<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
Alex. Brown Cash Reserve 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:
---------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: *
---------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
* 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 ALEX. BROWN CASH RESERVE FUND, INC.]
July __, 1997
Dear Shareholders:
The enclosed proxy statement relates to a special meeting of the Shareholders
of the Alex. Brown Cash Reserve 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 Shareholders of each of the Fund's Series to approve
new investment advisory agreements and, in the case of the Tax-Free Series, a
new sub-advisory agreement. 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
Charles W. Cole, Jr.
Chairman
Richard T. Hale
President
<PAGE>
PRELIMINARY COPY
ALEX. BROWN CASH RESERVE FUND, INC.
One South Street
Baltimore, Maryland 21202
-----------------------------------
Notice of Special Meeting of Shareholders
August 14, 1997
TO THE SHAREHOLDERS OF ALEX. BROWN CASH RESERVE FUND, INC.:
You are cordially invited to a special meeting (the "Special Meeting")
of the shareholders of Alex. Brown Cash Reserve Fund, Inc. (the "Fund") on
August 14, 1997, at 10:30 a.m. Eastern Standard Time at the offices of
Investment Company Capital Corp., The Conference Room, 30th Floor, 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 (voted on by all shareholders).
PROPOSAL 2: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp. with respect
to the Prime Series (voted on by shareholders of the Prime
Series).
PROPOSAL 3: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp. with respect
to the Treasury Series (voted on by shareholders of the Treasury
Series).
PROPOSAL 4: To approve or disapprove a new Investment Advisory Agreement
between the Fund and Investment Company Capital Corp. with respect
to the Tax-Free Series (voted on by shareholders of the Tax-Free
Series).
PROPOSAL 5: To approve or disapprove a new Sub-Advisory Agreement among the
Fund, Investment Company Capital Corp. and PNC Institutional
Management Corporation with respect to the Tax-Free Series (voted
on by shareholders of the Tax-Free Series).
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.
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<PAGE>
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
-2-
<PAGE>
ALEX. BROWN CASH RESERVE 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 Alex.
Brown Cash Reserve 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 10:30 a.m. Eastern Standard Time, or at any
adjournment thereof (the "Special Meeting"), at the offices of Investment
Company Capital Corp., in The Conference Room, 30th Floor, 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
shareholders of each of the Fund's series to consider new Investment Advisory
Agreements and, in the case of the Tax-Free Series, 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 Agreements
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 each series of the Fund and PNC Institutional Management
Corporation ("PIMC" or the "Sub-Advisor") will remain the sub-advisor to the
Tax-Free Series of the Fund. The proposed new Investment Advisory Agreements and
the proposed new Sub-Advisory Agreement are identical to the Fund's current
Investment Advisory Agreements and current Sub-Advisory Agreement, except for
the dates of execution, effectiveness and initial term; and, in the case of the
new Investment Advisory Agreements, the deletion of provisions relating to state
expense limits that have been preempted by federal law; a proviso to the effect
that the obligation of the Fund's Advisor to make its personnel available to
serve as officers of the Fund is subject to applicable banking regulations; and
a provision authorizing ICC, subject to the approval of the Fund's Board of
Directors, to delegate its responsibilities to corporate affiliates. At the
Special Meeting, shareholders will also be asked to elect a slate of Directors.
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<PAGE>
All shareholders of the Fund are entitled to vote on Proposal 1.
Proposals 2, 3, 4, and 5 require action by the shareholders of the Prime,
Treasury, or Tax-Free Series, individually, as shown below. The summary voting
table below sets forth all of the proposals to be acted upon and indicates which
series' shareholders are solicited with respect to each proposal.
Proposal Number Series
----------------- ------
1 Prime, Treasury and Tax-Free
2 Prime
3 Treasury
4 Tax-Free
5 Tax-Free
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 Standard Time on ____________ ____,
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 with respect to the Prime Series ("Proposal
2"), FOR the new Investment Advisory Agreement with respect to the Treasury
Series ("Proposal 3"), FOR the new Investment Advisory Agreement with respect to
the Tax-Free Series ("Proposal 4") and FOR the new Sub-Advisory Agreement with
respect to the Tax-Free Series ("Proposal 5"). 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 that date, the Fund had 4,338,744,513.73 shares outstanding, consisting of
3,004,214,888.160 shares outstanding of the Prime Series, 674,662,697.130 shares
outstanding of the Treasury Series and 659,866,928.44 shares outstanding of the
Tax-Free Series. 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, 3, 4 and 5 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
-4-
<PAGE>
include telephonic, telegraphic or oral communication by employees and officers
of ICC and PIMC (collectively, the "Advisors").
The Fund will furnish to shareholders, without charge, a copy of the
Annual Report for its fiscal year ended March 31, 1997, upon request. The Annual
Report of the Fund may be obtained by written request to the Fund, One South
Street, Baltimore Maryland 21202 or by calling (800) 533-8080.
The Fund is registered as an open-end diversified management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended. The
Fund offers three series of shares (each a "Series" and collectively the
"Series"): Prime Series, Treasury Series and Tax-Free Series. ICC, One South
Street, Baltimore, Maryland 21202, an indirect subsidiary of Alex. Brown
Incorporated, acts as the Fund's investment advisor to each of the Series
pursuant to three separate Investment Advisory Agreements currently in effect
(the "Current Advisory Agreements"). It is proposed that shareholders approve
new Investment Advisory Agreements ("New Advisory Agreements") substantially
similar to the Current Advisory Agreements with respect to each of the Series.
(See Proposals 2, 3 and 4 below.) In addition, PNC Institutional Management
Corporation ("PIMC") serves as sub-advisor to the Tax-Free Series pursuant to a
Sub-Advisory Agreement with the Fund. It is proposed that shareholders of the
Tax-Free Series approve a new Sub-Advisory Agreement substantially similar to
the current Sub-Advisory Agreement. (See Proposal 5.)
-5-
<PAGE>
PROPOSAL 1: To consider and act upon a proposal to elect a Board of Directors
of the Fund.
At the Special Meeting, it is proposed that eight Directors be elected
to hold office until their successors are duly elected and qualified. The
persons named in the accompanying Proxy intend, in the absence of contrary
instructions, to vote all Proxies on behalf of the shareholders for the election
of James J. Cunnane, Richard T. Hale, John F. Kroeger, Louis E. Levy, Eugene J.
McDonald, Rebecca W. Rimel, Truman T. Semans, and Carl W. Vogt (each a "Nominee"
and collectively, the "Nominees"). All of the Nominees are currently members of
the Board of Directors. Messrs. Cunnane, Hale, Kroeger, Levy and McDonald and
Ms. Rimel were last elected by a vote of shareholders on July 25, 1995. Mr. Vogt
and Mr. Semans 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.
Messrs. W. James Price and 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 non-interested persons within 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 non-interested 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
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<PAGE>
Directors under certain circumstances. Shareholder meetings may also be held by
the Fund for other purposes, including to approve investment policy changes, a
new Investment Advisory or Sub-Advisory Agreement or other matters requiring
shareholder action under the 1940 Act.
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. When shareholders who hold in the aggregate 1% of the outstanding
shares of the Fund request, they 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 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 (if applicable),
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 any
Series of the Fund.
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1997** Percentage
- ---------------------- --- -------------------------------------------- ---------------- ----------
<S> <C> <C> <C>
James J. Cunnane 59 Managing Director, CBC Capital (merchant None ***
Director since 1994 banking), 1993-Present. Formerly, Senior
Vice President and Chief Financial
Officer, General Dynamics Corporation
(defense), 1989-1993; and Director, The
Arch Fund (registered investment
company). Director of each fund in the
Fund Complex.
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1997** Percentage
- ---------------------- --- -------------------------------------------- ---------------- ----------
<S> <C> <C> <C>
Richard T. Hale* 51 Managing Director, Alex. Brown & Sons 24,391 Shares ***
Director since 1989 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 131,583 Shares ***
Director since 1981 investment companies). Formerly,
Consultant, Wendell & Stockel Associates,
Inc. (consulting firm) and General Manager,
Shell Oil Company. Director of each fund in
the Fund Complex.
Louis E. Levy 64 Director, Kimberly-Clark Corporation None ***
Director since 1994 (personal consumer products) and
Household International (finance and
banking); Chairman of the Quality Control
Inquiry Committee, American Institute of
Certified Public Accountants. Formerly,
Trustee, Merrill Lynch Funds for
Institutions, 1991-1993; Adjunct
Professor, Columbia University-Graduate
School of Business, 1991-1992; Partner,
KPMG Peat Marwick, retired 1990. Director
of each fund in the Fund Complex.
Eugene J. McDonald 64 President, Duke Management Company None ***
Director since 1995 (investments); Executive Vice President,
Duke University (education, research and
health care); Director, Central Carolina
Bank & Trust (banking), Key Funds
(registered investment companies), AMBAC
Treasurers Trust and DP Mann Holdings
(insurance). Director of each fund in the
Fund Complex.
Rebecca W. Rimel 46 President and Chief Executive Officer, The None ***
Director since 1995 Pew Charitable Trusts; Director and
Executive Vice President, the Glenmede
Trust Company. Formerly, Executive
Director, The Pew Charitable Trusts.
Director of 10 funds in the Fund Complex.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially
Name and Position Business Experience During the Past Owned as of
with the Fund Age Five Years (including all directorships) May 31, 1997** Percentage
- ---------------------- --- -------------------------------------------- ---------------- ----------
<S> <C> <C> <C>
Truman T. Semans* 70 Managing Director, Alex. Brown & Sons 418,902 Shares ***
Director since 1995 Incorporated; Director, Investment Company
Capital Corp. (registered investment
advisor). Formerly, Vice Chairman, Alex.
Brown & Sons Incorporated. Director of 10
funds in the Fund Complex.
Carl W. Vogt, Esq. 61 Senior Partner, Fulbright & Jaworski L.L.P. None ***
Director since 1996 (law); Director, Yellow Corporation
(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>
- ------------------------
* 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 discussion of each New Advisory
Agreement below.)
** 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 less than 1% of the Fund.
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
March 31, 1997, Disinterested Directors' fees attributable to the assets of the
Fund totaled $241,532. 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
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<PAGE>
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 March 31, 1997 is set forth in
the compensation table below. The aggregate compensation payable to such
Directors during the fiscal year ended March 31, 1997 by the Fund Complex is
also set forth in the compensation table below.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Total Compensation Number of Funds
Compensation Benefits Accrued as From the Fund in Fund Complex
Payable Part of Fund and Fund Complex for Which Director
Name and Position from the Fund Expenses Payable to Directors Serves
------------------ --------------- --------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Charles W. Cole, Jr. Director 1 $ 0 $ 0 $ 0 8
Richard T. Hale, Director 1 $ 0 $ 0 $ 0 12
James J. Cunnane, Director $ 27,801 3 + $ 39,000 12
John F. Kroeger, Director $ 34,930 3 + $ 49,000 12
Louis E. Levy, Director $ 27,801 3 + $ 39,000 12
Eugene J. McDonald, Director $ 27,801 3 + $ 39,000 12
W. James Price, Director 1, 2 $ 0 $ 0 $ 0 7
Rebecca W. Rimel, Director $ 31,763 3 + $ 39,000 9 4
Truman T. Semans, Director 1 $ 0 $ 0 $ 0 10
Carl W. Vogt, Director $ 32,232 3 + $ 39,000 9 4
Harry Woolf, Director 2 $ 20,880 3 + $ 29,250 12
</TABLE>
- -----------------
1 Denotes an individual who is an "interested person" as defined in the
1940 Act.
2 Retired, effective December 31, 1996
3 Of the amounts payable to Messrs. Cunnane, Kroeger, Levy, McDonald, Vogt
and Woolf, and Ms. Rimel, $27,801, $0, $19,500, $27,801,
$32,232, $20,880 and $31,763, 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 March 31, 1997 was $47,681.
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
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<PAGE>
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 March 31, 1997. 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 March 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 March 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
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<PAGE>
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 March 31, 1997. In such fiscal year, all
members attended at least 75% of the meetings of the Audit and Compliance
Committee held during their respective terms. The Chairman of the Audit and
Compliance Committee receives an aggregate annual fee of $10,000 from the Fund
Complex. Payment of such fee is allocated among all funds in the Fund Complex in
proportion to their relative net assets.
