<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 Section 240.14a-11(c) or Section 240.14a-12
Flag Investors Equity Partners 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)(4) 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: *
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[ ] 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>
[LETTERHEAD OF FLAG INVESTORS FUNDS]
June 25, 1997
Dear Shareholders:
The enclosed proxy statement relates to a special meeting of the Shareholders of
the Flag Investors Equity Partners Fund, Inc. (the "Fund").
On April 6, 1997, Alex. Brown Incorporated, the parent corporation of the Fund's
investment advisor, entered into a definitive agreement to merge into Bankers
Trust New York Corporation. Due to the pending change in control of Alex. Brown
Incorporated, we are asking you to approve new investment advisory agreements
for the advisor and sub-advisor. The same advisor and sub-advisor will continue
to provide these services to your Fund. The new agreements are substantially the
same as the current agreements.
We are also asking shareholders to elect a board of directors. All eight
nominees currently serve as directors although two were appointed to fill
vacancies and not previously elected by Shareholders. This election will give
the Fund flexibility to fill vacancies in the future. Also, with the resignation
of one existing interested director, the percentage of independent directors is
being increased to 75% of the board members.
These proposals have been unanimously approved by your Fund's board of directors
who recommend you vote for the proposals. Your vote is important and your
participation in the governance of the Fund does make a difference.
Sincerely,
Truman T. Semans
Chairman
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
One South Street
Baltimore, Maryland 21202
------------------------------------------
Notice of Special Meeting of Shareholders
August 14, 1997
TO THE SHAREHOLDERS OF FLAG INVESTORS EQUITY PARTNERS FUND, INC.
You are cordially invited to a special meeting (the "Special Meeting")
of the shareholders of Flag Investors Equity Partners Fund, Inc. (the "Fund") on
August 14, 1997, at ____ p.m. Eastern Standard Time at the offices of Investment
Company Capital Corp., [_______ room], 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 or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp.
PROPOSAL 3: To approve or disapprove a new Sub-Advisory Agreement among the
Fund, Investment Company Capital Corp. and Alex. Brown Investment
Management.
Only shareholders of the Fund at the close of business on June 25, 1997 are
entitled to notice of, and vote at, this meeting or any adjournment thereof.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE
COMPLETE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD. A POSTAGE PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE SO THAT YOU MAY RETURN YOUR PROXY CARD AS SOON AS
POSSIBLE. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY CARD AND RETURN IT SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO ITS
USE.
Scott J. Liotta
Vice President and Secretary
Dated: July ___, 1997
<PAGE>
PRELIMINARY COPY
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
One South Street
Baltimore, Maryland 21202
--------------------
PROXY STATEMENT
--------------------
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD
AUGUST 14, 1997
This Proxy Statement is furnished by the Board of Directors of Flag
Investors Equity Partners Fund, Inc. (the "Fund") in connection with the
solicitation of proxies for use at the special meeting of shareholders of the
Fund to be held on Thursday, August 14, 1997, at _____ [_.m.] Eastern Standard
Time, or at any adjournment thereof (the "Special Meeting"), at the offices of
Investment Company Capital Corp., [in the ____________ room], One South Street,
Baltimore, Maryland 21202. It is expected that the Notice of Special Meeting,
the Proxy Statement and a Proxy Card will be mailed to shareholders on or about
July ___, 1997.
The primary purpose of the Special Meeting is to permit the Fund's
shareholders to consider a new Investment Advisory Agreement and a new
Sub-Advisory Agreement to take effect following the consummation of the
transactions contemplated by an Agreement and Plan of Merger, dated as of April
6, 1997 (the "Merger"), between Bankers Trust New York Corporation and Alex.
Brown Incorporated. This action is necessary to avoid the possibility that the
Merger could result in assignment and, therefore, termination of the Fund's
current Investment Advisory Agreement and Sub-Advisory Agreement. It is
contemplated that, after the Merger, Investment Company Capital Corp. ("ICC" or
the "Advisor") will remain the investment advisor to the Fund and Alex. Brown
Investment Management ("ABIM" or the "Sub-Advisor") will remain the sub-advisor
to the Fund. The Fund's new Investment Advisory Agreement and Sub-Advisory
Agreement are identical to the Fund's current Investment Advisory Agreement and
Sub-Advisory Agreement, except for the dates of execution, effectiveness and
initial term; the deletion of provisions relating to state expense limits that
have been preempted by federal law; and a proviso to the effect that the
obligation of the Advisor and Sub-Advisor to make their respective personnel
available to serve as officers of the Fund is subject to applicable banking
regulations. Shareholders will also be asked to elect a slate of Directors.
If you do not expect to be present at the Special Meeting and wish your
shares to be voted, please date and sign the enclosed Proxy Card ("Proxy") and
mail it in the enclosed reply envelope, allowing sufficient time for the Proxy
to be received on or before _____ Eastern
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<PAGE>
Standard Time on August 14, 1997. No postage is required if the Proxy is mailed
in the United States. If the accompanying Proxy is executed properly and
returned, shares represented by it will be voted at the Special Meeting in
accordance with the instructions on the Proxy. However, if no instructions are
specified, shares will be voted FOR the election of the proposed slate of
Directors of the Fund ("Proposal 1"), FOR the new Investment Advisory Agreement
("Proposal 2") and FOR the new Sub-Advisory Agreement ("Proposal 3"). All
shareholders of the Fund are entitled to vote on each Proposal. Shareholders may
revoke their Proxies at any time prior to the time they are voted by giving
written notice to the Secretary of the Fund, by delivering a subsequently dated
Proxy or by attending and voting at the Special Meeting.
The close of business on June 25, 1997, has been fixed as the record
date (the "Record Date") for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting and at any adjournment thereof.
On the Record Date, the Fund had _________ shares outstanding, consisting of
____________ Flag Investors Equity Partners Fund Class A Shares, __________ Flag
Investors Equity Partners Fund Class B Shares and _____________ Flag Investors
Equity Partners 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 the Fund, except
that the incremental costs associated with Proposals 2 and 3 will be borne by
ICC and will include reimbursement to brokerage firms and others for expenses in
forwarding Proxy solicitation materials to beneficial owners. The solicitation
of Proxies will be largely by mail, but may include telephonic, telegraphic or
oral communication by employees and officers of ICC and ABIM (collectively, the
"Advisors").
The Fund will furnish to shareholders, without charge, a copy of the
Annual Report for its fiscal year ended May 31, 1996, and a copy of the
Semi-Annual Report for the period ended November 30, 1996, and, when available,
a copy of the Annual Report for its fiscal year ended May 31, 1997, upon
request. The Annual and Semi-Annual Reports of the Fund may be obtained by
written request to the Fund, One South Street, Baltimore Maryland 21202 or by
calling (800) 767-FLAG.
The Fund is registered as an open-end diversified management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended.
PROPOSAL 1: To consider and act upon a proposal to elect a Board of Directors
of the Fund.
At the Special Meeting, it is proposed that eight Directors be elected
to hold office until their successors are duly elected and qualified. The
persons named in the accompanying Proxy intend, in the absence of contrary
instructions, to vote all Proxies on behalf of the shareholders for the election
of Truman T. Semans, James J. Cunnane, Richard T. Hale, John F. Kroeger,
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<PAGE>
Louis E. Levy, Eugene J. McDonald, Rebecca W. Rimel and Carl W. Vogt (each a
"Nominee" and collectively, the "Nominees"). All of the Nominees are currently
members of the Board of Directors. Messrs. Semans, Cunnane, Hale, Kroeger, Levy
and McDonald were last elected by the sole shareholder of the Fund on January
30, 1995. Mr. Vogt and Ms. Rimel were appointed by the Board of Directors to
fill vacancies on the Board as they arose and have not previously been elected
by the shareholders. Mr. Harry Woolf retired from the Board effective December
31, 1996. Mr. Charles W. Cole, Jr. has resigned from the Board, effective upon
the election of Directors at the Special Meeting, so that 75% of the Board
members will be Disinterested persons within the contemplation of Section 15(f)
of the 1940 Act. It is the intention of the Board that at least 75% of its
members will be such Disinterested persons for at least three years after the
Merger.
