as investment advisor to the Fund. As
compensation for such services for the fiscal year ended December 31, 1997, ICC
received from the Fund fees (net of fee waivers) of $64,502. ICC is an indirect
subsidiary of Bankers Trust Corporation.
See "Alex. Brown Capital Advisory & Trust" on page ____ for additional
information concerning the Sub-Advisor.
Principal Underwriter
ICC Distributors, Inc., located at Two Portland Square, Portland, Maine
04101, acts as the Fund's principal underwriter.
Portfolio Transactions
For the fiscal year ended December 31, 1997, the Fund paid no brokerage
commissions to affiliated brokers.
Independent Auditors
A majority of the Fund's Board of Directors who are not "interested
persons" (within the meaning of the 1940 Act) of the Fund have selected Deloitte
& Touche LLP as the independent auditors of the Fund for the fiscal year ending
December 31, 1998. A representative of Deloitte & Touche LLP will be available
by telephone during the Special Meeting, if needed, to make a statement if
desired and to respond to appropriate questions from shareholders.
Beneficial Owners
To the knowledge of Fund Management, as of the Record Date, the
following were beneficial owners of 5% or more of the outstanding shares of the
Fund.
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Amount of Beneficial Ownership Percent of Total Shares Outstanding
- --------------------------- ------------------------------- ------------------------------------
[to be inserted]
</TABLE>
Submission of Shareholder Proposals
As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings, except in certain limited circumstances. Shareholders who
wish to present a proposal for action at the next meeting or suggestions as to
nominees for the Board of Directors should submit the proposal or suggestions to
be considered to the Fund sixty (60) days in advance of any such
-16-
<PAGE>
meeting for inclusion in the Fund's proxy statement and form of proxy for such
meeting as is held. The Nominating Committee of the Board of Directors will give
consideration to shareholder suggestions as to nominees for the Board of
Directors. Shareholders retain the right, under limited circumstances, to
request that a meeting of the shareholders be held for the purpose of
considering the removal of a Director from office, and, if such a request is
made, the Fund will assist with shareholder communications in connection with
the meeting.
Required Vote
Approval of Proposal 1 (the election of the proposed Board of Directors
of the Fund) requires the affirmative vote of a plurality of all votes cast at
the Special Meeting, provided that one-third of the shares entitled to vote are
present in person or by Proxy at the Special Meeting. Approval of Proposal 2
(the Sub-Advisory Agreement) requires the affirmative vote of a majority of the
outstanding shares of the Fund. As defined in the 1940 Act, the vote of a
majority of the outstanding shares means the vote of (i) 67% or more of the
Fund's outstanding shares present at a meeting, if the holders of more than 50%
of the outstanding shares of the Fund are present or represented by proxy, or
(ii) more than 50% of the Fund's outstanding shares, whichever is less.
Abstentions and "broker non-votes" will not be counted for or against
the Proposals but will be counted for purposes of determining whether a quorum
is present. Abstentions will be counted as votes present for purposes of
determining a "majority of the outstanding voting securities" present at the
Special Meeting and will therefore have the effect of counting against Proposal
2.
Other Matters
No business other than the matters described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
-17-
<PAGE>
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND
WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO FILL IN, SIGN AND DATE THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
By Order of the Directors,
Amy M. Olmert
Secretary
Dated: _____ ____, 1998
-18-
<PAGE>
Exhibit A
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
FORM OF
SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT is made as of the____
day of __________, 1998 by and among FLAG INVESTORS SHORT-INTERMEDIATE INCOME
FUND, INC., a Maryland corporation (the "Fund"), INVESTMENT COMPANY CAPITAL
CORP., a Maryland corporation (the "Advisor"), and, ALEX. BROWN CAPITAL ADVISORY
& TRUST, 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
April 16, 1990 and all amendments thereto (such Articles of
Incorporation, as presently in effect and as they shall from time to
time be amended, are herein called the "Articles of Incorporation");
(b) The Fund's By-Laws and all amendments thereto (such
By-Laws, as presently in effect and as they shall from time to time be
amended, are herein called the "By-Laws");
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Sub-Advisor and
approving this Agreement;
(d) The Fund's Notification of Registration Filed Pursuant to
Section 8(a) of the 1940 Act on Form N-8A under the 1940 Act as filed
with the Securities and Exchange Commission (the "SEC") on April 17,
1990;
(e) The Fund's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") (File No. 33-34275)
and under the 1940 Act as filed with the SEC on April 17, 1990 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.