The Board of Directors has a Nominating Committee. The Nominating
Committee makes recommendations to the full Board of Directors with respect to
candidates for the Board of Directors. The members of the Nominating Committee
during the fiscal year ended March 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 March 31, 1997. In
such fiscal year, 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 March 31, 1997, were Messrs. Woolf (Chairman) until his
retirement, 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.
Cunnane became Chairman of the Compensation Committee upon Mr. Woolf's
retirement. The Compensation Committee met once during the fiscal year ended
March 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
majority of all votes cast at the Special Meeting, provided that a majority 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. ---
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<PAGE>
PROPOSAL 2: To approve or disapprove a new Investment Advisory Agreement
between the Fund and ICC with respect to the Prime Series
General Information
ICC is the Fund's investment advisor with respect to the Prime Series.
ICC is an indirect subsidiary of Alex. Brown Incorporated. 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. The total value of the Merger is $____________. 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. After the Merger, it is expected
that ICC will continue to serve as the advisor with respect to the Prime Series.
ICC does not anticipate any reduction in the quality of services now
provided the Prime Series and does not expect that the Merger will result in any
material changes in the business of ICC or in the manner in which ICC renders
services to the Fund. Nor does ICC anticipate that the Merger or any ancillary
transactions will have any adverse effect on its ability to fulfill its
obligations under the New Prime Advisory Agreement or to operate its business in
a manner consistent with past business practice.
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 with respect to the Prime Series (the "New Prime
Advisory Agreement") or (ii) interested persons of any such party, unanimously
approved the New Prime Advisory Agreement. The form of the New Prime Advisory
Agreement is identical to the Current Prime 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; 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
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<PAGE>
applicable banking regulations; and a provision authorizing ICC, subject to the
approval of the Fund's Board of Directors, to delegate the responsibilities to
corporate affiliates. The holders of a majority of the outstanding voting
securities (within the meaning of the 1940 Act) of the Prime Series are being
asked to approve the New Prime Advisory Agreement. See "The New Prime Advisory
Agreement" below.
The Current Prime Advisory Agreement
The current Investment Advisory Agreement between ICC and the Fund with
respect to the Prime Series, dated as of August 22, 1995 ("Current Prime
Advisory Agreement"), was last approved by the shareholders of the Prime Series
on August 22, 1995.
The Current Prime Advisory Agreement provides that the Advisor, in
return for its fee, will (a) supervise and manage the Prime Series' operations;
(b) formulate and implement continuing programs for the purchase and sale of
securities, consistent with the investment objective and policies of the Prime
Series; (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 Prime
Series, and whether concerning the individual issuers whose securities are
included in the Prime Series or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion in the
Prime Series; (f) determine which issuers and securities shall be represented in
the Prime Series; (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 Prime Series shareholders and reports to
and filings with the SEC and state Blue Sky authorities. Subject to the approval
of the Board and the Prime Series shareholders, the Advisor may delegate certain
of its duties enumerated above to a sub-advisor.
Under the Current Prime Advisory Agreement, the Advisor receives a fee
from the Fund, calculated daily and paid at the end of each calendar month, at
the annual rate of .30% of the first $500 million of the Fund's aggregate
average daily net assets, .26% of the next $500 million of the Fund's aggregate
average daily net assets, .25% of the next $500 million of the Fund's aggregate
average daily net assets, .24% of the next $1 billion of the Fund's aggregate
average daily net assets, .23% of the next $1 billion of the Fund's aggregate
average daily net assets and .22% of that portion of the Fund's aggregate
average daily net assets in excess of $3.5 billion. The Prime Series pays its
portion of the foregoing fee based on the proportion of its net assets relative
to the Fund's net assets. In addition, the Advisor is entitled to receive a fee
with respect to the Prime Series, calculated daily and paid monthly, at the
annual rate of .02% of the Prime
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<PAGE>
Series' average daily net assets. The Advisor may, from to time, voluntarily
waive a portion of its advisory fee with respect to the Prime Series to preserve
or enhance the performance of the Prime Series.
The Current Prime Advisory Agreement provides that the Advisor 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 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 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 the Advisor are not to be deemed exclusive, and the
Advisor and its officers and Directors are 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. The Advisor's officers or Directors may serve as officers or
Directors of the Fund, and the Fund's officers or Directors may serve as
officers or Directors of the Advisor, to the extent permitted by law.
Following the expiration of its initial two-year term, the Current
Prime Advisory Agreement continues in full force and effect from year to year,
provided that such continuance is approved at least annually by the Fund's Board
or by the vote of a majority of the Prime Series'
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<PAGE>
outstanding voting securities, and by the affirmative vote of a majority of the
Directors who are not parties to the agreement or "interested persons" of a
party to the agreement (other than as Directors of the Fund) by votes cast in
person at a meeting specifically called for such person.
The Current Prime Advisory Agreement may be terminated at any time, on
waivable written notice within sixty days and without any penalty, by vote of
the Fund's Board, by vote of a majority of the Prime Series' outstanding voting
securities or by the Advisor. The agreement automatically terminates in the
event of its assignment.
The Current Prime Advisory Agreement obligates the Advisor to exercise
care and diligence and to act in good faith and to use its best efforts within
reasonable limits to ensure the accuracy of all services performed under the
agreement, but the Advisor is not liable for any act or omission which does not
constitute willful misfeasance, bad faith or gross negligence on the part of the
Advisor or its officers, Directors or employees, or reckless disregard by the
Advisor of its duties under the agreement.
The New Prime Advisory Agreement
The Board of Directors approved a New Prime Advisory Agreement between
the Fund and ICC for the Prime Series on June 17, 1997, the form of which is
attached as Exhibit A. The form of the proposed New Prime Advisory Agreement is
identical to the Current Prime 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; 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; and a
provision authorizing ICC, subject to the approval of the Fund's Board of
Directors, to delegate its responsibilities to corporate affiliates.
The investment advisory fee as a percentage of net assets payable by
the Fund will be the same under the New Prime Advisory Agreement as under the
Current Prime Advisory Agreement. If the investment advisory fee under the New
Prime 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
Prime Advisory Agreement.
The Board held a meeting on June 17, 1997, at which the Board,
including the Disinterested Directors, unanimously approved the New Prime
Advisory Agreement for the Fund and recommended the New Prime Advisory Agreement
for approval by the shareholders of the Prime Series. The New Prime 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 Prime 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.
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<PAGE>
In evaluating the New Prime 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 Current Prime
Advisory Agreement and the New Prime Advisory Agreement, including their terms
relating to the services to be provided thereunder by ICC and the fees and
expenses payable by the Fund, are substantially identical.
The Board was assured on behalf of Alex. Brown and Bankers Trust that
they intend to comply with the requirements of Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe harbor for an investment advisor to
an investment company or any of its affiliated persons to receive any amount or
benefit in connection with a change in control of the investment advisor that
results in an assignment so long as two conditions are met. First, for a period
of three years after the change of control, at least 75% of the board members of
the investment company must not be interested persons of the acquired advisor or
the acquiror (Alex. Brown and Bankers Trust, respectively, in this case). The
Fund would be in compliance with this provision of Section 15(f). Second, an
"unfair burden" must not be imposed upon the investment company as a result of
such transaction or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" is defined in Section 15(f) to
include any arrangement during the two-year period after the Merger whereby the
investment advisor, or any interested person of any such advisor, receives or is
entitled to receive any compensation, directly or indirectly, from the
investment company or its shareholders (other than fees for bona fide investment
advisory or other services) or from any person in connection with the purchase
or sale of securities or other property to, from or on behalf of the investment
company (other than bona fide ordinary compensation as principal underwriter for
such investment company). Alex. Brown and Bankers Trust are not aware of any
express or implied term, condition, arrangement or understanding that would
impose an "unfair burden" on the Fund as a result of the Merger. Alex. Brown and
Bankers Trust have agreed that they, and their affiliates, will take no action
that would have the effect of imposing an "unfair burden" on the Fund as a
result of the Merger.
The Board also considered the terms of the Merger and the possible
effects of the Merger upon ICC's organization and upon the ability of the ICC to
provide advisory services to the Fund. The Board considered the skills and
capabilities of ICC 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 ICC.
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. The Board took particular note of the experience of Bankers Trust in
managing money market funds and considered in general terms the possibility that
the Fund could benefit from this experience. While the Board reached no
conclusion on this matter, the Directors did determine that it would be
appropriate to ask shareholders to approve at this Special Meeting a provision
specifically authorizing the use of the resources of Bankers Trust to support
management of the assets of the Fund, including the Prime Series, subject to
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<PAGE>
Board approval but without requiring additional shareholder approval.
Accordingly, the New Prime Advisory Agreement would, as stated above contain a
provision authorizing ICC, subject to the Fund's Board of Directors, to delegate
its responsibilities to corporate affiliates. The Board also received
preliminary information about Bankers Trust's ability to provide other services,
including custody.
The Board also considered other effects 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 entering into securities transactions
in which Alex. Brown or Bankers Trust acts as a principal. Currently the Fund is
prohibited from entering into only 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.
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 Prime Advisory Agreement
and voted to recommend its approval to the shareholders of the Prime Series.
In the event that shareholders of the Prime Series do not approve the
New Prime Advisory Agreement, the Current Prime Advisory Agreement will remain
in effect and the Board will take such action as it deems in the best interest
of the Prime Series and its shareholders, which may include proposing that
shareholders approve an agreement in lieu of the New Prime Advisory Agreement.
If the Merger is not consummated, ICC will continue to serve as investment
advisor of the Prime Series pursuant to the terms of the Current Prime Advisory
Agreement.
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<PAGE>
Investment Company Capital Corp.
ICC is a registered investment advisor that had under management as of
May 31, 1997 approximately $4.4 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 ICC
<TABLE>
<CAPTION>
Name and Position
with the Advisor Address Principal Occupation
- ----------------- ------- --------------------
<S> <C> <C>
Charles W. Cole, Jr. One South Street Managing Director, Alex. Brown &
Chairman Baltimore, Maryland 21202 Sons Incorporated.
Richard T. Hale One South Street Managing Director, Alex. Brown &
Director and President Baltimore, Maryland 21202 Sons Incorporated.
David L. Hopkins One South Street Managing Director, Alex. Brown &
Director Baltimore, Maryland 21202 Sons Incorporated.
Alvin B. Krongard One South Street Chairman, Chief Executive Officer
Director Baltimore, Maryland 21202 and Director, Alex. Brown
Incorporated.
Margaret-Mary V. Preston One South Street Managing Director, Alex. Brown &
Director Baltimore, Maryland 21202 Sons Incorporated.
Robert F. Price One South Street Managing Director and General
Director Baltimore, Maryland 21202 Counsel, Alex. Brown & Sons
Incorporated.
Mayo A. Shattuck III One South Street President, Chief Operating Officer
Director Baltimore, Maryland 21202 and Director, Alex. Brown
Incorporated.
Truman T. Semans One South Street Managing Director, Alex. Brown &
Director Baltimore, Maryland 21202 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 March 31, 1997, the Fund paid ICC an
aggregate fee of $10,806,028 for advisory services. For such fiscal year, the
Fund also paid ICC aggregate fees of $2,092,176 for transfer agency services
provided to the Fund and $284,118 for accounting services provided to the Prime
and Treasury Series. For the fiscal year ended March 31, 1997, the Fund paid
Alex. Brown an aggregate distribution fee of $10,436,933 (net of fee waivers of
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<PAGE>
$120,055 for the Quality Cash Reserve Prime shares). For such fiscal year, ICC
paid PIMC, the sub-advisor to the Fund, an aggregate fee of $665,664 for
sub-advisory services to the Tax-Free Series.
ICC does not provide investment advisory services to any other funds
with investment objectives similar to the Fund.