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 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 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 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, in which case shareholders may receive assistance in
communicating with other shareholders as if the provisions contained in Section
16(c) of the 1940 Act applied. In addition, Maryland General
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<PAGE>
Corporation Law provides for the calling of a special meeting by the written
request of shareholders holding at least 25% of the shares entitled to vote at
the meeting.
Information Regarding Nominees
The following information is provided for each Nominee. It includes his
or her name, position with the Fund, length of directorship, age, principal
occupations or employment during the past five years, directorships with other
companies which file reports periodically with the Securities and Exchange
Commission, number of directorships with the 12 registered investment companies
which hold themselves out to investors as related companies for purposes of
investment and investor services to which ICC or an affiliated person of ICC
provides investment advisory or administration services (collectively, the "Fund
Complex"), number of shares of the Fund beneficially owned and percentage of
shares of the Fund beneficially owned. As of [May 31, 1997,] the Directors and
officers of the Fund as a group and the Nominees as a group beneficially owned
an aggregate of [___%] [less than 1%] of the shares of the Fund.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned as of
Name and Position Business Experience During the Past May 31,
with the Fund Age Five Years (including all directorships) 1997** Percentage
- ---------------------- ---- ---------------------------------------- ---- ----------
<S> <C> <C> <C>
Truman T. Semans* 70 Managing Director, Alex. Brown & Sons 10,987 shares ***
Director and Chairman Incorporated; Director, Investment Company
of the Board since Capital Corp. (registered investment
1994 advisor). Formerly, Vice Chairman, Alex.
Brown & Sons Incorporated. Director of 10
funds in the Fund Complex.
James J. Cunnane 59 Managing Director, CBC Capital (merchant __ shares ***
Director since 1994 banking), 1993-Present. Formerly, Senior 7,016 shares +
Vice President and Chief Financial Officer,
General Dynamics Corporation (defense),
1989-1993; and Director, The Arch Fund
(registered investment company). Director
of each fund in the Fund Complex
Richard T. Hale* 51 Managing Director, Alex. Brown & Sons 18,113 shares ***
Director since 1994 Incorporated; Director and President,
Investment Company Capital Corp.
(registered investment advisor); Chartered
Financial Analyst. Director of each fund in
the Fund Complex.
John F. Kroeger 72 Director/Trustee, AIM Funds (registered __ shares ***
Director since 1994 investment companies). Formerly, __ shares +
Consultant, Wendell & Stockel Associates,
Inc. (consulting firm) and General Manager,
Shell Oil Company. Director of each fund in
the Fund Complex.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Owned as of
Name and Position Business Experience During the Past May 31,
with the Fund Age Five Years (including all directorships) 1997** Percentage
----------------------- --- ---------------------------------------- ---- ----------
<S> <C> <C> <C>
Louis E. Levy 64 Director, Kimberly-Clark Corporation 1,521 shares ++ ***
Director since 1994 (personal consumer products) and __ shares +
Household International (finance and
banking); Chairman of the Quality Control
Inquiry Committee, American Institute of
Certified Public Accountants. Formerly,
Trustee, Merrill Lynch Funds for
Institutions, 1991-1993; Adjunct Professor,
Columbia University-Graduate School of
Business, 1991-1992; Partner, KPMG Peat
Marwick, retired 1990. Director of each
fund in the Fund Complex.
Eugene J. McDonald 64 President, Duke Management Company __ shares ***
Director since 1994 (investments); Executive Vice President, __ shares +
Duke University (education, research and
health care); Director, Central Carolina
Bank & Trust (banking), Key Funds
(registered investment companies), AMBAC
Treasurers Trust (registered investment
company) and DP Mann Holdings
(insurance). Director of each fund in the
Fund Complex.
Rebecca W. Rimel 46 President and Chief Executive Officer, The __ shares ***
Director since 1995 Pew Charitable Trusts; Director and __ shares +
Executive Vice President, The Glenmede
Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts.
Director of 10 funds in the Fund Complex.
Carl W. Vogt, Esq. 61 Senior Partner, Fulbright & Jaworski L.L.P. __ shares ***
Director since 1996 (law); Director, Yellow Corporation 873 shares +
(trucking). Formerly, Chairman and
Member, National Transportation Safety
Board; Director, National Railroad
Passenger Corporation (Amtrak); and
Member, Aviation System Capacity Advisory
Committee (Federal Aviation
Administration). Director of 9 funds in
the Fund Complex.
</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 May 31, 1997, the Nominees of the Fund as a group beneficially
owned an aggregate of _____% of the shares of the Fund.
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<PAGE>
+ Represents shares not beneficially owned, but held by funds in the Fund
Complex as designated by the Nominee pursuant to the Fund Complex's
Deferred Compensation Plan.
[++ Mr. Levy disclaims beneficial ownership of these shares as they are
held by his wife in trust.]
Compensation of Directors
Each Director who is not an "interested person" 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 May
31, 1997, Disinterested Directors' fees attributable to the assets of the Fund
totaled $[5,503]. Officers of the Fund receive no direct remuneration in such
capacity from the Fund. Officers of the Fund who are employees of Alex. Brown
Incorporated or its affiliates ("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, Kroeger, 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 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 May 31, 1997 is set forth in the
compensation table below. The aggregate compensation payable to such Directors
during the fiscal year ended May 31, 1997 by the Fund Complex is also set forth
in the compensation table below.
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<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
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> <C>
Truman T. Semans, Director
and Chairman (1) $0 $0 $0 10
Charles W. Cole, Jr. Director (1) $0 $0 $0 8
Richard T. Hale, Director (1) $0 $0 $0 12
James J. Cunnane, Director $657(3) + $39,000 12
John F. Kroeger, Director $825(3) + $49,000 12
Louis E. Levy, Director $657(3) + $39,000 12
Eugene J. McDonald, Director $657(3) + $39,000 12
Rebecca W. Rimel $743(3) + $39,000 10(4)
Carl W. Vogt $753(3) + $39,000 9(4)
Harry Woolf, Director (2) $443(3) + $29,250 12
</TABLE>
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(1) Denotes an individual who is an "interested person" as defined in the 1940
Act. Such individual's service as Director is conditioned upon Federal
Reserve Board approval. (See "The New Advisory Agreement" below.)
(2) Retired, effective December 31, 1996
(3) Of the amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald, Vogt and
Woolf, and Ms. Rimel, $657, $0, $0, $657, $753, $443, $743, respectively,
was deferred to the Deferred Compensation Plan.
(4) Ms. Rimel and Mr. Vogt receive proportionately higher compensation from each
fund for which they serve as a Director.
+ The Fund Complex has adopted a retirement plan for eligible Directors, as
described below. The actuarially computed pension expense for the Fund for
the fiscal year ended May 31, 1997 was $3,765.
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 (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 a Director 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. Another Participant who retired on January 31, 1996, and died on June 2,
1996, was paid fees of $8,090 by the Fund Complex under the Retirement Plan in
the fiscal year ended May 31, 1997.
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<PAGE>
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, 1996, are as follows: Messrs.
Cunnane (2), Kroeger (14), Levy (2), McDonald(4), Vogt (1), and Ms. Rimel (1).
<TABLE>
<CAPTION>
Years of Service Estimated Annual Benefits Payable By Fund Complex Upon Retirement
- ---------------- -----------------------------------------------------------------
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>
Meetings and Committees of the Board of Directors
There were four meetings of the Board of Directors held during the
fiscal year ended May 31, 1997. In such fiscal year, all Directors attended at
least 75% of the meetings of the Board of Directors held during their respective
terms.
The Board of Directors has an Audit and Compliance Committee. The Audit
and Compliance Committee makes recommendations to the full Board of Directors
with respect to the engagement of independent accountants and 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 May 31, 1997, were Messrs.