A-1
<PAGE>
3. Duties of Sub-Advisor. In carrying out its obligations
under Section 1 hereof, the Sub- Advisor shall, subject to overall supervision
by the Advisor:
(a) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the
Fund's Board of Directors;
(b) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors;
(c) formulate and implement continuing programs for
the purchases and sales of the securities of such issuers and regularly
report thereon to the Fund's Board of Directors;
(d) take, on behalf of the Fund, all actions which
appear to the Fund necessary to carry into effect such purchase and
sale programs as aforesaid, including the placing of orders for the
purchase and sale of securities of the Fund;
(e) provide the Board of Directors of the Fund on a
regular basis with financial reports with respect to the Fund's
portfolio investments and analyses of the Fund's operations and the
operations of comparable investment companies; and
(f) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial data,
domestic, foreign or otherwise, whether affecting the economy generally
or the Fund, and whether concerning the individual issuers whose
securities are included in the Fund's portfolio or the activities in
which they engage, or with respect to securities which the Advisor
considers desirable for inclusion in the Fund's portfolio.
4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. [In certain
instances the Sub-Advisor may make purchases of underwritten issues at prices
which include underwriting fees.] 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
A-2
<PAGE>
determine, the Sub-Advisor may consider services in connection with the sale of
shares of the Fund as a factor in the selection of broker-dealers to execute
portfolio transactions for the Fund.
Subject to the policies established by the Board of Directors
in compliance with applicable law, the Sub-Advisor may direct BT Alex. Brown
Incorporated ("BT Alex. Brown") to execute portfolio transactions for the Fund
on an agency basis. The commissions paid to BT Alex. Brown must be, as required
by Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
during a comparable period of time." If the purchase or sale of securities
consistent with the investment policies of the Fund or one or more other
accounts of the Sub-Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Sub-Advisor. BT Alex. Brown and the Sub-Advisor may
combine such transactions, in accordance with applicable laws and regulations,
in order to obtain the best net price and most favorable execution.
The Fund will not deal with the Sub-Advisor or BT Alex. Brown
in any transaction in which the Sub-Advisor or BT Alex. Brown acts as a
principal with respect to any part of the Fund's order. If BT Alex. Brown is
participating in an underwriting or selling group, the Fund may not buy
portfolio securities from the group except in accordance with policies
established by the Board of Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any activities
undertaken by the Sub-Advisor on behalf of the Fund pursuant hereto, shall at
all times be subject to any applicable directives of the Board of Directors of
the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Advisor shall at all times conform
to:
(a) all applicable provisions of the 1940 Act
and any rules and regulations adopted thereunder, as amended;
(b) the provisions of the Registration
Statement of the Fund under the 1933 Act and the 1940 Act;
(c) the provisions of the Articles of
Incorporation;
(d) the provisions of the By-Laws; and
(e) any other applicable provisions of Federal and
State law.
7. Expenses. The expenses connected with the Fund shall be
allocable among the Fund, the Sub-Advisor and the Advisor as follows:
(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; payments to the Fund's distributor under the Fund's plan of
distribution; the charges and expenses of any registrar, any custodian or any
depository appointed by the Fund for the safekeeping of its cash, portfolio
securities and other property, and any transfer, dividend or accounting agent or
agents appointed by the Fund; brokers' commissions chargeable to the Fund in
connection with portfolio securities transactions to which the Fund
A-3
<PAGE>
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 the amounts determined by applying the following annual
rates to the Fund's average daily net assets: 0.23% of the first $1 billion of
the Fund's average daily net assets, 0.20% of the next $500 million of the
Fund's average daily net assets and 0.16% of the Fund's average daily net assets
in excess of $1.5 billion. The Sub-Advisor will waive its fee in an amount
proportionate to any fee waivers by the Advisor. Except as hereinafter set
forth, compensation under this Agreement shall be calculated and accrued daily
and the amounts of the daily accruals 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 calculations of the
fees as set forth above. Payment of the Sub-Advisor's compensation for the
preceding month shall be made as promptly as possible.
9. Additional Responsibilities. The Sub-Advisor may, but shall
not be under any duty to, perform services on behalf of the Fund which are not
required by this Agreement upon the request of the Fund's Board of Directors.
Such services will be performed on behalf of the Fund and the Sub-Advisor's
charges in rendering such services will be billed monthly to the Fund, subject
to 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
A-4
<PAGE>
or the Sub-Advisor on sixty (60) days' written notice to the Fund and the other
party. Upon the termination of the Investment Advisory Agreement, this Agreement
shall automatically terminate on sixty (60) days' written notice. The notice
provided for herein may be waived by any person to whom such notice is required.
This Agreement shall automatically terminate in the event of its assignment (as
defined in Section 2(a)(4) of the 1940 Act).