As of May 31, 1997, to the 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. Cole, a
Director of the Fund, beneficially owned 4,356 shares of Alex. Brown
Incorporated. Mr. Hale, a Director of the Fund, beneficially owned 90,469 shares
of Alex. Brown Incorporated. Mr. Semans, a Director of the Fund beneficially
owned 25,433 shares of Alex. Brown Incorporated. Edward J. Veilleux, Executive
Vice- President of the Fund, beneficially owned 200 shares of Alex. Brown
Incorporated. Paul D. Corbin, Vice-President of the Fund, beneficially owned
3,025 shares of Alex. Brown Incorporated. Monica M. Hausner, Vice President of
the Fund, beneficially owned 137 shares of Alex. Brown Incorporated.
Shareholder Approval of the New Prime Advisory Agreement
Approval of the New Prime Advisory Agreement requires the affirmative
vote of a majority of the outstanding shares of the Prime Series. For purposes
of this proposal, "majority of the outstanding shares" means the vote of (i) 67%
or more of the Prime Series' outstanding shares present at the Special Meeting,
if the holders of more than 50% of the outstanding shares of the Prime Series
are present or represented by proxy, or (ii) more than 50% of the Prime Series'
outstanding shares, whichever is less.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE PRIME SERIES VOTE
FOR APPROVAL OF THE NEW PRIME ADVISORY AGREEMENT.
- ---
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<PAGE>
PROPOSAL 3: To approve or disapprove a new Investment Advisory Agreement
between the Fund and ICC with respect to the Treasury Series.
General Information
ICC is the Fund's investment advisor with respect to the Treasury
Series. ICC is an indirect subsidiary of Alex. Brown. Alex. Brown has entered
into an Agreement and Plan of Merger with Bankers Trust. For more information
regarding the Merger, see "General Information" under Proposal 2. After the
Merger, it is expected that ICC will continue to serve as the investment advisor
with respect to the Treasury Series.
ICC does not anticipate any reduction in the quality of services now
provided the Treasury Series and does not expect that the Merger will result in
any material changes in the business of ICC or in the manner in which ICC
renders services to the Fund. Nor does ICC anticipate that the Merger or any
ancillary transactions will have any adverse effect on its ability to fulfill
its obligations under the New Treasury Advisory Agreement or to operate its
business in a manner consistent with past business practice.
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 with respect to the Treasury Series (the "New Treasury
Advisory Agreement") or (ii) interested persons of any such party, unanimously
approved the New Treasury Advisory Agreement. The form of the New Treasury
Advisory Agreement is identical to the Current Treasury 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; 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; and a provision authorizing ICC, subject to the approval of
the Fund's Board of Directors, to delegate its responsibilities to corporate
affiliates. The holders of a majority of the outstanding voting securities
(within the meaning of the 1940 Act) of the Treasury Series are being asked to
approve the New Treasury Advisory Agreement. See "The New Treasury Advisory
Agreement" below.
The Current Treasury Advisory Agreement
The current Investment Advisory Agreement between ICC and the Fund with
respect to the Treasury Series, dated as of August 22, 1995 (the "Current
Treasury Advisory Agreement"), was last approved by the shareholders of the Fund
on August 22, 1995.
The Current Treasury Advisory Agreement provides that the Advisor, in
return for its fee, will (a) supervise and manage the Treasury Series'
operations; (b) formulate and implement continuing programs for the purchase and
sale of securities consistent with the investment objective and policies of the
Treasury Series; (c) provide the Fund with such executive,
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<PAGE>
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 Treasury Series, and whether concerning the individual
issuers whose securities are included in the Treasury Series or the activities
in which they engage, or with respect to securities which the Advisor considers
desirable for inclusion in the Treasury Series; (f) determine which issuers and
securities shall be represented in the Treasury Series; (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 Treasury Series shareholders and reports to and filings with the SEC and
state Blue Sky authorities. Subject to the approval of the Board and the
Treasury shareholders, the Advisor may delegate certain of its duties enumerated
above to a sub-advisor.
Under the Current Treasury Advisory Agreement, ICC receives a fee from
the Fund, calculated daily and paid at the end of each calendar month, at an
annual rate of .30% of the first $500 million of the Fund's aggregate average
daily net assets, .26% of the next $500 million of the Fund's aggregate average
daily net assets, .25% of the next $500 million of the Fund's aggregate average
daily net assets, .24% of the next $1 billion of the Fund's aggregate daily net
assets, .23% of the next $1 billion of the Fund's aggregate daily net assets and
.22% of that portion of the Fund's aggregate daily net assets in excess of $3.5
billion. The Treasury Series pays its portion of the foregoing fee based on the
proportion of its net assets relative to the Fund's net assets. The Advisor may,
from time to time, voluntarily waive a portion of its advisory fee with respect
to the Treasury Series to preserve or enhance the performance of the Treasury
Series.
The Current Treasury Advisory Agreement provides that the Advisor 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 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
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
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<PAGE>
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 interest payable on the 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 the Advisor are not to be deemed exclusive, and the
Advisor and its officers and Directors are 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. The Advisor's officers or Directors may serve as officers or
Directors of the Fund, and the Fund's officers or Directors may serve as
officers or Directors of the Advisor, to the extent permitted by law.
Following the expiration of its initial two-year term, the Current
Treasury 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
or by the vote of a majority of the Treasury Series' outstanding voting
securities, and by the affirmative vote of a majority of the Directors who are
not parties to the agreement or `interested persons' of a party to the agreement
(other than as Directors of the Fund) by votes cast in person at a meeting
specifically called for such purpose.
The Current Treasury Agreement may be terminated at any time, on
waivable written notice within sixty days and without any penalty, by vote of
the Fund's Board, by vote of a majority of the Treasury Series' outstanding
voting securities or by the Advisor. The agreement automatically terminates in
the event of its assignment.
The Current Treasury Agreement obligates the Advisor to exercise care
and diligence and to act in good faith and to use its best efforts within
reasonable limits to ensure the accuracy of all services performed under the
agreement, but the Advisor is not liable for any act or omission which does not
constitute willful malfeasance, 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.
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<PAGE>
The New Treasury Advisory Agreement
The Board of Directors approved a New Treasury Advisory Agreement
between the Fund and ICC for the Treasury Series on June 17, 1997, the form of
which is attached as Exhibit B. The form of the proposed New Treasury Advisory
Agreement is identical to the Current Treasury 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; 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; and a provision authorizing ICC, subject to the approval of the
Fund's Board of Directors, to delegate its responsibilities to corporate
affiliates.
The investment advisory fee as a percentage of net assets payable by
the Fund will be the same under the New Treasury Advisory Agreement as under the
Current Treasury Advisory Agreement. If the investment advisory fee under the
New Treasury 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
Treasury Advisory Agreement.
The Board held a meeting on June 17, 1997, at which the Board,
including the Disinterested Directors, unanimously approved the New Treasury
Advisory Agreement for the Fund and recommended the New Treasury Advisory
Agreement for approval by the Shareholders of the Treasury Series. The New
Treasury 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
Treasury 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 Treasury 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 Current
Treasury Advisory Agreement and the New Treasury 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
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<PAGE>
as a result of such transaction or any express or implied terms, conditions or
understandings applicable thereto. The term "unfair burden" is defined in
Section 15(f) to include any arrangement during the two-year period after the
Merger whereby the investment advisor, or any interested person of any such
advisor, receives or is entitled to receive any compensation, directly or
indirectly, from the investment company or its shareholders (other than fees for
bona fide investment advisory or other services) or from any person in
connection with the purchase or sale of securities or other property to, from or
on behalf of the investment company (other than bona fide ordinary compensation
as principal underwriter for such investment company). Alex. Brown and Bankers
Trust are not aware of any express or implied term, condition, arrangement or
understanding that would impose an "unfair burden" on the Fund as a result of
the Merger. Alex. Brown and Bankers Trust have agreed that they, and their
affiliates, will take no action that would have the effect of imposing an
"unfair burden" on the Fund as a result of the Merger.
The Board also considered the terms of the Merger and the possible
effects of the Merger upon ICC's organization and upon the ability of ICC to
provide advisory services to the Fund. The Board considered the skills and
capabilities of the ICC 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 ICC.
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. The Board took particular note of the experience of Bankers Trust in
managing money market funds and considered in general terms the possibility that
the Fund could benefit from this experience. While the Board reached no
conclusion on this matter, the Directors did determine that it would be
appropriate to ask shareholders to approve at this Special Meeting a provision
specifically authorizing the use of the resources of Bankers Trust to support
management of the assets of the Fund, including the Treasury Series, subject to
Board approval but without requiring additional shareholder approval.
Accordingly, the New Treasury Advisory Agreement would, as stated above contain
a provision authorizing ICC, subject to the Fund's Board of Directors, to
delegate its responsibilities to corporate affiliates. The Board also received
preliminary information about Bankers Trust's ability to provide other services,
including custody.
The Board also considered other effects 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,
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<PAGE>
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 entering into transactions in
which Alex. Brown or Bankers Trust acts as a principal. Currently the Fund is
prohibited from entering into only 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.
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 Disinterested
Directors, unanimously approved the New Treasury Advisory Agreement and voted to
recommend its approval to the shareholders of the Treasury Series.
In the event that shareholders of the Treasury Series do not approve
the New Treasury Advisory Agreement, the Current Treasury Advisory Agreement
will remain in effect and the Board will take such action as it deems in the
best interest of the Treasury Series and its Shareholders, which may include
proposing that Shareholders approve an agreement in lieu of the New Treasury
Advisory Agreement. If the Merger is not consummated, ICC will continue to serve
as investment advisor to the Treasury Series pursuant to the terms of the
Current Treasury Advisory Agreement.
The Advisor
For information concerning ICC and fees paid to ICC in the fiscal year
ended March 31, 1997, see "Investment Company Capital Corp." under Proposal 2 on
page ___.
Shareholder Approval of the New Treasury Advisory Agreement
Approval of the New Treasury Advisory Agreement requires the
affirmative vote of a majority of the outstanding shares of the Treasury Series.
For purposes of this proposal, "majority of the outstanding shares" means the
vote of (i) 67% or more of the Treasury Series' outstanding shares present at
the Special Meeting, if the holders of more than 50% of the outstanding shares
of the Treasury Series are present or represented by proxy, or (ii) more than
50% of the Treasury Series' outstanding shares, whichever is less.
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<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE TREASURY SERIES
VOTE FOR THE APPROVAL OF THE NEW TREASURY ADVISORY AGREEMENT.
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<PAGE>
PROPOSAL 4: To approve or disapprove a new Investment Advisory Agreement
between the Fund and ICC with respect to the Tax-Free Series
General Information
ICC is the Fund's investment advisor with respect to the Tax-Free
Series. ICC is an indirect subsidiary of Alex. Brown. Alex. Brown has entered
into an Agreement and Plan of Merger with Bankers Trust. For more information
regarding the Merger, see "General Information" under Proposal 2. After the
Merger, it is expected that ICC will continue to serve as the advisor with
respect to the Tax-Free Series.
ICC does not anticipate any reduction in the quality of services now
provided to the Tax-Free Series and does not expect that the Merger will result
in any material changes in the business of ICC or in the manner in which ICC
renders services to the Fund. Nor does ICC anticipate that the Merger or any
ancillary transactions will have any adverse effect on its ability to fulfill
its obligations under the New Tax-Free Advisory Agreement or to operate its
business in a manner consistent with past business practice.
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 Investment Company Capital Corp. with respect to the
Tax-Free Series (the "New Tax-Free Advisory Agreement") or (ii) interested
persons of any such party, unanimously approved the New Tax-Free Advisory
Agreement. The form of the New Tax-Free Advisory Agreement is identical to the
Current Tax-Free Advisory Agreement (defined below), 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; 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; and a
provision authorizing ICC, subject to the approval of the Fund's Board of
Directors, to delegate its responsibilities to corporate affiliates. The holders
of a majority of the outstanding voting securities (within the meaning of the
1940 Act) of the Tax-Free Series are being asked to approve the New Tax-Free
Advisory Agreement. See "The New Tax-Free Advisory Agreement" below.
The Current Tax-Free Advisory Agreement
The current Investment Advisory Agreement between ICC and the Fund with
respect to the Tax-Free Series, dated as of August 22, 1995 ("Current Tax-Free
Advisory Agreement"), was last approved by the shareholders of the Fund on
August 22, 1995.