Kroeger (Chairman), Cunnane, Levy, McDonald, Vogt and Woolf, and Ms. Rimel each
of whom is not an "interested person" within the meaning of the 1940 Act. Mr.
Woolf was a member of the Audit and Compliance Committee until his retirement on
December 31, 1996. The Audit and Compliance Committee met four times during the
fiscal year ended May 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.
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<PAGE>
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 May 31, 1997, were Messrs. McDonald (Chairman),
Cunnane, Kroeger, Levy, Vogt and Woolf and Ms. Rimel, each of whom is not an
"interested person" within the meaning of the 1940 Act. Mr. Woolf was a member
of the Nominating Committee until his retirement on December 31, 1996. The
Nominating Committee met once during the fiscal year ended May 31, 1997 and all
members attended the meeting.
The Board of Directors has a Compensation Committee. The Compensation
Committee makes recommendations to the full Board of Directors with respect to
the compensation of Directors. The members of the Compensation Committee during
the fiscal year ended May 31, 1997, were Messrs. Woolf (Chairman), Cunnane,
Kroeger, Levy, McDonald and Vogt, and Ms. Rimel, each of whom is not an
"interested person" within the meaning of the 1940 Act. Mr. Woolf was a member
of the Compensation Committee until his retirement on December 31, 1996. Mr.
Cunnane became Chairman of the Compensation Committee upon Mr. Woolf's
retirement. The Compensation Committee met once during the fiscal year ended May
31, 1997 and all members attended the meeting.
Board Approval of the Election of Directors
At a meeting of the Board of Directors held June 17, 1997, 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 considered the Nominees' experience and
qualifications.
Shareholder Approval of the Election of Directors
The Election of the 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 or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp.
Investment Company Capital Corp. is the Fund's investment advisor and
Alex. Brown Investment Management is the sub-advisor. ICC is an indirect
wholly-owned subsidiary of Alex. Brown Incorporated. Alex. Brown & Sons
Incorporated owns a 1% general partnership interest
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<PAGE>
in ABIM and Alex. Brown Incorporated owns a 49% limited partnership interest in
ABIM. Alex. Brown Incorporated has entered into an Agreement and Plan of Merger
with Bankers Trust New York Corporation (together with its affiliates "Bankers
Trust") under which Alex. Brown Incorporated would merge with and into a
subsidiary of Bankers Trust New York Corporation. [As of December 31, 1996,
Bankers Trust New York Corporation was the seventh largest bank holding company
in the United States with total assets of approximately $120 billion. Its
subsidiary, Bankers Trust Company, is a worldwide merchant bank dedicated to
serving the needs of corporations, governments, financial institutions and
private clients through a global network of over 120 offices in more than 40
countries. Investment management is a core business of Bankers Trust, built from
its roots as a trust bank founded in 1903. Bankers Trust Company is one of the
nation's largest and most experienced investment managers with approximately
$227 billion in assets under management globally.]
Bankers Trust is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended ("BHCA"), and the rules and regulations
thereunder. The Board of Governors of the Federal Reserve System has promulgated
rules and regulations pursuant to its authority under the BHCA (and taking into
consideration certain provisions of the National Banking Act of 1933 generally
referred to as the Glass-Steagall Act) that govern the relationship between bank
holding company affiliates and mutual funds, such as the Fund, under which
certain regulatory approvals will be necessary. However, after the Merger, it is
expected that ICC and ABIM will continue to serve as the Advisors.
The Advisors do not anticipate any reduction in the quality of services
now provided the Fund and do not expect that the Merger will result in any
material changes in the business of the Advisors or in the manner in which the
Advisors render services to the Fund. Nor do the Advisors anticipate that the
Merger or any ancillary transactions will have any adverse effect on their
ability to fulfill their respective obligations under the new Investment
Advisory Agreement or the new Sub-Advisory Agreement or to operate their
business in a manner consistent with past business practice.
The Investment Advisory Agreements
In anticipation of the Merger, the Directors of the Fund, including the
Directors who are not (i) parties to the new Investment Advisory Agreement
between the Fund and ICC (the "New Advisory Agreement") or (ii) interested
persons of any such party, unanimously approved the New Advisory Agreement. The
form of the New Advisory Agreement is identical to the Current Advisory
Agreement, except for the dates of execution, effectiveness and initial term;
the deletion of provisions relating to state expense limits that have been
preempted by federal law; and a proviso to the effect that the obligation of ICC
to make its personnel available to serve as officers of the Fund is subject to
applicable banking regulations. The holders of a majority of the outstanding
voting securities (within the meaning of the 1940 Act) of the Fund are being
asked to approve the New Advisory Agreement. See "The New Advisory Agreement"
below.
-11-
<PAGE>
The Current Advisory Agreement
The current Investment Advisory Agreement between ICC and the Fund,
dated as of January 31, 1995 (the "Current Advisory Agreement"), was last
approved by the sole shareholder of the Fund on January 30, 1995.
The Current Advisory Agreement provides that ICC, in return for its
fee, will (a) supervise and manage all aspects of the Fund's operations, except
for distribution services; (b) formulate and implement continuing programs for
the purchases and sales of securities, consistent with the investment objective
and policies of the Fund; (c) provide the Fund with such executive,
administrative and clerical services as are deemed advisable by the Fund's Board
of Directors; (d) provide the Fund with, or obtain for it, adequate office space
and all necessary office equipment and services; (e) obtain and evaluate
pertinent information about significant developments and economic, statistical
and financial data, domestic, foreign and 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; (f) determine which issuers and securities
shall be represented in the Fund's portfolio and regularly report thereon to the
Fund's Board of Directors; (g) take all actions necessary to carry into effect
the Fund's purchase and sale programs; (h) supervise the operations of the
Fund's transfer and dividend disbursing agent; (i) provide the Fund with such
administrative and clerical services for the maintenance of certain shareholder
records as are deemed advisable by the Fund's Board of Directors; and (j)
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. Subject to
the approval of the Board and the Fund's shareholders, ICC may delegate certain
of its duties enumerated above to a sub-advisor.
The Current Advisory Agreement provides for compensation to ICC
calculated daily and paid at the end of each calendar month at the annual rate
of 1.00% of the first $50 million of the Fund's average daily net assets, .85%
of the next $50 million of the Fund's average daily net assets, .80% of the next
$100 million of the Fund's average daily net assets and .70% of the Fund's
average daily net assets exceeding $200 million.
The Current Advisory Agreement provides that ICC will furnish, at its
expense and without cost to the Fund, the services of one or more officers of
the Fund to the extent that such officers may be required by the Fund for the
proper conduct of its affairs. The Fund assumes and pays or causes to be paid
all other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan of distribution; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safe-keeping 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
-12-
<PAGE>
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 independent accountants, in connection with any matter relating to the Fund;
membership dues of industry associations; interest payable on Fund borrowings;
postage; insurance premiums on property or personnel (including officers and
Directors) of the Fund which inure to its benefit; extraordinary expenses
(including, but not limited to, legal claims and liabilities and litigation
costs and any indemnification related thereto); and all other charges and costs
of the Fund's operation unless otherwise explicitly provided herein.
The services of ICC are not to be deemed exclusive, and ICC is free to
render investment advisory and other services to others, including other
investment companies, and to engage in other activities, so long as its services
under the agreement are not impaired thereby. ICC's officers or directors may
serve as officers or Directors of the Fund, the Fund's officers or Directors may
serve as officers or directors of ICC, to the extent permitted by law, and
officers and directors of ICC are not prohibited from engaging in any other
business activity or from rendering services to any other person, or from
serving as partners, officers, trustees or directors of any other firm, trust or
corporation, including other investment companies.
Following the expiration of its initial two-year term, the Current
Advisory Agreement continues in force and effect from year to year, provided
that such continuance is approved at least annually by the Fund's Board of
Directors or by the vote of a majority of the outstanding voting securities of
the Fund, and by the affirmative vote of a majority of the Directors who are not
parties to the agreement or "interested persons" of a party to the agreement
(other than as Directors of the Fund) by votes cast in person at a meeting
specifically called for such purpose.