13. Non-Exclusivity. The services of the Sub-Advisor to the
Advisor and the Fund are not to be deemed to be exclusive, and the Sub-Advisor
shall be free to render investment advisory or other services to others
(including other investment companies) and to engage in other activities, so
long as its services under this Agreement are not impaired thereby. It is
understood and agreed that officers or Directors of the Sub-Advisor may serve as
officers or Directors of the Fund, and that officers or Directors of the Fund
may serve as officers or Directors of the Sub-Advisor to the extent permitted by
law; and that the officers and Directors of the Sub-Advisor are not prohibited
from engaging in any other business activity or from rendering services to any
other person, or from serving as partners, officers, trustees or directors of
any other firm, trust or corporation, including other investment companies.
14. Liability of Sub-Advisor. In the performance of its duties
hereunder, the Sub-Advisor shall be obligated to exercise care and diligence and
to act in good faith and to use its best efforts within reasonable limits to
ensure the accuracy of all services performed under this Agreement, but the
Sub-Advisor shall not be liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Sub-Advisor or its officers, directors or employees, or reckless disregard by
the Sub-Advisor of its duties under this Agreement.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of the
Sub-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.
A-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the day
and year first above written.
Attest: FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
_________________________ By: _______________________________
Name: Amy M. Olmert Name: Harry Woolf
Title: President
Attest: INVESTMENT COMPANY CAPITAL CORP.
_________________________ By: _______________________________
Name: Name: Edward J. Veilleux
Title: Executive Vice President
Attest: ALEX. BROWN CAPITAL ADVISORY & TRUST
_________________________ By: _______________________________
Name: Name: ________________________
Title: ________________________
A-6
<PAGE>
FLAG INVESTORS
PROXY SERVICES
P.O. BOX 9148
FARMINGDALE, NY 11735
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 25, 1998
------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF FLAG INVESTORS
SHORT-INTERMEDIATE INCOME FUND, INC.
This proxy is for your use in voting the matters relating to Flag Investors
Short-Intermediate Income Fund, Inc. (the "Fund"). The undersigned
shareholder(s) of the Fund, revoking previous proxies, hereby appoint(s), Edward
J. Veilleux, Amy M. Olmert and Scott J. Liotta, and each of them (with full
power of substitution) the proxies of the undersigned to attend the Special
Meeting of Shareholders of the Fund to be held on September 25, 1998 (the
"Special Meeting") and any adjournments thereof, to vote all of the shares of
the Fund that the signer would be entitled to vote if personally present at the
Special Meeting and on any matter incident to the conduct of the Special
Meeting, all as set forth in the Notice of Special Meeting of Shareholders and
Proxy Statement of the Board of Directors. Said proxies are directed to vote or
refrain from voting pursuant to the Proxy Statement as indicated upon the
matters set forth below.
This proxy will be voted as indicated below. If no indication is made, this
proxy will be voted FOR the proposals set forth below. The undersigned
acknowledges receipt with this proxy of a copy of the Notice of Special Meeting
of Shareholders and the Proxy Statement of the Board of Directors.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |X|
KEEP THIS PORTION FOR YOUR RECORDS
- --------------------------------------------------------------------------------
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS
PORTION ONLY.
FLAG INVESTORS SHORT-INTERMEDIATE INCOME FUND, INC.
Vote on Directors
1. To consider and act upon a proposal to elect a Board of Directors.
Richard T. Hale James J. Cunnane
Joseph R. Hardiman Louis E. Levy
Eugene J. McDonald Rebecca W. Rimel
Truman T. Semans Carl W. Vogt
|_| FOR ALL
|_| WITHHOLD ALL
|_| FOR ALL EXCEPT:
To withhold authority to vote mark "FOR ALL EXCEPT" and write the
nominee's name on the line below.
_____________________________________________________________
<PAGE>
Vote on Sub-Advisory Agreement
2. To approve a Sub-Advisory Agreement among the Fund, Investment Company
Capital Corp. and Alex. Brown Capital Advisory & Trust.
<TABLE>
<CAPTION>
<S> <C> <C>
|_| For |_| Against |_| Abstain
Please print and sign your
name in the space provided to
authorize the voting of your ________________________________ _______________________
shares as indicated and return Signature [PLEASE SIGN WITHIN BOX] Date
promptly. When signing on
behalf of a corporation,
partnership, estate, trust
or in any other _______________________________________ _______________________
representative capacity, Signature (Joint Owners) Date
please sign your name and
title. For joint accounts,
each joint owner must sign.
</TABLE>
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