The Current Tax-Free Advisory Agreement provides that the Advisor, in
return for its fee, will (a) supervise and manage the Tax-Free Series'
operations; (b) formulate and implement continuing programs for the purchase and
sale of securities consistent with the investment
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<PAGE>
objective and policies of the Tax-Free Series; (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 Tax-Free Series, and whether concerning
the individual issuers whose securities are included in the Tax-Free Series or
the activities in which they engage, or with respect to securities which the
Advisor considers desirable for inclusion in the Tax-Free Series; (f) determine
which issuers and securities shall be represented in the Tax-Free Series; (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 Tax-Free Series shareholders and reports to and
filings with the SEC and state Blue Sky authorities. Subject to the approval of
the Board and the Tax-Free Series shareholders, the Advisor may delegate certain
of its duties enumerated above to a sub-advisor.
Under the Current Tax-Free Advisory Agreement, ICC receives a fee from
the Fund, calculated daily and paid at the end of each calendar month, at an
annual rate of .30% of the first $500 million of the Fund's aggregate average
daily net assets, .26% of the next $500 million of the Fund's aggregate average
daily net assets, .25% of the next $500 million of the Fund's aggregate average
daily net assets, .24% of the next $1 billion of the Fund's aggregate daily net
assets, .23% of the next $1 billion of the Fund's aggregate daily net assets and
.22% of that portion of the Fund's average daily net assets in excess of $3.5
billion. In addition, the Advisor is entitled to receive a fee with respect to
the Tax-Free Series, calculated daily and paid monthly, at the annual rate of
.03% of the Tax-Free Series' average daily net assets. The Advisor may, from
time to time, voluntarily waive a portion of its advisory fee with respect to
the Tax-Free Series to preserve or enhance the performance of the Series.
The Current Tax-Free Advisory Agreement provides that the Advisor 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 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 expenses of engraving or printing of
certificates representing shares of the Fund; all 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
-29-
<PAGE>
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 the Advisor are not to be deemed exclusive, and the
Advisor and its officers and Directors are 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. The Advisor's officers or Directors may serve as officers or
Directors of the Fund, and the Fund's officers or Directors may serve as
officers or Directors of the Advisor, to the extent permitted by law.
Following the expiration of its initial two-year term, the Current
Tax-Free 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
or by the vote of a majority of the Tax-Free Series' outstanding voting
securities, and by the affirmative vote of a majority of the Directors who are
not parties to the agreement or "interested parties" of a party to the agreement
(other than as Directors of the Fund) by votes cast in person at a meeting
specifically called for such purpose.
The Current Tax-Free Agreement may be terminated at any time, on
waivable written notice within sixty days and without any penalty, by vote of
the Fund's Board, by vote a majority of the Tax-Free Series' outstanding voting
securities or by the Advisor. The agreement automatically terminates in the
event of its assignment.
The New Tax-Free Advisory Agreement
The Board of Directors approved a New Tax-Free Advisory Agreement
between the Fund and ICC for the Tax-Free Series on June 17, 1997, the form of
which is attached as Exhibit C. The form of the proposed New Tax-Free Advisory
Agreement is identical to the Current Tax-Free Advisory Agreement, except for
the dates of execution, effectiveness and initial term; the
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<PAGE>
deletion of provisions relating to state expense limits that have been preempted
by federal law; 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; and a provision authorizing ICC, subject to the approval of
the Fund's Board of Directors, to delegate its responsibilities to corporate
affiliates.
The investment advisory fee as a percentage of net assets payable by
the Fund will be the same under the New Tax-Free Advisory Agreement as under the
Current Tax-Free Advisory Agreement. If the investment advisory fee under the
New Tax-Free 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
Tax-Free Advisory Agreement.
The Board held a meeting on June 17, 1997, at which the Board,
including the Disinterested Directors, unanimously approved the New Tax-Free
Advisory Agreement and recommended the New Tax-Free Advisory Agreement for
approval by the shareholders of the Tax-Free Series. The New Tax-Free 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 Tax-Free
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 Tax-Free 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 Current
Tax-Free Advisory Agreement and the New Tax- Free Advisory Agreement, including
their terms relating to the services to be provided thereunder by ICC and the
fees and expenses payable by the Fund, are substantially identical.
The Board was assured on behalf of Alex. Brown and Bankers Trust that
they intend to comply with the requirements of Section 15(f) of the 1940 Act.
Section 15(f) provides a non-exclusive safe harbor for an investment advisor to
an investment company or any of its affiliated persons to receive any amount or
benefit in connection with a change in control of the investment advisor that
results in an assignment so long as two conditions are met. First, for a period
of three years after the change of control, at least 75% of the board members of
the investment company must not be interested persons of the acquired advisor or
the acquiror (Alex. Brown and Bankers Trust, respectively, in this case). The
Fund would be in compliance with this provision of Section 15(f). Second, an
"unfair burden" must not be imposed upon the investment company as a result of
such transaction or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" is defined in Section 15(f) to
include any arrangement during the two-year period after the Merger whereby the
investment advisor, or any interested person of any such advisor, receives or is
entitled to receive any compensation, directly or indirectly, from the
investment company or its shareholders (other than fees for bona fide investment
advisory or other services) or from any person in connection with the purchase
or sale
-31-
<PAGE>
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 ICC's organization and upon the ability of ICC to
provide advisory services to the Fund. The Board considered the skills and
capabilities of the ICC 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 ICC.
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. The Board took particular note of the experience of Bankers Trust in
managing money market funds and considered in general terms the possibility that
the Fund could benefit from this experience. While the Board reached no
conclusion on this matter, the Directors did determine that it would be
appropriate to ask shareholders to approve at this Special Meeting a provision
specifically authorizing the use of the resources of Bankers Trust to support
management of the assets of the Fund, including the Tax-Free Series, subject to
Board approval but without requiring additional shareholder approval.
Accordingly, the New Tax-Free Advisory Agreement would, as stated above contain
a provision authorizing ICC, subject to the Fund's Board of Directors, to
delegate its responsibilities to corporate affiliates. The Board also received
preliminary information about Bankers Trust's ability to provide other services,
including custody.
The Board also considered other effects 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 entering into transactions in which
Alex. Brown or Bankers Trust acts as a principal. Currently the Fund is
prohibited from entering into only 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
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<PAGE>
underwriter. The Fund is already required to satisfy such conditions when
engaging in transactions in which Alex. Brown is acting as an underwriter. In
this connection, management of the Advisor represented to the Board that it does
not believe these prohibitions or conditions will have a material effect on the
management or performance of the Fund.
The Board also considered that the costs of the Special Meeting,
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 Tax-Free Advisory
Agreement and voted to recommend its approval to the shareholders of the
Tax-Free Series.
In the event that shareholders of the Tax-Free Series do not approve
the New Tax-Free Advisory Agreement, the Current Tax-Free Advisory Agreement
will remain in effect and the Board will take such action as it deems in the
best interest of the Tax-Free Series and its shareholders, which may include
proposing that shareholders approve an agreement in lieu of the New Tax-Free
Advisory Agreement. If the Merger is not consummated, ICC will continue to serve
as investment advisor to the Tax-Free Series pursuant to the terms of the
Current Tax-Free Advisory Agreement.
The Advisor
For information concerning ICC and fees paid to ICC in the fiscal year
ended March 31, 1997, see "Investment Company Capital Corp." under Proposal 2 on
page __.
Shareholder Approval of the New Tax-Free Advisory Agreement
Approval of the New Tax-Free Advisory Agreement requires the
affirmative vote of a majority of the outstanding shares of the Tax-Free Series.
For purposes of this proposal, "majority of the outstanding shares" means the
vote of (i) 67% or more of the Tax-Free Series' outstanding shares present at
the Special Meeting, if the holders of more than 50% of the outstanding shares
of the Tax-Free Series are present or represented by proxy, or (ii) more than
50% of the Tax-Free Series' outstanding shares, whichever is less.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE TAX-FREE SERIES
VOTE FOR APPROVAL OF THE NEW TAX-FREE ADVISORY AGREEMENT.
---
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<PAGE>
PROPOSAL 5: To approve or disapprove a new Sub-Advisory Agreement among the
Fund, ICC. and PIMC with respect to the Tax-Free Series.
General Information
PIMC is the Fund's sub-advisor with respect to the Tax-Free Series.
Shareholders of the Tax-Free Series are being asked to approve a New
Sub-Advisory Agreement to take effect following the consummation of the Merger.
For more information regarding the Merger, see "General Information" under
Proposal 2 on page ___. As PIMC will be unaffected by the Merger, neither ICC
nor PIMC anticipates any reduction in the quality of services now provided to
the Tax-Free Series and does not expect that the Merger will result in any
material changes in the manner in which PIMC renders services to the Fund. Nor
do ICC or PIMC anticipate that the Merger or any ancillary transactions will
have any adverse effect on its ability to fulfill its obligations under the New
Sub-Advisory Agreement or to operate in a manner consistent with past business
practice.
In anticipation of the Merger, the Directors of the Fund, including a
majority of the Directors who are not (i) parties to the new Sub-Advisory
Agreement between the Fund, ICC and PIMC with respect to the Tax-Free Series
("New Sub-Advisory Agreement") or (ii) interested persons of any such party,
unanimously approved the New Sub-Advisory Agreement. The form of the New
Sub-Advisory Agreement is identical to the Current Sub-Advisory Agreement,
except for the dates of execution, effectiveness and initial term. The holders
of a majority of the outstanding voting securities (within the meaning of the
1940 Act) of the Tax-Free Series are being asked to approve the New Sub-Advisory
Agreement. See "The New Sub-Advisory Agreement" below.
The Current Sub-Advisory Agreement
The current Sub-Advisory Agreement among the Fund, ICC and PIMC, dated
June 1, 1991 ( "Current Sub-Advisory Agreement"), was last approved by the sole
shareholder of the Fund on ___________.
The Current Sub-Advisory Agreement provides that PIMC, in return for
its fee, will (a) provide investment research and credit analysis concerning the
Fund's investments, (b) conduct a continual program of investment of the
Tax-Free Series assets, (c) place orders for all purchases and sales of the
investments made for the Tax-Free Series, and (d) maintain the books and records
required in connection with its duties hereunder; (e) keep the ICC informed of
developments materially affecting the Tax-Free Series; and (f) render to the
Fund's Board of Directors such periodic and special reports as ICC may
reasonably request
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<PAGE>
The Current Sub-Advisory Agreement provides for compensation from ICC
to PIMC a fee calculated daily and paid at the end of each calendar month, at an
annual rate of .15% of the first $250 million of the Tax-Free Series' aggregate
average daily net assets, .13% of the next $250 million of the Tax-Free Series'
aggregate average daily net assets, .11% of the next $250 million of the
Tax-Free Series' aggregate average daily net assets, .09% of the next $250
million of the Tax-Free Series' aggregate average daily net assets, .075% of the
next $3 billion of the Tax-Free Series' aggregate average daily net assets and
.06% of that portion of the Tax-Free Series' aggregate average daily net assets
in excess of $4 billion.
The Current Sub-Advisory Agreement provides that PIMC will bear all
expenses in con nection with the performance of its services under this
Agreement. PIMC shall not bear certain other expenses related to the operation
of the Fund including, but not limited to: taxes, interest, brokerage fees and
commissions and any extraordinary expense items.
The services performed by PIMC are not deemed to be exclusive, and the
PIMC is free to render similar services to others, including other investment
companies, so long as its services to the Fund are not impaired thereby.
After its initial two year term, the Current Sub-Advisory Agreement
continues in force for successive annual periods, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Board of Directors of the Fund who are not parties to this
Agreement or interested persons of the Fund or any such party, cast in person at
a meeting called for the purpose of voting on such approval, and (b) by the
Board of Directors of the Fund or by vote of a majority of the outstanding
voting securities of the Tax- Free Series.
The Current Sub-Advisory Agreement may be terminated with respect to
the Fund (i) by the Fund at any time, without the payment of any penalty by the
Board of Directors of the Fund, (ii) by vote of a majority of the outstanding
voting securities of the Tax-Free Series, (iii) by ICC, or (iv) by PIMC, in all
cases on 60-days' written notice. It will also immediately terminate in the
event of its assignment.