The Current Advisory Agreement may be terminated, without the payment
of any penalty, by the Fund upon a vote of the Fund's Board of Directors, by a
vote of a majority of Fund's outstanding voting securities or by ICC, upon sixty
days' written notice to the other party. The agreement automatically terminates
in the event of its assignment.
The Current Advisory Agreement obligates ICC, in the performance of its
duties under the agreement, to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to ensure the
accuracy of all services performed under the agreement, but ICC is not liable
for any act or omission which does not constitute willful misfeasance, bad
-13-
<PAGE>
faith or gross negligence on the part of ICC or its officers, directors or
employees, or reckless disregard by ICC of its duties under the agreement.
The New Advisory Agreement
The Board of Directors approved the proposed New Advisory Agreement
between the Fund and ICC on June 17, 1997, the form of which is attached as
Exhibit A. The form of the proposed New Advisory Agreement is identical to the
Current Advisory Agreement, except for the dates of execution, effectiveness and
initial term; the deletion of provisions relating to state expense limits that
have been preempted by federal law; and a proviso to the effect that the
obligation of ICC to make its personnel available to serve as officers of the
Fund is subject to applicable banking regulations.
The investment advisory fee as a percentage of net assets payable by
the Fund will be the same under the New Advisory Agreement as under the Current
Advisory Agreement. If the investment advisory fee under the New Advisory
Agreement had been in effect for the Fund's most recently completed fiscal year,
the advisory fee to which ICC would have been entitled, would have been
identical to that to which it was entitled under the Current Advisory Agreement.
The Board held a meeting on June 17, 1997, at which the Board,
including the Disinterested Directors, unanimously approved the New Advisory
Agreement for the Fund and recommended the New Advisory Agreement for approval
by the shareholders of the Fund. The New Advisory Agreement would take effect
upon the later to occur of (i) the obtaining of shareholder approval or (ii) the
closing of the Merger. The New Advisory Agreement will continue in effect for an
initial two year term and thereafter for successive annual periods as long as
such continuance is approved in accordance with the 1940 Act.
In evaluating the New Advisory Agreement, the Board based its
determination primarily on its conclusion that there would be a high degree of
continuity of services to the Fund and took into account that the Fund's Current
Advisory Agreement and the New Advisory Agreement, including their terms
relating to the services to be provided thereunder by ICC and the fees and
expenses payable by the Fund, are substantially identical.
The Board was assured on behalf of Alex. Brown and Bankers Trust that
they intend to comply with the requirements of Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe harbor for an investment advisor to
an investment company or any of its affiliated persons to receive any amount or
benefit in connection with a change in control of the investment advisor that
results in an assignment so long as two conditions are met. First, for a period
of three years after the change of control, at least 75% of the board members of
the investment company must not be interested persons of the acquired advisor or
the acquiror (Alex. Brown and Bankers Trust, respectively, in this case). The
Fund would be in compliance with this provision of Section 15(f). Second, an
"unfair burden" must not be imposed upon the investment company as a result of
such transaction or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" is defined in Section 15(f) to
include any
-14-
<PAGE>
arrangement during the two-year period after the Merger whereby the investment
advisor, or any interested person of any such advisor, receives or is entitled
to receive any compensation, directly or indirectly, from the investment company
or its shareholders (other than fees for bona fide investment advisory or other
services) or from any person in connection with the purchase or sale of
securities or other property to, from or on behalf of the investment company
(other than bona fide ordinary compensation as principal underwriter for such
investment company). Alex. Brown and Bankers Trust are not aware of any express
or implied term, condition, arrangement or understanding that would impose an
"unfair burden" on the Fund as a result of the Merger. Alex. Brown and Bankers
Trust have agreed that they, and their affiliates, will take no action that
would have the effect of imposing an "unfair burden" on the Fund as a result of
the Merger.
The Board also considered the terms of the Merger and the possible
effects of the Merger upon the Advisor's organization and upon the ability of
the Advisor to provide advisory services to the Fund. The Board considered the
skills and capabilities of the Advisor in this regard and the representations of
Alex. Brown and Bankers Trust that no material change was planned in the current
management or facilities of the Advisor.
The Board was also informed of the resources of Bankers Trust that
could be made available to the Advisor and the Fund. Although the Board focused
primarily on the continuity of services to the Fund, the Directors did consider
Bankers Trust's experience as advisor and service provider to a family of mutual
funds. They also received preliminary information about Bankers Trust's ability
to provide other services, including custody.
The Board also considered the effect on the Fund of ICC becoming an
affiliated person of Bankers Trust. In particular, the Board considered the
potential impact of banking laws and steps that might be necessary to secure
Federal Reserve Board approval of the Merger. In this regard, the Board also
considered the likelihood that the Fund will have to engage an independent
principal underwriter after the Merger but that Alex. Brown & Sons will continue
to be able to provide services to its clients in connection with shareholder
accounts with the Fund. The Board also considered the fact that the continued
ability of Alex. Brown personnel to serve as Directors or officers of the Fund
was subject to Federal Reserve Board approval. Following the Merger, the 1940
Act will prohibit or impose certain conditions on the ability of the Fund to
engage in certain transactions with Bankers Trust. For example, absent exemptive
relief, the Fund will be prohibited from purchasing securities from Alex. Brown
and Bankers Trust in transactions in which Alex. Brown or Bankers Trust acts as
a principal. Currently the Fund is prohibited from making such purchases only in
those transactions in which Alex. Brown acts as principal. The Fund will also
have to satisfy certain conditions in order to engage in securities transactions
in which Alex. Brown or Bankers Trust is acting as an underwriter. The Fund is
already required to satisfy such conditions when engaging in transactions in
which Alex. Brown is acting as an underwriter. In this connection, management of
the Advisor represented to the Board that it does not believe these prohibitions
or conditions will have a material effect on the management or performance of
the Fund.
-15-
<PAGE>
The Board also considered that the costs of the Special Meeting,
insofar as they apply to approval of new Advisory Agreements, 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
Disinterested Directors, unanimously approved the New Advisory Agreement with
respect to the Fund and voted to recommend its approval to the shareholders of
the Fund.
In the event that shareholders of the Fund do not approve the New
Advisory Agreement, the Current Advisory Agreement will remain in effect and the
Board will take such action as it deems in the best interest of the Fund and its
shareholders, which may include proposing that shareholders approve an agreement
in lieu of the New Advisory Agreement. If the Merger is not consummated, ICC
will continue to serve as investment advisor of the Fund pursuant to the terms
of the Current Advisory Agreement.
Investment Company Capital Corp.
ICC is a registered investment advisor that had under management as of
May 31, 1997 approximately $_____ billion, including assets of the Fund and the
assets of ICC's other clients. ICC is an indirect subsidiary of Alex. Brown
Incorporated. The principal address of each is One South Street, Baltimore,
Maryland, 21202.
The following information is provided for each Director and the
principal executive officer of ICC.
Directors and Principal Executive Officer
of Investment Company Capital Corp.
<TABLE>
<CAPTION>
Name and Position
with the Advisor Address Principal Occupation
- -------------------- ------- --------------------
<S> <C> <C>
Charles W. Cole, Jr. One South Street Managing Director, Alex.
Chairman Baltimore, Maryland 21202 Brown & Sons Incorporated.
Richard T. Hale One South Street Managing Director, Alex.
Director and President Baltimore, Maryland 21202 Brown & Sons Incorporated.
David L. Hopkins One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated.
Alvin B. Krongard One South Street Chairman, Chief Executive
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated.
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Margaret-Mary V. Preston One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated.
Robert F. Price One South Street Managing Director and
Director Baltimore, Maryland 21202 General Counsel, Alex.
Brown & Sons Incorporated.
Mayo A. Shattuck III One South Street President, Chief Operating
Director Baltimore, Maryland 21202 Officer and Director, Alex.
Brown Incorporated.
Truman T. Semans One South Street Managing Director, Alex.
Director Baltimore, Maryland 21202 Brown & Sons Incorporated.
Beverly L. Wright One South Street Managing Director and CFO,
Director Baltimore, Maryland 21202 Alex. Brown & Sons
Incorporated.
</TABLE>
For the fiscal year ended May 31, 1997, the Fund paid ICC an aggregate
fee of $853,103 (net of voluntary fee waivers of $141,648) for advisory
services. For such fiscal year, the Fund also paid ICC aggregate fees of $59,840
for transfer agency services and $55,940 for accounting services provided to the
Fund. For the fiscal year ended May 31, 1997, the Fund paid Alex. Brown an
aggregate distribution fee of $294,233. For such fiscal year, ICC paid ABIM an
aggregate fee of $680,636 (net of voluntary fee waivers of $49,796) for
sub-advisory services.
As of ______________ __, 1997, to Fund management's knowledge as
provided by the Directors and officers of the Fund, the following Directors and
officers of the Fund beneficially owned shares of Alex. Brown Incorporated. Mr.
Semans, Chairman and a Director of the Fund, beneficially owned ________ shares
of Alex. Brown Incorporated. Mr. Cole, a Director of the Fund, beneficially
owned __________ shares of Alex. Brown Incorporated. Mr. Hale, a Director of the
Fund, beneficially owned 90,470 shares of Alex. Brown Incorporated. Mr. Lee S.
Owen, President of the Fund and a Vice President of ABIM, beneficially owned
____________ shares of Alex. Brown Incorporated. Mr. J. Dorsey Brown, III,
Executive Vice President of the Fund and Chief Executive Officer of ABIM,
beneficially owned __________ shares of Alex. Brown Incorporated. Mr. Bruce E.
Behrens, a Vice President of the Fund and a Vice President of ABIM, beneficially
owned _________ shares of Alex. Brown Incorporated. Mr. Hobart C. Buppert, II, a
Vice President of the Fund and a Vice President of ABIM, beneficially owned
_________ shares of Alex. Brown Incorporated. Mr. Edward J. Veilleux, a Vice
President of the Fund, beneficially owned _________ shares of Alex. Brown
Incorporated.
Other Funds Advised by ICC with Similar Investment Objectives
ICC acts as advisor to two funds which have investment objectives
similar to those of the Fund. (The objectives of the Fund and of the two funds
listed below are not identical, particularly with respect to their varying
emphasis of the income component of return, and all
-17-
<PAGE>
three differ significantly from each other in their investment policies.) The
following table provides comparative information on fees paid to ICC pursuant to
advisory agreements in effect for such funds.
<TABLE>
<CAPTION>
Management Fee
Assets (as a percentage of
Fund (000's) average daily net assets)
- ---- ------- -------------------------
<S> <C> <C>
Flag Investors Value Builder Fund, Inc. . . . . . . . . $345,426 .82%*
Flag Investors Telephone Income Fund . . . . . . . . . $550,604 .66% **
</TABLE>
- ----------------
* Information given for fiscal year ended March 31, 1997.
** Information given for the fiscal year ended December 31, 1996.
Shareholder Approval of the New Advisory Agreement
Approval of the New Advisory Agreement requires the affirmative vote of
a majority of the outstanding shares of the Fund. For purposes of this proposal,
"majority of the outstanding shares" means the vote of (i) 67% or more of the
Fund's outstanding shares present at the Meeting, if the holders of more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the Fund's outstanding shares, whichever is less.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF
THE FUND VOTE FOR APPROVAL OF THE NEW ADVISORY AGREEMENT
PROPOSAL 3: To approve or disapprove a new Sub-Advisory Agreement among the
Fund, Investment Company Capital Corp. and Alex. Brown
Investment Management.
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 at
page _____.
The Current Sub-Advisory Agreement
The Current Sub-Advisory Agreement among the Fund, ICC and ABIM, dated
January 31, 1995 (the "Current Sub-Advisory Agreement"), was last approved by
the sole shareholder of the Fund on January 30, 1995.
The Current Sub-Advisory Agreement provides that ABIM, 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
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<PAGE>
the Fund, all actions which appear to ABIM 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; and (e) obtain and evaluate
pertinent information about significant developments and economic, statistical
and financial data, domestic, foreign and 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 Current Sub-Advisory Agreement provides for compensation to ABIM
from ICC calculated daily and paid at the end of each calendar month, at the
annual rate of .75% of the first $50 million of the Fund's average daily net
assets, .60% of the next $150 million of the Fund's average daily net assets,
and .50% of the Fund's average daily net assets in excess of $200 million.
The Current Sub-Advisory Agreement provides that ABIM will furnish, at
its expense and without cost to the Fund, the services of the President and
certain Vice Presidents of the Fund to the extent that such officers may be
required by the Fund for the proper conduct of its affairs. ABIM 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 or causes to be paid all other expenses of the Fund,
including, without limitation: payments to ICC under the Current 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
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; and 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 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
-19-
<PAGE>
thereto); and all other charges and costs of the Fund's operation unless
otherwise explicitly provided herein.
The services of ABIM are not deemed to be exclusive, and ABIM 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. Partners of ABIM may serve as
officers or Directors of the Fund, the Fund's officers or Directors may serve as
officers or partners of ABIM, to the extent permitted by law, and partners of
ABIM are not prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners, officers,
trustees or directors of any other firm, trust or corporation, including other
investment companies.
Following the expiration of its initial two-year term, the Current
Sub-Advisory Agreement continuous in 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 outstanding voting securities of the Fund,
and by the affirmative vote of a majority of the Directors who are not parties
to the agreement or "interested persons" of a party to the agreement (other than
as Directors of the Fund) by votes cast in person at a meeting specifically
called for such purpose.
The Current 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 Fund's outstanding voting securities or by
ABIM, upon sixty days' written notice to the other party. The agreement
automatically terminates in the event of its assignment.
The Current Sub-Advisory Agreement obligates ABIM, 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 ABIM is not liable
for any act or omission which does not constitute willful misfeasance, bad faith
or gross negligence on the part of ABIM or its officers, partners or employees,
or reckless disregard by ABIM of its duties under the agreement.
The New Sub-Advisory Agreement
The Board of Directors approved the proposed New Sub-Advisory Agreement
among the Fund, ICC and ABIM ("New Sub-Advisory Agreement") on June 17, 1997,
the form of which is attached as Exhibit B. The form of the proposed New
Sub-Advisory Agreement is identical to the Current Sub-Advisory Agreement,
except for the dates of execution, effectiveness and initial term; the deletion
of provisions relating to state expense limits that have been preempted by
federal law; and a proviso to the effect that the obligation of ABIM to make its
personnel available to serve as officers of the Fund is subject to applicable
banking regulations.
The sub-advisory fee as a percentage of net assets payable by ICC will
be the same under the New Sub-Advisory Agreement as under the Current
Sub-Advisory Agreement. If the sub-advisory fee under the New Sub-Advisory
Agreement had been in effect for the Fund's most
-20-
<PAGE>
recently completed fiscal year, the sub-advisory fee to which ABIM would have
been entitled would have been identical to that to which it was entitled under
the Current Sub-Advisory Agreement.
The Board held a meeting on June 17, 1997, at which the Board,
including the Disinterested Directors, unanimously approved the New Sub-Advisory
Agreement for the Fund and recommended the New Sub-Advisory Agreement for
approval by the shareholders of the Fund. The New Sub-Advisory Agreement would
take effect upon the later to occur of (i) the obtaining of shareholder approval
or (ii) the closing of the Merger. The New 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.
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 Current Sub-Advisory Agreement and the New
Sub-Advisory Agreement, including their terms relating to the services to be
provided thereunder by ABIM and the fees and expenses are substantially
identical.