Under the Current Sub-Advisory Agreement, PIMC will not be liable for
any error or judgment or mistake of law or for any loss suffered by ICC or by
the Fund except a loss resulting from PIMC's breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations or
duties under the Agreement.
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<PAGE>
The New Sub-Advisory Agreement
The Board of Directors approved a new Sub-Advisory Agreement among the
Fund, ICC and PIMC ("New Sub-Advisory Agreement") on June 17, 1997, the form of
which is attached as Exhibit D. 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 investment 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 investment sub-advisory fee under the New
Sub-Advisory Agreement had been in effect for the Fund's most recently completed
fiscal year the sub-advisory fee paid to PIMC would have been identical to that
paid 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 Tax-Free Series. 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.
The Board considered the New Sub-Advisory Agreement in the context of
the New Tax-Free Advisory Agreement and based its determination on the
continuity of services to be provided to the Fund under both new Advisory
Agreements and took into account that the Current Sub-Advisory Agreement and the
New Advisory Agreement, including their terms relating to the services to be
provided thereunder by PIMC and the fees and expenses payable by the Fund, are
substantially identical.
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 Sub-Advisory Agreement
with respect to the Tax-Free Series and voted to recommend its approval to the
shareholders of the Tax-Free Series.
In the event that shareholders of the Tax-Free Series do not approve
the New Sub-Advisory Agreement, the Current Sub-Advisory Agreement will remain
in effect and the Board will take such action as it deems in the best interest
of the Tax-Free Series and its shareholders, which may include proposing that
shareholders approve an agreement in lieu of the New Sub-Advisory Agreement. If
the Merger is not consummated, PIMC will continue to serve as investment
Sub-Advisor to the Tax-Free Series pursuant to the terms of the Current
Sub-Advisory Agreement.
-36-
<PAGE>
PNC Institutional Management Corporation
PIMC is a registered investment advisor that had under management as of
May 31, 1995 approximately $ 37.2 billion, including assets of the Fund and the
assets of PIMC's other clients. PIMC is a wholly owned subsidiary of PNC, a
national banking association. The principal business address of PNC is One PNC
Plaza, Pittsburgh, Pennsylvania 15265. The principal address of PIMC is 400
Bellevue Parkway, Wilmington, Delaware 19809.
The following information is provided for each director and the
principal executive officer of PIMC.
<TABLE>
<CAPTION>
Name and Position with PIMC Address Principal Occupation
- --------------------------- ------- --------------------
<S> <C> <C>
Ralph L. Schlosstein, Chairman 345 Park Avenue Investment Management
and Chief Executive Officer New York, NY 10154
Richard C. Caldwell, Director 1600 Market Street Banking
Philadelphia, PA 19103
J. Richard Carnall, Director 400 Bellevue Parkway Banking
Wilmington, DE 19809
Laurence D. Fink, Director 345 Park Avenue Investment Management
New York, NY 10154
Richard L. Smoot, Director 100 South Broad Street Banking
Philadelphia, PA 19110
Nicholas M. Marsini, Jr., Director Fifth Avenue and Wood Sts. Finance
Pittsburgh, PA 15265
</TABLE>
For the fiscal year ended March 31, 1997, ICC paid PIMC an aggregate fee
of $ 665,664 for sub-advisory services to the Tax-Free Series. In addition, the
Fund paid an aggregate fee of $63,954 to PFPC, Inc. ("PFPC") an affiliate of
PIMC, for accounting services to the Tax-Free Series. The principal address of
PFPC is 400 Bellevue Parkway, Wilmington, Delaware 19809.
Please refer to "Investment Company Capital Corp." under Proposal 2 on
page __ for information regarding fees paid to ICC by the Fund and ownership in
Alex. Brown by Directors and officers of the Fund.
Other Funds Advised by PIMC with Similar Objectives
PIMC acts as advisor or sub-advisor to 11 funds which have investment
objectives similar to those of the Fund. Appendix A provides comparative
information on fees paid to PIMC for investment advisory or sub-advisory
services to such funds.
Shareholder Approval of the New Sub-Advisory Agreement
-37-
<PAGE>
Approval of the New Sub-Advisory Agreement requires the affirmative vote
of a majority of the outstanding shares of the Tax-Free Series. For purposes of
this proposal, "majority of the outstanding shares" means the vote of (i) 67% or
more of the Tax-Free Series' outstanding shares present at the Special Meeting,
if the holders of more than 50% of the outstanding shares of the Tax-Free Series
are present or represented by proxy, or (ii) more than 50% of the Tax-Free
Series' outstanding Shares whichever is less.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS OF THE TAX-FREE SERIES
VOTE FOR APPROVAL OF THE NEW TAX-FREE SUB-ADVISORY AGREEMENT.
---
-38-
<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.
<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 Percentage
---- ------------- --- ----------------------------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
Charles W. Cole, Jr.* Director since 1996 and 61 Vice Chairman, Alex. Brown Capital Advisory 81,752 Shares **
Chairman of the Board & Trust Company (registered investment
since 1997 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." None **
Richard T. Hale* Director and President 51 See "Information Regarding Nominees." 24,391 Shares **
since 1989
John F. Kroeger Director since 1981 72 See "Information Regarding Nominees." 131,583 Shares **
Louis E. Levy Director since 1994 64 See "Information Regarding Nominees." None **
Eugene J. McDonald Director since 1992 64 See "Information Regarding Nominees." None **
Rebecca W. Rimel Director since 1995 46 See "Information Regarding Nominees." None **
Truman T. Semans* Director since 1995 70 See "Information Regarding Nominees." 418,902 Shares **
Carl W. Vogt, Esq. Director since 1996 61 See "Information Regarding Nominees." None **
Edward J. Veilleux Executive Vice President 53 Principal, Alex. Brown & Sons Incorporated; None **
since 1985 Vice President, Armata Financial Corp.
(Registered broker-dealer); Executive Vice
President, Investment Company Capital Corp.
(registered investment advisor).
M. Elliott Randolph, Jr.Vice President since 1992 55 Principal, Alex. Brown & Sons Incorporated, None **
1991-Present.
Paul D. Corbin Vice President since 1992 44 Principal, Alex. Brown & Sons 3,617 Shares **
Incorporated, 1991-Present.
</TABLE>
-39-
<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 Percentage
---- ------------- --- ----------------------------- ------------------ ----------
<S> <C> <C> <C> <C> <C>
Monica M. Hausner Vice President since 1995; 35 Vice-President, Fixed Income Management 70 Shares **
Assistant Vice President Department, Alex. Brown & Sons Incorporated,
1992-95 March 1992-Present; formerly Assistant Vice
President, First National Bank of Maryland,
1984-1992.
Scott J. Liotta Vice President since 1996; 32 Manager, Fund Administration, Alex. Brown & 2,279 Shares **
Secretary since 1997 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 1,736 Shares **
Incorporated and Vice President, Investment
Company Capital Corp. (registered
investment advisor), September 1995-
Present. Formerly, Vice President and
Treasurer, The Delaware Group of Funds
(registered investment companies) and Vice
President, Delaware Management Company Inc.
(investments), 1980-1995.
Laurie D. Collidge Assistant Secretary since 31 Asset Management Department, Alex. Brown 1,867 Shares **
1992 & 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
(16 persons) beneficially owned an aggregate of less than 1% the Fund.
Investment Advisor and Sub-Advisor
See "Investment Company Capital Corp." on page ___ and "PNC Institutional
Management Corporation" on page ___ for additional information concerning the
Advisors.
Principal Underwriter
Alex. Brown & Sons Incorporated, located at One South Street, Baltimore,
Maryland 21202, acts as the Fund's principal underwriter.
Portfolio Transactions
In the fiscal year ended March 31, 1997, the Fund paid no brokerage
commissions to Alex. Brown.
-40-
<PAGE>
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 March 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 a Series of
the Fund.
<TABLE>
<CAPTION>
Amount of Beneficial Percent of Total Shares
Name and Address Ownership Outstanding
- ---------------- -------------------- ------------------------
Tax-Free Series
<S> <C> <C>
Alex. Brown & Sons Incorporated 59,120,474.35 8.95%
P.O. Box 1346
Baltimore, MD 21203-1346
</TABLE>
Submission of Shareholder Proposals
As a Maryland corporation, the Fund is not required to hold annual
shareholder meetings, except in certain limited circumstances. Shareholders who
wish to present a proposal for action at the next meeting or suggestions as to
nominees for the Board of Directors should submit the proposal or suggestions to
be considered to the Fund sixty 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 majority of all
votes cast at the Special Meeting, provided that a majority of the shares
entitled to vote are present in person or by Proxy at the Special Meeting.
Approval of Proposals 2, 3, 4, and 5 (the New Advisory and Sub-Advisory
Agreements) requires the affirmative vote of a majority of the outstanding
voting securities of the applicable Series of the Fund. As defined in the 1940
Act, the vote of a
-41-
<PAGE>
majority of the outstanding shares of a Series means the vote of (i) 67% or more
of the applicable Series' outstanding shares present at a meeting, if the
holders of more than 50% of the outstanding shares of that Series are present or
represented by proxy, or (ii) more than 50% of that Series' 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 , 3, 4 and 5. 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.
Other Matters
No business other than the matters described above is expected to come
before the Special Meeting, but should any matter incident to the conduct of the
Special Meeting or any question as to an adjournment of the Special Meeting
arise, the persons named in the enclosed Proxy will vote thereon according to
their best judgment in the interest of the Fund.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING AND
WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO FILL IN, 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
-42-
<PAGE>
Appendix A
<TABLE>
<CAPTION>
Advisory Fee*
Funds advised or sub-advised by PNC Size of Fund (as a percentage
Institutional Management Corporation (4/30/97) of average net assets)
- ------------------------------------- ------------- ----------------------
<S> <C> <C>
The Arbor Fund
California Tax-Exempt $475,362,530 0.095%
Institutional Tax-Free $ 57,326,516 0.095%
Municipal Fund for California Investors, Inc.
California Money Fund (a) $493,260,569 0.20%
Municipal Fund for New York Investors, Inc.
New York Money Fund (a) $289,052,827 0.20%
Municipal Fund for Temporary Investment
MuniFund(b) $791,987,576 0.175% of first $1 billion(1)
MuniCash(c) $374,154,718 0.175% of first $1 billion(1)
Plan Investment Fund
Money Market Portfolio $462,933,000 0.20% of first $250 million(2)
Government/Repo Portfolio $133,678,000 0.20% of first $250 million(2)
The RBB Fund, Inc.
Money Market $2,498,164,381 0.45% of first $250 million(3)
Government Obligations $576,026,000 0.45% of first $250 million(3)
Government Securities $6,910,153 0.40% of first $250 million(4)
Municipal Money Market $424,405,927 0.35% of first $250 million(5)
New York Municipal $96,064,658 0.35% of first $250 million(5)
Temporary Investment Fund, Inc.