Alex. Brown Investment Management
ABIM is a registered investment advisor that had under management as of
____________ ____, 1997, approximately $_____ billion, including assets of the
Fund and the assets of ABIM's other clients. ABIM is a limited partnership
affiliated with Alex. Brown. Buppert, Behrens & Owen, Inc., a company organized
and owned by three employees of ABIM, owns a 49% limited partnership interest
and a 1% general partnership interest in ABIM. Alex. Brown & Sons Incorporated
owns a 1% general partnership interest in ABIM and Alex. Brown Incorporated owns
the remaining 49% limited partnership interest. The address of each of the
foregoing entities is One South Street, Baltimore, Maryland 21202.
The following information is provided for each general partner and the
principal executive officer of ABIM.
<TABLE>
<CAPTION>
Name and Position with ABIM Address Principal Occupation
- --------------------------- ------- ---------------------
<S> <C> <C>
Buppert, Behrens & Owen, Inc. One South Street N/A
General Partner Baltimore, Maryland 21202
Alex. Brown & Sons Incorporated One South Street N/A
General Partner Baltimore, Maryland 21202
J. Dorsey Brown, III One South Street Managing Director, Alex. Brown &
Chief Executive Officer Baltimore, Maryland 21202 Sons Incorporated
</TABLE>
For the fiscal year ended May 31, 1997, ICC paid ABIM an aggregate fee
of $680,636 (net of voluntary fee waivers of $49,796) for sub-advisory services.
For such fiscal year, the Fund paid ICC an aggregate fee of $853,103 (net of
voluntary fee waivers of $141,648) for
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<PAGE>
advisory services, an aggregate fee of $59,840 for transfer agency services and
an aggregate fee of $55,940 for accounting services provided to the Fund. For
the fiscal year ended May 31, 1997, the Fund paid Alex. Brown & Sons
Incorporated an aggregate distribution fee of $294,233.
Please refer to Proposal 2 -- "Investment Company Capital Corp." on
pages ____ and ____ for information regarding ownership in Alex. Brown
Incorporated by Directors and officers of the Fund.
Other Funds with Similar Investment Objectives Sub-Advised by ABIM
ABIM acts as sub-advisor to two funds which have investment objectives
similar to those of the Fund. (The objectives of the Fund and of the two funds
listed below are not identical, particularly with respect to their varying
emphasis on the income component of return, and all three differ significantly
from each other in their investment policies.) The following table provides
comparative information on fees paid by ICC to ABIM pursuant to sub-advisory
agreements in effect for such funds.
<TABLE>
<CAPTION>
Sub-Advisory Fee
Size of Fund (as a percentage of
Fund (000's) average daily net assets)
- ---- ------- -------------------------
<S> <C> <C>
Flag Investors Value Builder Fund, Inc............... $345,426 .60%*
Flag Investors Telephone Income Fund, Inc............ $550,604 .45%**
</TABLE>
- ----------------
* Information given for fiscal year ended March 31, 1997.
** Information given for fiscal year ended December 31, 1996.
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 shares of the Fund. For purposes of this
proposal, "majority of the outstanding shares" means the vote of (i) 67% or more
of the Fund's outstanding shares present at the 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
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<PAGE>
ADDITIONAL INFORMATION
Directors and Executive Officers
Information about the Fund's current Directors and principal executive
officers, including their names, positions with the Fund, length of service in
such positions, ages, principal occupations or employment during the past five
years and amount of shares of the Fund beneficially owned as of May 31, 1997, 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, advised or distributed by Alex. Brown & Sons or
its affiliates.
<TABLE>
<CAPTION>
Business Experience Shares Beneficially
Position During the Past Five Years, Owned as of
Name With the Fund Age including all Directorships May 31, 1997
---- ------------- --- --------------------------- ------------
<S> <C> <C> <C> <C>
Truman T. Semans* Director and Chairman of 70 See "Information Regarding Nominees." **
the Board since 1994
Charles W. Cole, Jr.* Director since 1996 61 Vice Chairman, Alex. Brown Capital
Advisory & Trust Company (registered
investment advisor); Chairman, Investment
Company Capital Corp. (registered
investment advisor); Director, Provident
Bankshares Corporation and Provident Bank
of Maryland. Formerly, President and Chief
Executive Officer, Chief Administrative
Officer, and Director, First Maryland
Bancorp, The First National Bank of
Maryland and First Omni Bank; Director,
York Bank and Trust Company.
James J. Cunnane Director since 1994 59 See "Information Regarding Nominees." **
Richard T. Hale* Director since 1994 51 See "Information Regarding Nominees." **
John F. Kroeger Director since 1994 72 See "Information Regarding Nominees." **
Louis E. Levy Director since 1994 64 See "Information Regarding Nominees." **
Eugene J. McDonald Director since 1994 64 See "Information Regarding Nominees." **
Rebecca W. Rimel Director since 1995 46 See "Information Regarding Nominees." **
Carl W. Vogt Director since 1996 61 See "Information Regarding Nominees." **
Lee S. Owen President since 1994 49 Vice President and Portfolio Manager, Alex. **
Brown Investment Management (registered
investment advisor); Vice President and
Secretary, Buppert, Behrens & Owen, Inc.
(investments) 1987-Present.
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
Business Experience Shares Beneficially
Position During the Past Five Years, Owned as of
Name With the Fund Age including all Directorships May 31, 1997
---- ------------- --- --------------------------- ------------
<S> <C> <C> <C> <C>
J. Dorsey Brown, III Executive Vice President 57 Managing Director, Alex. Brown & Sons **
since 1994 Incorporated; Currently, Chief Executive
Officer and formerly, General Partner, Alex.
Brown Investment Management (registered
investment advisor).
Hobart C. Buppert, II Vice President since 1994 50 Vice President and Portfolio Manager, Alex. **
Brown Investment Management (registered
investment advisor), 1984-Present;
President, Buppert, Behrens & Owen, Inc.
(investments), 1987-Present.
Bruce E. Behrens Vice President since 1994 53 Vice President and Portfolio Manager, Alex. **
Brown Investment Management (registered
investment advisor); Vice President and
Treasurer, Buppert, Behrens & Owen, Inc.
(investments) 1987-Present.
Edward J. Veilleux Vice President since 1994 53 Principal, Alex. Brown & Sons **
Incorporated; Vice President, Armata
Financial Corp. (registered broker-dealer);
Executive Vice President, Investment
Company Capital Corp. (registered
investment advisor).
Gary V. Fearnow Vice President since 1994 52 Managing Director, Alex. Brown & Sons
Incorporated and Manager, Private Client
Marketing, Alex. Brown & Sons
Incorporated.
Scott J. Liotta Vice President since 1996; 32 Manager, Fund Administration, Alex. **
Secretary since 1997 Brown & Sons Incorporated, July 1996-
Present. Formerly, Manager and Foreign
Markets Specialist, Putnam Investments Inc.
(registered investment companies), April
1994-July 1996; Supervisor, Brown Brothers
Harriman & Co. (domestic and global
custody), August 1991-April 1994.
Joseph A. Finelli Treasurer since 1995 40 Vice President, Alex. Brown & Sons **
Incorporated and Vice President, Investment
Company Capital Corp. (registered
investment advisor), September 1995-
Present. Formerly, Vice President and
Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice
President, Delaware Management Company
Inc. (investments), 1980-1995.
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
Business Experience Shares Beneficially
Position During the Past Five Years, Owned as of
Name With the Fund Age including all Directorships May 31, 1997
---- ------------- --- --------------------------- ------------
<S> <C> <C> <C> <C>
Laurie D. Collidge Assistant Secretary since 31 Asset Management Department, Alex. **
1994 Brown & Sons Incorporated, 1991-Present.
</TABLE>
- --------------------
* Denotes an individual who is an "interested person" as defined in the 1940
Act.
**[As of May 31, 1997, the Directors and officers of the Fund as a group (17
persons) beneficially owned an aggregate of less than 1% of the shares of
the Fund.]
Investment Advisor and Sub-Advisor
See "Investment Company Capital Corp." on page ___ and "Alex. Brown
Investment Management" on page ___ for additional information concerning the
Advisors.
Principal Underwriter
Alex. Brown & Sons, located at One South Street, Baltimore, Maryland
21202, acts as the Fund's principal underwriter.
Portfolio Transactions
[In the fiscal year ended May 31, 1997 the Fund paid no brokerage
commissions to Alex. Brown.]
Independent Accountants
A majority of the Fund's Board of Directors who are not "interested
persons" of the Fund have selected Coopers & Lybrand L.L.P. as the independent
accountants of the Fund for the fiscal year ending May 31, 1998. [A
representative of Coopers & Lybrand L.L.P. 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 was a beneficial owner of 5% or more of the outstanding shares of the
Fund.
-25-
<PAGE>
Name and Address Amount of Beneficial Percent of Total Shares
Ownership Outstanding
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 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 one-third of all shares
entitled to vote are present in person or by Proxy at the Special Meeting.
Approval of Proposals 2 and 3 (the New Advisory and Sub-Advisory Agreements)
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 Proposals
2 and 3. The Fund believes that brokers who hold shares as record owners for
beneficial owners have the authority under the rules of the various stock
exchanges to vote those shares with respect to the Proposals when they have not
received instructions from beneficial owners.
-26-
<PAGE>
Other Matters
No business other than the matter described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND
WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO FILL IN, DATE AND SIGN THE
ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
By Order of the Directors,
Scott J. Liotta
Vice President and Secretary
Dated: July ____, 1997
-27-
<PAGE>
Exhibit A
FORM OF NEW INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as of the_____ day of
______________, 1997 by and between FLAG INVESTORS EQUITY PARTNERS 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 (the "1940 Act"); and
WHEREAS, the Advisor is registered as an investment advisor under
the Investment Advisors Act of 1940, as amended, 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 act as the Fund's investment advisor. The Advisor shall manage the
Fund's affairs and shall supervise all aspects of the Fund's operations (except
as otherwise set forth herein), including 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 shall give the Fund the benefit of its best judgment, efforts and
facilities in rendering its service as Advisor.
2. Delivery of Documents. The Fund has furnished the Advisor with
copies properly certified or authenticated of each of the following:
(a) The Fund's Articles of Incorporation, filed with the
Secretary of State of Maryland on November 29, 1994 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");
<PAGE>
(c) Resolutions of the Fund's Board of Directors and
shareholders authorizing the appointment of the Advisor and approving this
Agreement;
(d) The Fund's Notification of Registration filed pursuant
to Section 8(a) of the Investment Company Act of 1940 on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission (the "SEC") on
November 30, 1994;
(e) The Fund's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended (the "1933 Act") (File No. 33-86832) and
under the 1940 Act as filed with the SEC on November 30, 1994 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. In carrying out its obligations
under Section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Fund's
operations, except for distribution services;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Fund;
(c) provide the Fund with such executive, administrative
and clerical services as are deemed advisable by the Fund's Board of Directors;
(d) provide the Fund with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, utilities, stationery, supplies and similar items for the
Fund's principal office;
(e) 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;
-2-
<PAGE>
(f) determine which issuers and securities shall be
represented in the Fund's portfolio and regularly report thereon to the Fund's
Board of Directors;
(g) take all actions necessary to carry into effect the
Fund's purchase and sale programs;
(h) supervise the operations of the Fund's transfer and
dividend disbursing agent;
(i) provide the Fund with such administrative and clerical
services for the maintenance of certain shareholder records, as are deemed
advisable by the Fund's Board of Directors; and
(j) arrange, but not pay for, the periodic updating of
prospectuses and supplements thereto, proxy material, tax returns, reports to
the Fund's shareholders and reports to and filing with the SEC and state Blue
Sky authorities.
4. Broker-Dealer Relationships. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Fund, broker-dealer
selection, and negotiation of its brokerage commission rates, the Advisor's
primary consideration in effecting securities transactions will be to obtain the
best price and execution on an overall basis. 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. In certain instances the Advisor may make purchases of
underwritten issues at prices which include underwriting fees. In selecting a
broker-dealer to execute each particular transaction, the 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
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 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 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
Advisor's overall responsibilities with respect to the Fund. The Advisor is
further authorized to allocate the orders placed by it on behalf of the Fund to
such broker-dealers other than Alex. Brown & Sons
-3-
<PAGE>
Incorporated ("Alex. Brown") who also provide research or statistical material
or other services to the Fund or the Advisor. Such allocation shall be in such
amounts and proportions as the Advisor shall determine and the Advisor will
report on said allocation regularly to the Board of Directors of the Fund,
indicating the broker-dealers 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
Advisor may consider services in connection with the sale of shares of the Fund
as a factor in the selection of broker-dealers to execute portfolio transactions
for the Fund.
Subject to the policies established by the Board of Directors in
compliance with applicable law, the Advisor may direct Alex. Brown to execute
portfolio transactions for the Fund on a agency basis. The commissions paid to
Alex. Brown must be, as required by Rule 17e-1 under the 1940 Act, "reasonable
and fair compared to the commission, fee or other remuneration received or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time." If the purchase or sale
of securities consistent with the investment policies of the Fund or one or more
other account of the Advisor is considered at or about the same time,
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Advisor. Alex. Brown and the 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 Advisor or Alex. Brown in any
transaction in which the Advisor or Alex. Brown acts as a principal with respect
to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with the 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 applicable directives of the Board
of Directors of the Fund.
6. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Advisor shall at all times conform to:
(a) all applicable provisions of the 1940 Act and any
rules and regulations adopted thereunder;
-4-
<PAGE>
(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 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, 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 Fund assumes and shall pay or cause to be paid all
other expenses of the Fund, including, without limitation: payments to the
Fund's distributor under the Fund's plan 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; 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 the expenses of engraving or printing
of certificates representing shares of the Fund; all costs and expenses in
connection with 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 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
-5-
<PAGE>
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.
(a) Subject to the approval of the Board of Directors
including a majority of the Fund's Directors who are not "interested persons"
(as defined in the 1940 Act) of the Fund and shareholders of the Fund, the
Advisor may delegate to a sub-advisor its duties enumerated in Section 3,
hereof. The Advisor shall continue to supervise the performance of any such
sub-advisor and shall report regularly thereon to the Fund's Board of Directors,
but shall not be responsible for the sub-advisor's performance under the
sub-advisory agreement.
(b) The 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 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.
9. Compensation. For the services to be rendered and the expenses
assumed by the Advisor, the Fund shall pay to the Advisor monthly compensation
at an annual rate of 1.00% of the first $50 million of the Fund's average daily
net assets, .85% of the next $50 million of the Fund's average daily net assets,
.80% of the next $100 million of the Fund's average daily net assets and .70% of
the Fund's average daily net assets exceeding $200 million.
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 the 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 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 Advisor may serve as officers or Directors of the Fund, and
that officers or Directors of the Fund may serve
-6-
<PAGE>
as officers or directors of the Advisor to the extent permitted by law; and that
the officers and directors of the Advisor are not prohibited from engaging in
any other business activity or from rendering services to any other person, or
from serving as partners, officers, trustees or directors of any other firm,
trust or corporation, including other investment companies.
11. Term and Renewal. This Agreement shall become effective as of
the date hereof and shall continue in force and effect, subject to Section 12
hereof, for two years from the date hereof. 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 (as defined in 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 Directors
of the Fund) by votes cast in person at a meeting specifically called for such
purpose.
12. Termination. This Agreement may be terminated without the
payment of any penalty, by the Fund upon vote of the Fund's Board of Directors
or a vote of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act) or by the Advisor, upon sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment (as defined in the 1940 Act).
13. Liability of Advisor. 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 to ensure
the accuracy of all services performed 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 the 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. Until
further notice to the other party, it is agreed that the address of the Fund and
of the Advisor for this purpose shall be One South Street, Baltimore, Maryland
21202.