TempFund(c) $7,979,711,321 0.175% of first $1 billion(6)
TempCash(c) $2,718,592,957 0.175% of first $1 billion(1)
Trust for Federal Securities
FedFund(a) $1,351,227,571 0.175% of first $1 billion(1)
Federal Trust Fund(a) $281,679,468 (based on aggregate assets
T-Fund(a) $891,711,482 of Trust's four
Treasury Trust Fund(a) $1,228,726,380 portfolios)
Compass Capital Funds (Sub-Advised)
Money Market $2,718,397,193 0.40% of first $1 billion(7)
U.S. Treasury Money Market $1,022,507,499 0.40% of first $1 billion(7)
Municipal Money Market $352,714,507 0.40% of first $1 billion(7)
New Jersey Municipal Money Market $113,941,369 0.40% of first $1 billion(7)
North Carolina Municipal Money Market $154,723,998 0.40% of first $1 billion(7)
Ohio Municipal Money Market $102,705,447 0.40% of first $1 billion(7)
Pennsylvania Municipal Money Market $512,410,184 0.40% of first $1 billion(7)
Virginia Municipal Money Market $59,803,443 0.40% of first $1 billion(7)
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Advisory Fee*
Funds advised or sub-advised by PNC Size of Fund (as a percentage
Institutional Management Corporation (4/30/97) of average net assets)
- ------------------------------------ ------------ ----------------------
First Funds (Sub-Advised)
<S> <C> <C>
Cash Reserve $54,204,076 0.08% of first $500 million(8)
U.S. Government Money Market $57,558,380 0.08% of first $500 million(8)
U.S. Treasury Money Market $65,389,677 0.08% of first $500 million(8)
Municipal Money Market $51,881,855 0.08% of first $500 million(8)
Warburg, Pincus Counsellors, Inc. (Sub-Advised)
Cash Reserve Fund $511,268,189 0.25%
New York Tax-Exempt Fund $147,799,507 0.25%
</TABLE>
- ----------
*Fee may have subsequent breakpoints as described in the End Notes
End Notes:
- ----------
(a) PIMC has reduced and anticipates that it will continue to reduce the
advisory fees otherwise payable to it by FedFund, T-Fund, Treasury Trust
Fund, Federal Trust Fund, California Money Fund and New York Money Fund to
ensure that the ordinary operating expenses (excluding fees paid to Service
Organizations pursuant to Servicing Agreements) will annually approximate
.20% of the average net assets.
(b) PIMC has reduced and anticipates that it will continue to reduce the
advisory fees otherwise payable to it by MuniFund to ensure that the
ordinary operating expenses (excluding fees paid to Service Organizations
pursuant to Servicing Agreements) will annually approximate .27% of the
average net assets.
(c) PIMC has reduced and anticipates that it will continue to reduce the
advisory fees otherwise payable to it by TempFund, TempCash, and MuniCash
to ensure that the ordinary operating expenses (excluding fees paid to
Service Organizations pursuant to Servicing Agreements) will annually
approximate .18% of the average net assets.
(1) Subsequent break points are: .15% of next $1 billion; .125% of next $1
billion; .10% of next $1 billion; .095% of next $1 billion; .085% of next
$1 billion; and .08% of net assets over $7 billion.
(2) Subsequent break points are: .15% next $250 million; .12% of next $250
million; .10% of next $250 million; and .08% of net assets over $1 billion.
(3) Subsequent break points are: .40% of next $250 million; .35% of net assets
over $500 million.
(4) Subsequent break points are: .35% of next $250 million; .30% of net assets
over $500 million.
(5) Subsequent break points are: .30% of next $250 million; .25% of net assets
over $500 million.
(6) Subsequent break points are: .15% of next $1 billion; .125% of next $1
billion.10% of next $1 billion; .095% of next $1 billion; .09% of next $1
billion; .08% of next $1 billion; .75% of next $1 billion; and .07% of net
assets over $8 billion.
(7) Subsequent break points are: .35% of next $1 billion; .325% of next $3
billion; and .30% of net assets over $3 billion.
(8) Subsequent break points are: .06% of next $500 million and .05% of net
assets over $1 billion.
A-2
<PAGE>
EXHIBIT A
FORM OF NEW INVESTMENT ADVISORY AGREEMENT
ALEX. BROWN CASH RESERVE FUND, INC. - PRIME SERIES
THIS AGREEMENT is made as of the ______ day of _____________ 1997 by
and between ALEX. BROWN CASH RESERVE FUND, INC., a Maryland corporation (the
"Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), with respect to the following recital of fact:
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 Advisers Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and
WHEREAS, the Fund's Articles of Incorporation authorize the Board of
Directors of the Fund to classify or reclassify authorized but unissued shares
of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the issuance of
three series of shares with a par value of $.001 representing interests in three
portfolios: the Prime Series, the Treasury Series and the Tax-Free Series (each
of the existing portfolios and any portfolios hereafter added shall be referred
to collectively as the "Series"); and
WHEREAS, the Fund and the Advisor desire to enter into an agreement to
provide investment advisory and administrative services for the Fund's Prime
Series (the "Prime Series") 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 investment advisor to the Prime Series. The Advisor shall
manage the Prime Series' affairs and shall supervise all aspects of the Prime
Series' operations (except as otherwise set forth herein), including the
investment and reinvestment of the cash, securities or other properties
comprising the Prime Series' assets, subject at all times to the policies and
control of the Fund's Board of Directors. The Advisor shall give the Prime
Series the benefit of its best judgment, efforts and facilities in rendering its
services as Advisor.
2. Duties of Investment Advisor. In carrying out its obligations under
section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Prime Series'
operations;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Prime Series;
(c) provide the Prime Series with such executive,
administrative and clerical services as are deemed advisable by the Fund's Board
of Directors;
-1-
<PAGE>
(d) provide the Prime Series with, or obtain for it, adequate
office space and all necessary office equipment and services, including
telephone service, heat, 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 Prime
Series, and whether concerning the individual issuers whose securities are
included in the Prime Series or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion in the
Prime Series;
(f) determine which issuers and securities shall be
represented in the Prime Series 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 with respect to its Prime Series;
(h) supervise the operations of the Prime Series' transfer and
dividend disbursing agent;
(i) provide the Prime Series 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 shareholders of the Prime Series and reports to and filings with the
Securities and Exchange Commission (the "SEC") and state Blue Sky authorities,
which may be required for the Prime Series.
3. Broker-Dealer Relationship. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Prime Series,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Advisor's primary consideration in effecting a security transaction will be
execution at the most favorable price. The Fund understands that a substantial
majority of the Prime Series' transactions will be transacted with primary
market makers acting as principal on a net basis, with no brokerage commissions
being paid by the Fund. Such principal transactions may, however, result in a
profit to the market makers. 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 Prime Series 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 or 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 or
dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Prime Series. The Advisor
is further authorized to allocate the orders placed by it on behalf of the Prime
Series to such brokers and dealers 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 brokers to whom such allocations have been made and the basis
therefor.
-2-
<PAGE>
4. 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 Prime Series
pursuant thereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
5. 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;
(b) the provisions of the Registration Statement of the Fund
under the Securities Act of 1933 and 1940 Act;
(c) the provisions of the Articles of Incorporation, as
amended;
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Prime Series 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 Prime Series, including, without limitation, the Prime
Series' allocable portion of the following expenses: payments to the Fund's
distributor under the Prime Series' plans of distribution; the charges and
expenses of any registrar, any custodian or depository appointed by the Fund for
the safekeeping of its cash, portfolio securities and other property, and any
transfer, dividend or accounting agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio securities
transactions to which the Fund is a party; all taxes, including securities
issuance and transfer taxes, and fees payable by the Fund to Federal, State or
other governmental agencies; the costs and expenses of engraving or printing of
certificates representing shares of the Fund; all costs and expenses in
connection with the registration and maintenance of registration of the Fund and
its shares with the SEC and various states and other jurisdictions (including
filing fees, legal fees and disbursements of counsel); the costs and expenses of
printing, including typesetting, and distributing prospectuses and statements of
additional information of the Fund and supplements thereto to the Fund's
shareholders; all expenses of shareholders' and directors' meetings and of
preparing, printing and mailing of proxy statements and reports to shareholders;
fees and travel expenses of directors or director members of any advisory board
or committee; all expenses incident to the payment of any dividend,
distribution, withdrawal or redemption, whether in shares or in cash; charges
and expenses of any outside service used for pricing of the Fund's shares;
charges and expenses of legal counsel, including counsel to the directors of the
Fund who are not interested persons (as defined in the 1940 Act) of the Fund and
of 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.
-3-
<PAGE>
7. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors and
shareholders of the Prime Series, the Advisor may delegate to a sub-advisor
certain of its duties enumerated in section 2 hereof provided that the Advisor
shall continue to supervise the performance of any such sub-advisor. The Advisor
shall not be responsible for any such sub-advisor's performance under a
sub-advisory agreement.
(b) Subject to the approval of the Board of Directors and, to
the extent required by the 1940 Act, shareholders of the Prime Series, the
Advisor may delegate to any company that it controls, is controlled by, or is
under common control with (or to more than one such company), or to specified
employees of any such companies, certain of its duties enumerated in Section 2
hereof provided that the Advisor shall continue to supervise the performance of
any such company and shall regularly report thereon to the Fund's Board of
Directors.
(c) The Advisor may, but shall not be under any duty to,
perform services on behalf of the Prime Series 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 Prime Series 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 Prime Series nor
obligate the Advisor to pay or assume any similar Prime Series' expenses on any
subsequent occasions.
8. Compensation. For the services to be rendered and the expenses
assumed by the Advisor, the Prime Series shall pay to the Advisor monthly
compensation at an annual rate derived by: (1) calculating an amount equal to
.30% of the first $500 million of the Fund's aggregate average daily net assets,
.26% of the next $500 million of the Fund's aggregate average daily net assets,
.25% of the next $500 million of the Fund's aggregate average daily net assets,
.24% of the next $1 billion of the Fund's aggregate average daily net assets,
.23% of the next $1 billion of the Fund's aggregate average daily net assets and
.22% of that portion of the Fund's aggregate average daily net assets in excess
of $3.5 billion; (2) applying to this amount a fraction equal to the net assets
of the Prime Series divided by the net assets of the Fund; and (3) adding an
amount calculated daily and paid monthly, at the annual rate of .02% of the
Prime Series' average daily net assets.
Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Advisor's compensation for the preceding month shall be
made as promptly as possible.
9. Non-Exclusivity. The services of the Advisor to the Fund are not to
be deemed to be exclusive, and the Advisor shall be free to render investment
advisory and corporate administrative 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 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.
10. Term. This Agreement shall become effective at the close of
business on the date hereof and shall continue in force and effect, subject to
section 12 hereof, for two years from the date hereof.
-4-
<PAGE>
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
Prime Series (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 Prime Series' outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by either party. This Agreement shall automatically terminate in the event of
its assignment, the term "assignment" having the meaning defined in Section
2(a)(4) of the 1940 Act.
13. Liability 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 this Agreement.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund and
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 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.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
ALEX. BROWN CASH RESERVE FUND, INC.
By__________________________________
Name:
Title:
Attest:
______________________
INVESTMENT COMPANY CAPITAL CORP.
By__________________________________
Name:
Title:
Attest:
______________________
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<PAGE>
EXHIBIT B
FORM OF NEW INVESTMENT ADVISORY AGREEMENT
ALEX. BROWN CASH RESERVE FUND, INC. - TREASURY SERIES
THIS AGREEMENT is made as of the ______ day of _____________, 1997 by
and between ALEX. BROWN CASH RESERVE FUND, INC., a Maryland corporation (the
"Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), with respect to the following recital of fact:
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 Advisers Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and
WHEREAS, the Fund's Articles of Incorporation authorize the Board of
Directors of the Fund to classify or reclassify authorized but unissued shares
of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the issuance of
three series of shares with a par value of $.001 representing interests in three
portfolios: the Prime Series, the Treasury Series and the Tax-Free Series (each
of the existing portfolios and any portfolios hereafter added shall be referred
to collectively as the "Series"); and
WHEREAS, the Fund and the Advisor desire to enter into an agreement to
provide investment advisory and administrative services for the Fund's Treasury
Series (the "Treasury Series") 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 investment advisor to the Treasury Series. The Advisor
shall manage the Treasury Series' affairs and shall supervise all aspects of the
Treasury Series' operations (except as otherwise set forth herein), including
the investment and reinvestment of the cash, securities or other properties
comprising the Treasury Series' assets, subject at all times to the policies and
control of the Fund's Board of Directors. The Advisor shall give the Treasury
Series the benefit of its best judgment, efforts and facilities in rendering its
services as Advisor.
2. Duties of Investment Advisor. In carrying out its obligations under
section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Treasury Series'
operations;
(b) formulate and implement continuing programs for the
purchases and sales of securities, consistent with the investment objective and
policies of the Treasury Series;
(c) provide the Treasury Series with such executive,
administrative and clerical services as are deemed advisable by the Fund's Board
of Directors;
-1-
<PAGE>
(d) provide the Treasury Series with, or obtain for it,
adequate office space and all necessary office equipment and services, including
telephone service, heat, 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 Treasury
Series, and whether concerning the individual issuers whose securities are
included in the Treasury Series or the activities in which they engage, or with
respect to securities which the Advisor considers desirable for inclusion in the
Treasury Series;
(f) determine which issuers and securities shall be
represented in the Treasury Series 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 with respect to its Treasury Series;
(h) supervise the operations of the Treasury Series' transfer
and dividend disbursing agent;
(i) provide the Treasury Series 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 shareholders of the Treasury Series and reports to and filings with the
Securities and Exchange Commission (the "SEC") and state Blue Sky authorities,
which may be required for the Treasury Series.