15. Questions of Interpretation. Any question of interpretation of
any term or provision of this Agreement having a counterpart in or otherwise
derived from a term or provision of the 1940 Act shall be resolved by reference
to such term or
-7-
<PAGE>
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 the 1940 Act. In
addition, where the effect of a requirement of the 1940 Act reflected in any
provision of this Agreement is revised by rule, regulation or order of the SEC,
such provision shall be deemed to incorporate the effect of such rule,
regulation or order. Otherwise the provisions of this Agreement shall be
interpreted in accordance with the laws of Maryland.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in duplicate by their respective offices as of the day and year
first above written.
[SEAL] FLAG INVESTORS EQUITY PARTNERS FUND, INC.
Attest:______________________ By:______________________________________
[SEAL] INVESTMENT COMPANY CAPITAL CORP.
Attest:______________________ By:______________________________________
-8-
<PAGE>
Exhibit B
FORM OF NEW SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made as of the ______ day of ______________,
1997 by and among FLAG INVESTORS EQUITY PARTNERS FUND, INC., a Maryland
corporation (the "Fund"), INVESTMENT COMPANY CAPITAL CORP., a Maryland
corporation (the "Advisor"), and ALEX. BROWN INVESTMENT MANAGEMENT, a Maryland
limited partnership (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 Secretary of State of the State of Maryland on November 29, 1994
and all amendments thereto (such Articles of Incorporation, as
presently in effect 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 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;
<PAGE>
(d) The Fund's Notification of Registration Filed
Pursuant to Section 8(a) of the Investment Company Act of 1940 on Form
N-8A under the 1940 Act as filed with the Securities and Exchange
Commission (the "SEC") on November 30, 1994;
(e) The Fund's Registration Statement on Form N-1A
under the Securities Act of 1933, as amended (the "1933 Act") (File No.
33-86832) and under the 1940 Act as filed with the SEC on November 30,
1994 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 are supplements
thereto are herein called "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:
(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; and
(e) 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.
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4. Broker-Dealer Relationships. In circumstances when the
Sub-Advisor is responsible for decisions to buy and sell securities for the
Fund, broker-dealer selection, and negotiation of its brokerage commission
rates, the Sub-Advisor's primary consideration in effecting a security
transaction will be execution of orders at the most favorable price on an
overall basis. In performing this function the Sub-Advisor shall comply with
applicable policies established by the Board of Directors and shall provide the
Board of Directors with such reports as the Board of Directors may require in
order to monitor the Fund's portfolio transaction activities. In selecting a
broker-dealer to execute each particular transaction, the Sub-Advisor will take
the following into consideration: the best net price available; the reliability,
integrity and financial condition of the broker-dealer; the size of and
difficulty in executing the order; and the value of the expected contribution of
the broker-dealer to the investment performance of the Fund on a continuing
basis. Accordingly, the price to the Fund in any transaction may be less
favorable than that available from another broker-dealer if the difference is
reasonably justified by other aspects of the portfolio execution services
offered. Subject to such policies as the Board of Directors may determine, the
Sub-Advisor shall not be deemed to have acted unlawfully or to have breached any
duty created by this Agreement or otherwise solely by reason of its having
caused the Fund to pay a broker-dealer that provides brokerage and research
services to the Sub-Advisor an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another
broker-dealer would have charged for effecting that transaction, if the
Sub-Advisor determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either that particular
transaction or the Sub-Advisor's overall responsibilities with respect to the
Fund. The Sub-Advisor is further authorized to allocate the 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 Advisor may direct Alex. Brown & Sons
Incorporated ("Alex. Brown") to execute portfolio transactions for the Fund on
an agency basis. The commissions paid to Alex. Brown must be, as required by
Rule 17e-1 under the 1940 Act, "reasonable and fair compared to the commission,
fee or other remuneration received or to be received by other brokers in
connection with comparable transactions involving similar securities during a
comparable period of time." If the purchase or sale of securities consistent
with the investment policies of the Fund or one or more other accounts of the
Sub-Advisor is considered at or about the same time,
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<PAGE>
transactions in such securities will be allocated among the accounts in a manner
deemed equitable by the Sub-Advisor. 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 Alex. Brown in
any transaction in which the Sub-Advisor or Alex. Brown acts as a principal with
respect to any part of the Fund's order. If Alex. Brown is participating in an
underwriting or selling group, the Fund may not buy portfolio securities from
the group except in accordance with policies established by the Board of
Directors in compliance with rules of the SEC.
5. Control by Fund's Board of Directors. Any recommendations
concerning the Fund's investment program for the Fund proposed by the
Sub-Advisor to the Fund and the Advisor pursuant to this Agreement, as well as
any other 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 between 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 the President and certain Vice
Presidents 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.
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<PAGE>
(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 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'
commission 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 independent certified
public 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. 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: .75% of the first $50 million of
the Fund's average daily net assets, .60% of the next $150 million of the Fund's
average daily net assets, and .50% of the Fund's average daily net assets in
excess of $200 million. 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.
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<PAGE>
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 Sub-Advisor on sixty (60) days'
written notice to the Fund and the Advisor. 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 partners 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 partners of the Sub-Advisor to the extent permitted by law; and
that the partners of the Sub-Advisory are not
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<PAGE>
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.
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, of the Advisor and of the Fund for this purpose 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.
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<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 EQUITY PARTNERS FUND, INC.
__________________ By:______________________________________
Attest: INVESTMENT COMPANY CAPITAL CORP.
__________________ By:______________________________________
Attest: ALEX. BROWN INVESTMENT MANAGEMENT
By Alex. Brown & Sons Incorporated,
a General Partner
__________________ By:______________________________________
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<PAGE>
FLAG INVESTORS EQUITY PARTNERS FUND, INC.
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
August 14, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF FLAG INVESTORS EQUITY PARTNERS FUND, INC.
This proxy is for your use in voting on various matters relating to Flag
Investors Equity Partners Fund, Inc. (the "Fund"). The undersigned
shareholder(s) of the Fund, revoking previous proxies, hereby appoint(s) Scott
J. Liotta, I. Alisa Stesch and Laurie D. Collidge and each of them (with full
power of substitution) the proxies of the undersigned to attend the Special
Meeting of Shareholders of the Fund to be held on August 14, 1997 (the "Special
Meeting") and any adjournments thereof, to vote all of the shares of the Fund
that the signer would be entitled to vote if personally present at the Special
Meeting and on any matter incident to the conduct of the Special Meeting, all as
set forth in the notice of Special Meeting of Shareholders and Proxy Statement
of the Board of Directors. Said proxies are directed to vote or refrain from
voting pursuant to the Proxy Statement as indicated upon the matters set forth
below.
(1) To consider and act upon a proposal to elect a Board of Directors.
___ FOR all the nominees listed below.
___ WITHHOLD AUTHORITY to vote for all of the nominees listed below.
___ FOR all the nominees listed below except for those whose names have
been stricken.
(Instructions: To withhold authority to vote for any or all of the
nominees, strike a line through the name(s) of such nominee(s) below.)
Truman T. Semans James J. Cunnane
Richard T. Hale John F. Kroeger
Louis E. Levy Eugene J. McDonald
Rebecca W. Rimel Carl W. Vogt
(2) To approve or disapprove a new Investment Advisory Agreement between
the Fund and Investment Company Capital Corp.
___ For ___ Against ___ Abstain
(3) To approve or disapprove a new Sub-Advisory Agreement among the Fund,
Investment Company Capital Corp. and Alex. Brown Investment Management.
___ For ___ Against ___ Abstain
This proxy will be voted as indicated above. If no indication is made, this
proxy will be voted FOR the proposals set forth above. 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.
<TABLE>
<CAPTION>
<S> <C> <C>
Please Date: - Date: _______________, 1997
Please print and sign your
name in the space provided to
authorize the voting of your _____________________________ _________________________________
shares as indicated and return (Signature of shareholder) (Co-owner signature, if any)
promptly. When signing on
behalf of corporation,
partnership, estate, trust
or in any other _____________________________ __________________________________
representative capacity, (Printed name of shareholder) (Printed name of Co-owner, if any)
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