3. Broker-Dealer Relationship. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Treasury Series,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Advisor's primary consideration in effecting a security transaction will be
execution at the most favorable price. The Fund understands that a substantial
majority of the Treasury Series' transactions will be transacted with primary
market makers acting as principal on a net basis, with no brokerage commissions
being paid by the Fund. Such principal transactions may, however, result in a
profit to the market makers. 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 Treasury Series 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 or 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 or
dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Treasury Series. The
Advisor is further authorized to allocate the orders placed by it on behalf of
the Treasury Series to such brokers and dealers 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 brokers to whom such allocations have
been made and the basis therefor.
-2-
<PAGE>
4. 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 Treasury Series
pursuant thereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
5. 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;
(b) the provisions of the Registration Statement of the Fund
under the Securities Act of 1933 and 1940 Act;
(c) the provisions of the Articles of Incorporation, as
amended;
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Treasury Series 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 Treasury Series, including, without limitation, the
Treasury Series' allocable portion of the following expenses: payments to the
Fund's distributor under the Treasury Series' plans of distribution; the charges
and expenses of any registrar, any custodian or depository appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, and
any transfer, dividend or accounting agent or agents appointed by the Fund;
brokers' commissions chargeable to the Fund in connection with portfolio
securities transactions to which the Fund is a party; all taxes, including
securities issuance and transfer taxes, and fees payable by the Fund to Federal,
State or other governmental agencies; the costs and expenses of engraving or
printing of certificates representing shares of the Fund; all costs and expenses
in connection with the registration and maintenance of registration of the Fund
and its shares with the SEC and various states and other jurisdictions
(including filing fees, legal fees and disbursements of counsel); the costs and
expenses of printing, including typesetting, and distributing prospectuses and
statements of additional information of the Fund and supplements thereto to the
Fund's shareholders; all expenses of shareholders' and directors' meetings and
of preparing, printing and mailing of proxy statements and reports to
shareholders; fees and travel expenses of directors or director members of any
advisory board or committee; all expenses incident to the payment of any
dividend, distribution, withdrawal or redemption, whether in shares or in cash;
charges and expenses of any outside service used for pricing of the Fund's
shares; charges and expenses of legal counsel, including counsel to the
directors of the Fund who are not interested persons (as defined in the 1940
Act) of the Fund and of 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.
-3-
<PAGE>
7. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors and
shareholders of the Treasury Series, the Advisor may delegate to a sub-advisor
certain of its duties enumerated in section 2 hereof provided that the Advisor
shall continue to supervise the performance of any such sub-advisor. The Advisor
shall not be responsible for any such sub-advisor's performance under a
sub-advisory agreement.
(b) Subject to the approval of the Board of Directors and, to
the extent required by the 1940 Act, shareholders of the Treasury Series, the
Advisor may delegate to any company that it controls, is controlled by, or is
under common control with (or to more than one such company), or to specified
employees of any such companies, certain of its duties enumerated in Section 2
hereof provided that the Advisor shall continue to supervise the performance of
any such company and shall regularly report thereon to the Fund's Board of
Directors.
(c) The Advisor may, but shall not be under any duty to,
perform services on behalf of the Treasury Series 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 Treasury Series 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 Treasury Series nor obligate the Advisor to pay or assume any similar
Treasury Series' expenses on any subsequent occasions.
8. Compensation. For the services to be rendered and the expenses
assumed by the Advissor, the Fund shall pay to the Advisor monthly compensation
at an annual rate derived by: (1) calculating an amount equal to .30% of the
first $500 million of the Fund's aggregate average daily net assets, .26% of the
next $500 million of the Fund's aggregate average daily net assets, .25% of the
next $500 million of the Fund's aggregate average daily net assets, .24% of the
next $1 billion of the Fund's aggregate average daily net assets, .23% of the
next $1 billion of the Fund's aggregate average daily net assets and .22% of
that portion of the Fund's aggregate average daily net assets in excess of $3.5
billion; and (2) applying to this amount a fraction equal to the net assets of
the Treasury Series divided by the net assets of the Fund.
Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Advisor's compensation for the preceding month shall be
made as promptly as possible.
9. Non-Exclusivity. The services of the Advisor to the Fund are not to
be deemed to be exclusive, and the Advisor shall be free to render investment
advisory and corporate administrative 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 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.
10. Term. This Agreement shall become effective at the close of
business on the date hereof and shall continue in force and effect, subject to
section 12 hereof, for two years from the date hereof.
-4-
<PAGE>
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
Treasury Series (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 Treasury Series' outstanding voting securities (as defined
in Section 2(a)(42) of the 1940 Act), or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by either party. This Agreement shall automatically terminate in the event of
its assignment, the term "assignment" having the meaning defined in Section
2(a)(4) of the 1940 Act.
13. Liability 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 this Agreement.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund and
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 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.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above writte.
ALEX. BROWN CASH RESERVE FUND, INC.
By__________________________________
Name:
Title:
Attest:
________________________
INVESTMENT COMPANY CAPITAL CORP.
By__________________________________
Name:
Title:
Attest:
_________________________
-6-
<PAGE>
EXHIBIT C
FORM OF NEW INVESTMENT ADVISORY AGREEMENT
ALEX. BROWN CASH RESERVE FUND, INC. - TAX-FREE SERIES
THIS AGREEMENT is made as of the ____ day of _________, 1997 by and
between ALEX. BROWN CASH RESERVE FUND, INC., a Maryland corporation (the
"Fund"), and INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (the
"Advisor"), with respect to the following recital of fact:
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 Advisers Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and
WHEREAS, the Fund's Articles of Incorporation authorize the Board of
Directors of the Fund to classify or reclassify authorized but unissued shares
of the Fund; and
WHEREAS, the Fund's Board of Directors has authorized the issuance of
three series of shares with a par value of $.001 representing interests in three
portfolios: the Prime Series, the Treasury Series and the Tax-Free Series (each
of the existing portfolios and any portfolio hereafter added shall be referred
to collectively as the "Series"); and
WHEREAS, the Fund and the Advisor desire to enter into an agreement to
provide investment advisory and administrative services for the Fund's Tax-Free
Series (the "Tax-Free Series") 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 investment advisor to the Tax-Free Series. The Advisor
shall manage the affairs of the Tax-Free Series and shall supervise all aspects
of the Tax-Free Series' operations (except as otherwise set forth herein),
including the investment and reinvestment of the cash, securities or other
properties comprising the Tax-Free Series' assets, subject at all times to the
policies and control of the Fund's Board of Directors. The Advisor shall give
the Tax- Free Series the benefit of its best judgment, efforts and facilities in
rendering its services as Advisor.
2. Duties of Investment Advisor. In carrying out its obligations under
section 1 hereof, the Advisor shall:
(a) supervise and manage all aspects of the Tax-Free Series'
operations;
(b) formulate and implement continuing programs for the purchases and
sales of securities, consistent with the investment objective and policies of
the Tax-Free Series;
(c) provide the Tax-Free Series with such executive, administrative and
clerical services as are deemed advisable by the Fund's Board of Directors;
-1-
<PAGE>
(d) provide the Tax-Free Series with, or obtain for it, adequate office
space and all necessary office equipment and services, including telephone
service, heat, 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 Tax-Free Series, and
whether concerning the individual issuers whose securities are included in the
Tax-Free Series or the activities in which they engage, or with respect to
securities which the Advisor considers desirable for inclusion in the Tax- Free
Series;
(f) determine which issuers and securities shall be represented in the
Tax-Free Series 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, with respect to its Tax-Free Series;
(h) supervise the operations of the Tax-Free Series' transfer and
dividend disbursing agent;
(i) provide the Tax-Free Series 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 shareholders of
the Tax-Free Series and reports to and filings with the Securities and Exchange
Commission (the "SEC") and state Blue Sky authorities, which may be required for
the Tax-Free Series.
3. Broker-Dealer Relationship. In the event that the Advisor is
responsible for decisions to buy and sell securities for the Tax-Free Series,
broker-dealer selection, and negotiation of its brokerage commission rates, the
Advisor's primary consideration in effecting a security transaction will be
execution at the most favorable price. The Fund understands that a substantial
majority of the Tax-Free Series' transactions will be transacted with primary
market makers acting as principal on a net basis, with no brokerage commissions
being paid by the Fund. Such principal transactions may, however, result in a
profit to the market makers. 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 Tax- Free Series 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 or 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 or
dealer would have charged for effecting that transaction, if the Advisor
determines in good faith that such amount of commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Tax-Free Series. The
Advisor is further authorized to allocate the orders placed by it on behalf of
the Tax-Free Series to such brokers and dealers 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 brokers to whom such allocations have
been made and the basis therefor.
-2-
<PAGE>
4. 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 Tax- Free Series
pursuant thereto, shall at all times be subject to any applicable directives of
the Board of Directors of the Fund.
5. 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;
(b) the provisions of the Registration Statement of the Fund
under the Securities Act of 1933 and 1940 Act;
(c) the provisions of the Articles of Incorporation, as
amended;
(d) the provisions of the By-laws of the Fund, as amended; and
(e) any other applicable provisions of state and federal law.
6. Expenses. The expenses connected with the Tax-Free Series 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 of its officers 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 Tax-Free Series, including, without limitation, the
Tax-Free Series' allocable portion of the following expenses: 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; 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.
-3-
<PAGE>
7. Delegation of Responsibilities.
(a) Subject to the approval of the Board of Directors and
shareholders of the Tax-Free Series, the Advisor may delegate to a sub-advisor
certain of its duties enumerated in section 2 hereof provided that 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. The Advisor shall not
be responsible for any such sub-advisor's performance under a sub-advisory
agreement.
(b) Subject to the approval of the Board of Directors and, to
the extent required by the 1940 Act, shareholders of the Tax-Free Series, the
Advisor may delegate to any company that it controls, is controlled by, or is
under common control with (or to more than one such company), or to specified
employees of any such companies, certain of its duties enumerated in Section 2
hereof provided that the Advisor shall continue to supervise the performance of
any such company and shall regularly report thereon to the Fund's Board of
Directors.
(c) The Advisor may, but shall not be under any duty to,
perform services on behalf of the Tax-Free Series 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 Tax-Free Series 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 Tax-Free Series nor obligate the Advisor to pay or assume any similar
expenses on any subsequent occasions.
8. Compensation. For the services to be rendered and the expenses
assumed by the Advisor, the Tax-Free Series shall pay to the Advisor monthly
compensation at an annual rate derived by: (1) calculating an amount equal to
.30% of the first $500 million of the Fund's aggregate average daily net assets,
.26% of the next $500 million of the Fund's aggregate average daily net assets,
.25% of the next $500 million of the Fund's aggregate average daily net assets,
.24% of the next $1 billion of the Fund's aggregate average daily net assets,
.23% of the next $1 billion of the Fund's aggregate average daily net assets and
.22% of that portion of the Fund's aggregate average daily net assets in excess
of $3.5 billion; (2) applying to this amount a fraction equal to the net assets
of the Tax-Free Series divided by the net assets of the Fund; and (3) adding an
amount calculated daily and paid monthly, at the annual rate of .03% of the
Tax-Free Series' average daily net assets.
Except as hereinafter set forth, compensation under this Agreement
shall be calculated and accrued daily and the amounts of the daily accruals
shall be paid monthly. If this Agreement becomes effective subsequent to the
first day of a month or shall terminate before the last day of a month,
compensation for that part of the month this Agreement is in effect shall be
prorated in a manner consistent with the calculation of the fees as set forth
above. Payment of the Advisor's compensation for the preceding month shall be
made as promptly as possible.
9. Non-Exclusivity. The services of the Advisor to the Fund are not to
be deemed to be exclusive, and the Advisor shall be free to render investment
advisory and corporate administrative 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 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.
10. Term. This Agreement shall become effective at the close of
business on the date hereof and shall continue in force and effect, subject to
section 12 hereof, for two years from the date hereof.
-4-
<PAGE>
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 Tax-Free Series (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 Tax-Free Series' outstanding voting securities (as defined
in Section 2(a)(42) of the 1940 Act), or by the Advisor, on sixty (60) days'
written notice to the other party. The notice provided for herein may be waived
by either party. This Agreement shall automatically terminate in the event of
its assignment, the term "assignment" having the meaning defined in Section
2(a)(4) of the 1940 Act.
13. Liability 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 this Agreement.
14. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice. Until
further notice to the other party, it is agreed that the address of the Fund and
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 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.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
ALEX. BROWN CASH RESERVE FUND, INC.
By___________________________
Attest:
/s/
- ------------------------------
Secretary
INVESTMENT COMPANY CAPITAL CORP.
By /s/
-----------------------------
Attest:
/s/
- ------------------------------
Secretary
-6-
<PAGE>
EXHIBIT D
FORM OF NEW SUB-ADVISORY AGREEMENT
AGREEMENT dated as of ______ day of _____________, 1997 between
INVESTMENT COMPANY CAPITAL CORP., a Maryland corporation (herein called the
"Investment Advisor") and PNC INSTITUTIONAL MANAGEMENT CORPORATION, a Delaware
corporation (herein called the "Sub-Advisor").
WHEREAS, the Investment Advisor is the investment advisor to Alex.
Brown Cash Reserve Fund, Inc., (herein called the "Company"), an open-end,
diversified, management investment company registered under the Investment
Company Act of 1940; and
WHEREAS, the Investment Advisor wishes to retain the Sub-Advisor to
assist the Investment Advisor in providing investment advisory services in
connection with the Company's Tax-Free Series (herein called the "Fund"); and
WHEREAS, the Sub-Advisor is willing to provide such services to the
Investment Advisor upon the conditions and for the compensation set forth below.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, it is agreed between
the parties hereto as follows:
1. Appointment. The Investment Advisor hereby appoints the Sub-Advisor
its sub-advisor with respect to the Fund as provided for in the Investment
Advisory Agreement between the Investment Advisor and the Company dated as of
________, 1997 (such Agreement or the most recent successor Advisory Agreement
between such parties is herein called the "Advisory Agreement"). The Sub-Advisor
accepts such appointment and agrees to render the services herein set forth in
the compensation herein provided.
2. Delivery of Documents. The Investment Advisor shall provide to the
Sub-Advisor copies of the Company's most recent prospectus and statement of
additional information (including supplements thereto) which relate to any class
of shares representing interests in the Fund (each such prospectus and statement
of additional information as presently in effect, and as they shall from time to
time be amended and supplemented, is herein respectively called a "Prospectus"
and a "Statement of Additional Information").
3. Sub-Advisory Services to the Fund. Subject to the supervision of the
Investment Advisor, the Sub- Advisor will supervise the day-to-day operations of
the Fund and perform the following services: (i) provide investment research and
credit analysis concerning the Fund's investments, (ii) conduct a continual
program of investment of the Fund's assets, (iii) place orders for all purchases
and sales of the investments made for the Fund, and (iv) maintain the books and
records required in connection with its duties hereunder. In addition, the
Sub-Advisor will keep the Investment Advisor informed of developments materially
affecting the Company. The Sub-Advisor will communicate to the Investment
Advisor on each day that a purchase or sale of a security is effected for the
Fund (i) the name of the issuer; (ii) the amount of the purchase or sale; (iii)
the name of the broker or dealer, if any, through which the purchase or sale
will be effected; (iv) the CUSIP number of the security, if any; and (v) such
other information as the Investment Advisor may reasonably require for purposes
of fulfilling its obligations to the Company under the Advisory Agreement. The
Sub-Advisor will render to the Company's Board of Directors such periodic and
special reports as the Investment Advisor may reasonably request. The
Sub-Advisor will provide the services rendered by it hereunder in accordance
with the Fund's investment objectives, policies and restrictions as stated in
the applicable Prospectus and Statement of Additional Information.
<PAGE>
4. Brokerage. The Sub-Advisor may place orders pursuant to its
investment determinations for the Fund either directly with the issuer or with
any broker or dealer. In placing orders, the Sub-Advisor will consider the
experience and skill of the firm's securities traders as well as the firm's
financial responsibility and administrative efficiency. The Sub-Advisor will
attempt to obtain the best price and the most favorable execution of its orders.
Consistent with these obligations, the Sub-Advisor may, subject to the approval
of the Board of Directors, select brokers on the basis of the research,
statistical and pricing services they provide to the Fund. A commission paid to
such brokers may be higher than that which another qualified broker would have
charged for effecting the same transaction, provided that the Sub-Advisor
determines in good faith that such transaction is reasonable in terms either of
the transaction or the overall responsibility of the Sub-Advisor to the Fund and
its other clients and that the total commissions paid by the Fund will be
reasonable in relation to the benefits to the Fund over the long-term. In no
instance will portfolio securities be purchased from or sold to the Company's
principal distributor, the Investment Advisor, or any affiliate thereof, except
to the extent permitted by exemptive order of the Securities and Exchange
Commission ("SEC") or by applicable law.
5. Compliance With Laws; Confidentiality. The Sub-Advisor agrees that
it will comply with all applicable rules and regulations of all federal and
state regulatory agencies having jurisdiction aver the Sub-Advisor in
performance of its duties hereunder (hereinafter called the "Rules"). The
Sub-Advisor will treat confidentially and as proprietary information of the
Company all records and information relative to the Company and prior, present
or potential shareholders, and will not use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Company, which
approval shall not be unreasonably withheld and may not be withheld where the
Sub-Advisor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Company.
6. Control by Company's Board of Directors. Any recommendations
concerning the Fund's investment program proposed by the Sub-Advisor to the Fund
and the Investment Advisor pursuant to this Agreement as well as any other
activities undertaken by the Sub-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 Company.
7. Services Not Exclusive. The Sub-Advisor's services hereunder are not
deemed to be exclusive, and the Sub-Advisor shall be free to render similar
services to others so long as its services under this Agreement are not impaired
thereby.
8. Books and Records. In compliance with the requirements of Rule 31a-3
of the Rules, the Sub-Advisor hereby agrees that all records which it maintains
for the Company are the property of the Company and further agrees to surrender
promptly to the Company any such records upon the Company's request. The
Sub-Advisor further agrees to preserve, for the periods prescribed by Rule
31a-2, the records required to be maintained by the Sub- Advisor hereunder
pursuant to Rule 31a-1 of the Rules.
9. Expenses. During the term of this Agreement, the Sub-Advisor will
bear all expenses in connection with the performance of its services under this
Agreement. The Sub-Advisor shall not bear certain other expenses related to the
operation of the Company including, but not limited to: taxes, interest,
brokerage fees and commissions and any extraordinary expense items.
10. Compensation. For the services which the Sub-Advisor will tender to
the Investment Advisor under this Agreement, the Investment Advisor will pay to
the Sub-Advisor on the first day of each month, a fee for the previous month
calculated daily, at an annual rate of .15% of the first $250 million of the
Tax-Free Series' aggregate average daily net assets, .13% of the next $250
million of the Tax-Free Series' aggregate average daily net assets, .11% of the
next $250 million of the Tax-Free Series aggregate daily net assets, .09% of the
next $250 million of the Tax-Free Series' aggregate average daily net assets,
.075% of the next $3 billion of the Tax-Free Series' aggregate average daily net
assets and .06% of that portion of the Tax-Free Series' aggregate average daily
net assets in excess of $4 billion.
<PAGE>
11. Limitation on Liability. The Sub-Advisor will not be liable for any
error or judgment or mistake of law or for any loss suffered by the Investment
Advisor or by the Company in connection with the matters to which this Agreement
relates, except that it shall be liable to the Investment Advisor for a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations or duties under this Agreement.
12. Duration and Termination. This Agreement shall become effective
with respect to the Fund upon approval of this Agreement by vote of the
outstanding voting securities of the fund and, unless sooner terminated as
provided herein, shall continue with respect to the Fund until ________, 1997.
Thereafter, if not terminated, this Agreement shall continue with respect to the
Fund for successive annual periods, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Board of Directors of the Company who are not parties to this Agreement or
interested persons of the Company or any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Board of
Directors of the Company or by vote of a majority of the outstanding voting
securities of the Fund; provided however, that this Agreement may be terminated
with respect to the Fund (i) by the Company at any time, without the payment of
any penalty by the Board of Directors of the Company, (ii) by vote of a majority
of the outstanding voting securities of the Fund, (iii) by the Investment
Advisor, or (iv) by the Sub-Advisor, in all cases on 60-days' written notice to
the Investment Advisor. This Agreement will also immediately terminate in the
event of its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested person" and "assignment" shall have
the same meaning as such terms have in the Investment Company Act of 1940, as
amended.)
13. Amendment of this Agreement. No provision of this Agreement may be
changed, discharged or terminate orally, but only by an instrument in writing
signed by the party against which enforcement of the change, discharge or
termination is sought, and no amendment of this Agreement affecting the Fund
shall be effective until approved by vote of the holders of a majority of the
outstanding voting securities of the Fund.
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any provisions
hereof or otherwise affect their construction or effect. If any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by Delaware
law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officer designated below as of the day and year first above
written.
INVESTMENT COMPANY CAPITAL CORP.
By: /s/
-------------------------------
PNC INSTITUTIONAL
MANAGEMENT CORPORATION
By: /s/
-------------------------------
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.--PRIME SERIES
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
August 14, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
ALEX. BROWN CASH RESERVE FUND, INC.
This proxy is for your use in voting on various matters relating to Alex. Brown
Cash Reserve 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.
Proposal 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.)
James J. Cunnane Richard T. Hale
John F. Kroeger Louis E. Levy
Eugene J. McDonald Rebecca W. Rimel
Truman T. Semans Carl W. Vogt
Proposal 2: To approve or disapprove a new Investment Advisory
Agreement between the Fund and Investment Company Capital Corp. with
respect to the Prime Series.
___ For ___ Against ___ Abstain
Proposal 3: [Intentionally Omitted]
Proposal 4: [Intentionally Omitted]
Proposal 5: [Intentionally Omitted]
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 a 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
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.--TAX-FREE SERIES
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
August 14, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF ALEX BROWN CASH RESERVE FUND, INC.
This proxy is for your use in voting on various matters relating to Alex. Brown
Cash Reserve 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.
Proposal 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.)
James J. Cunnane Richard T. Hale
John F. Kroeger Louis E. Levy
Eugene J. McDonald Rebecca W. Rimel
Truman T. Semans Carl W. Vogt
Proposal 2: [Intentionally Omitted]
Proposal 3: [Intentionally Omitted]
Proposal 4: To approve or disapprove a new Investment Advisory
Agreement between the Fund and Investment Company Capital Corp. with
respect to the Tax-Free Series.
___ For ___ Against ___ Abstain
Proposal 5: To approve or disapprove a new Sub-Advisory Agreement
among the Fund, Investment Company Capital Corp. and PNC Institutional
Management Corporation with respect to the Tax-Free Series.
___ 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 a 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
<PAGE>
ALEX. BROWN CASH RESERVE FUND, INC.--TREASURY SERIES
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
August 14, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
ALEX. BROWN CASH RESERVE FUND, INC.
This proxy is for your use in voting on various matters relating to Alex. Brown
Cash Reserve 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.
Proposal 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.)
James J. Cunnane Richard T. Hale
John F. Kroeger Louis E. Levy
Eugene J. McDonald Rebecca W. Rimel
Truman T. Semans Carl W. Vogt
Proposal 2: [Intentionally Omitted]
Proposal 3: To approve or disapprove a new Investment Advisory
Agreement between the Fund and Investment Company Capital Corp. with
respect to the Treasury Series.
___ For ___ Against ___ Abstain
Proposal 4: [Intentionally Omitted]
Proposal 5: [Intentionally Omitted]
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 a 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
